<PAGE> 1
SEAFIRST RETIREMENT FUNDS
701 FIFTH AVENUE
SEATTLE, WA 98104
April 9, 1997
Dear Seafirst Shareholder:
A special meeting of the shareholders of Seafirst Retirement Funds (the
"Seafirst Funds") has been called for May 21, 1997 at 10:00 a.m., Eastern time.
Formal notice of the meeting appears on the next page, followed by materials
regarding the meeting.
Shareholders will be asked at the special meeting to consider and vote upon
the proposed reorganization of the Seafirst Funds into corresponding funds of
Pacific Horizon Funds, Inc. Please see the enclosed Combined Prospectus/Proxy
Statement for detailed information regarding the proposed reorganization and a
comparison of the funds.
THE BOARD OF TRUSTEES OF THE SEAFIRST RETIREMENT FUNDS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED REORGANIZATION.
A proxy card is enclosed for your use in the shareholder meeting. This card
represents shares you held as of the record date, April 1, 1997. IT IS IMPORTANT
THAT YOU COMPLETE, SIGN, AND RETURN YOUR PROXY CARD IN THE ENVELOPE PROVIDED AS
SOON AS POSSIBLE. This will ensure that your shares will be represented at the
Special Shareholders' Meeting to be held on May 21, 1997.
Sincerely,
Robert A. Nathane
Chairman of the Board
<PAGE> 2
SEAFIRST RETIREMENT FUNDS
701 FIFTH AVENUE
SEATTLE, WASHINGTON 98104
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 21, 1997
To Seafirst Shareholders:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders
("Shareholders") of the Blue Chip, Asset Allocation and Bond Funds of the
Seafirst Retirement Funds ("Seafirst") will be held at the offices of BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219, on May 21, 1997 at
10:00 a.m. (Eastern time) for the following purposes:
ITEM 1. With respect to the Blue Chip, Asset Allocation and Bond Funds
(each a "Seafirst Fund" and collectively the "Seafirst Funds") of Seafirst:
To consider and act upon a proposal to approve an Agreement and Plan
of Reorganization (the "Reorganization Agreement") by and between Seafirst
and Pacific Horizon Funds, Inc. ("Pacific Horizon") and the transactions
contemplated thereby, including (a) the transfer of all of the assets and
known liabilities of Seafirst's Blue Chip Fund ("SRF Blue Chip Fund"),
Asset Allocation Fund ("SRF Asset Allocation Fund") and Bond Fund ("SRF
Bond Fund") to Pacific Horizon's Blue Chip Fund ("PH Blue Chip Fund"),
Asset Allocation Fund ("PH Asset Allocation Fund") and Intermediate Bond
Fund ("PH Intermediate Bond Fund"), respectively, in exchange for SRF
Shares of the respective PH Blue Chip Fund, PH Asset Allocation Fund and PH
Intermediate Bond Fund; (b) the distribution of such SRF Shares to the
shareholders of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF
Bond Fund in connection with their liquidation; and (c) the termination
under state law and the Investment Company Act of 1940, as amended, of
Seafirst.
ITEM 2. With respect to each Seafirst Fund:
To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof.
YOUR TRUSTEES RECOMMEND THAT YOU VOTE IN FAVOR OF ITEM 1.
The proposed reorganization and related matters are described in the
attached Combined Prospectus/Proxy Statement. Attached as Appendix I to the
Combined Prospectus/Proxy Statement is a copy of the Reorganization Agreement.
Shareholders of record as of the close of business on April 1, 1997 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY SEAFIRST'S
BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE SPECIAL MEETING.
PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO
SEAFIRST A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
W. Bruce McConnel, III
Secretary
April 9, 1997
<PAGE> 3
COMBINED PROSPECTUS/PROXY STATEMENT
SEAFIRST RETIREMENT FUNDS
701 FIFTH AVENUE
SEATTLE, WASHINGTON 98104
(206) 358-6119
PACIFIC HORIZON FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(800) 332-3863
This Combined Prospectus/Proxy Statement is furnished in connection with
the solicitation of proxies by the Board of Trustees of the Seafirst Retirement
Funds ("Seafirst") in connection with a Special Meeting (the "Meeting") of
Shareholders ("Shareholders") to be held on May 21, 1997 at 10:00 a.m. (Eastern
time) at the offices of BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219, at which Shareholders will be asked to consider and approve a
proposed Agreement and Plan of Reorganization dated April 9, 1997 (the
"Reorganization Agreement"), by and between Seafirst and Pacific Horizon Funds,
Inc. ("Pacific Horizon") and the matters contemplated therein. A copy of the
Reorganization Agreement is attached as Appendix I.
Seafirst and Pacific Horizon are both open-end, management investment
companies. The Seafirst Blue Chip Fund ("SRF Blue Chip Fund"), Asset Allocation
Fund ("SRF Asset Allocation Fund") and Bond Fund ("SRF Bond Fund") (each also
referred to herein as a "Seafirst Fund" and collectively, the "Seafirst Funds")
and the Pacific Horizon Blue Chip Fund ("PH Blue Chip Fund"), Asset Allocation
Fund ("PH Asset Allocation Fund") and Intermediate Bond Fund ("PH Intermediate
Bond Fund") (each also referred to herein as a "Pacific Horizon Fund" and
collectively, the "Pacific Horizon Funds") each seek to achieve their respective
investment objectives by investing substantially all of their investable assets
in corresponding portfolios of Master Investment Trust, Series I (the "Master
Trust"), an open-end management investment company advised by Bank of America
National Trust and Savings Association ("Bank of America"). The Blue Chip Master
Portfolio, Asset Allocation Master Portfolio and Investment Grade Bond Master
Portfolio (collectively, the "Master Portfolios") of the Master Trust have the
same investment objective and policies as those of each corresponding Seafirst
Fund and Pacific Horizon Fund. The SRF Blue Chip Fund and PH Blue Chip Fund each
invest substantially all of their investable assets in the Blue Chip Master
Portfolio of the Master Trust. The SRF Asset Allocation Fund and the PH Asset
Allocation Fund each invest substantially all of their investable assets in the
Asset Allocation Master Portfolio. The SRF Bond Fund and PH Bond Fund each
invest substantially all of their investable assets in the Investment Grade Bond
Master Portfolio of the Master Trust. Upon consummation of the Reorganization,
the PH Asset Allocation Fund is expected to withdraw its investment from the
Asset Allocation Master Portfolio and engage Bank of America to manage its
assets directly.
In reviewing the proposed reorganization (the "Reorganization"), the
Seafirst Board considered the terms of the Reorganization Agreement; a
comparison of each of the Seafirst Fund's expense ratios with those of the SRF
Shares (as defined below) of the corresponding Pacific Horizon Funds; Bank of
America's agreement to pay all of the expenses of the Reorganization; Bank of
America's and The BISYS Group, Inc.'s agreement to cap the total operating
expense ratios of SRF Shares for three years after the Reorganization; the
effect of such merger on Seafirst; the recommendation of Bank of America with
respect to the proposed consolidation of the Seafirst Funds and Pacific Horizon
Funds; the fact that the Reorganization would
1
<PAGE> 4
constitute a tax-free reorganization; and the fact that the interests of
Shareholders would not be diluted as a result of the Reorganization.
The Reorganization Agreement provides that each of the three Seafirst Funds
will transfer all of its assets and known liabilities to the Pacific Horizon
Fund identified below opposite its name:
<TABLE>
<CAPTION>
SEAFIRST FUND PACIFIC HORIZON FUND
----------------------------------------- -----------------------------------------
<S> <C>
Blue Chip Fund Blue Chip Fund
Asset Allocation Fund Asset Allocation Fund
Bond Fund Intermediate Bond Fund
</TABLE>
In exchange for the transfers of these assets and known liabilities,
Pacific Horizon will issue SRF Shares (as defined below) in the three Pacific
Horizon Funds listed above to the corresponding Seafirst Funds listed above. The
transaction is expected to occur on June 23, 1997, or as soon thereafter as is
practicable (the "Reorganization Date").
The Seafirst Funds offer one class of shares. The Pacific Horizon Funds
offer three classes of shares. One class of Pacific Horizon Fund shares, the SRF
Shares ("SRF Shares") is comparable to the class of shares currently offered by
Seafirst. Shareholders of each Seafirst Fund will receive SRF Shares of the
corresponding Pacific Horizon Fund as further described in "Information Relating
to the Proposed Reorganization -- Description of the Reorganization Agreement."
SRF Shares will automatically convert to A Shares of the Pacific Horizon Funds
("A Shares") on the third anniversary of the Reorganization Date. Because of
this conversion feature, certain disclosures are being provided in this Combined
Prospectus/Proxy Statement regarding A Shares.
The Seafirst Funds will make liquidating distributions of the Pacific
Horizon Fund's SRF Shares to the Shareholders of the Seafirst Funds, so that a
holder of shares in a Seafirst Fund will receive SRF Shares of the corresponding
Pacific Horizon Fund with the same aggregate net asset value as the Shareholder
had in the Seafirst Fund immediately before the transaction. Following the
Reorganization, Shareholders of a Seafirst Fund will be Shareholders of that
Fund's corresponding Pacific Horizon Fund, and Seafirst will be terminated under
state law and the Investment Company Act of 1940, as amended (the "1940 Act").
The Pacific Horizon Funds currently are conducting investment operations as
described in this Combined Prospectus/Proxy Statement.
This Combined Prospectus/Proxy Statement sets forth the information that a
Shareholder of Seafirst should know before voting on the Reorganization
Agreement (and related transactions) and investing in a Pacific Horizon Fund,
and should be retained for future reference. The Prospectus relating to the SRF
Shares of the Pacific Horizon Funds, which describes the operations of those
Funds, accompanies this Combined Prospectus/Proxy Statement. Additional
information is set forth in the Statement of Additional Information dated April
8, 1997 relating to those Funds, the Statement of Additional Information dated
April 9, 1997 relating to this Combined Prospectus/Proxy Statement, and in the
Prospectus and Statement of Additional Information, each dated July 1, 1996,
relating to Seafirst. 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 either Seafirst or Pacific Horizon at the
respective addresses or telephone numbers indicated above. The information
contained in the Prospectus and Statement of Additional Information, each dated
July 1, 1996, relating to Seafirst is incorporated herein by reference.
2
<PAGE> 5
This Combined Prospectus/Proxy Statement constitutes the Proxy Statement of
Seafirst for the meeting of its Shareholders, and Pacific Horizon's Prospectus
for the SRF Shares of its Pacific Horizon Funds that have been registered with
the SEC and are to be issued in connection with the Reorganization.
This Combined Prospectus/Proxy Statement is expected to first be sent to
Shareholders on or about April 21, 1997.
THE SECURITIES OF THE PACIFIC HORIZON FUNDS 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
PROSPECTUS/PROXY STATEMENT. 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 PROSPECTUS/ PROXY
STATEMENT 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 SEAFIRST OR PACIFIC HORIZON.
SHARES OF THE PACIFIC HORIZON FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, BANK OF AMERICA OR ANY OF ITS AFFILIATES. SHARES OF
THE PACIFIC HORIZON FUNDS 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. INVESTMENT RETURN AND PRINCIPAL VALUE WILL VARY AS A RESULT
OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES OF THE PACIFIC HORIZON
FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN
INVESTMENT IN THE PACIFIC HORIZON FUNDS INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
3
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY...................................................................... 6
Reasons for Reorganization................................................. 6
Proposed Reorganization.................................................... 7
Federal Income Tax Consequences............................................ 7
Comparison of the Investment Objectives and
Policies of the Funds................................................ 8
Comparative Fee and Expense Tables......................................... 8
Expense Ratios -- Seafirst Funds........................................... 17
Expense Ratios -- Pacific Horizon Funds.................................... 18
Organization............................................................... 18
Certain Arrangements with Service Providers --
The Investment Adviser............................................... 18
The Administrators...................................................... 19
The Distributor......................................................... 19
Shareholder Services Plan............................................... 19
The Transfer Agents..................................................... 20
The Custodians.......................................................... 20
Fee Waivers and Expense Reimbursements.................................. 20
Conversion Feature......................................................... 21
Purchase and Redemption Procedures -- Shares of the Seafirst Funds
and SRF Shares of the Pacific Horizon Funds.......................... 21
Exchange Procedures -- Shares of the Seafirst Funds and SRF Shares
of the Pacific Horizon Funds......................................... 21
Dividends, Distributions and Pricing....................................... 22
Voting Information......................................................... 23
INFORMATION RELATING TO THE PROPOSED REORGANIZATION.......................... 23
Description of the Reorganization Agreement................................ 23
Board Considerations....................................................... 24
Federal Income Tax Consequences............................................ 25
Capitalization............................................................. 26
COMPARISON OF THE FUNDS...................................................... 28
Other Information.......................................................... 28
INFORMATION RELATING TO VOTING MATTERS....................................... 29
General Information........................................................ 29
Shareholder and Board Approvals............................................ 29
Quorum..................................................................... 29
Annual Meetings............................................................ 30
Principal Shareholders..................................................... 30
ADDITIONAL INFORMATION ABOUT PACIFIC HORIZON AND SEAFIRST.................... 31
Seafirst Financial Highlights.............................................. 32
Pacific Horizon Financial Highlights....................................... 36
FINANCIAL STATEMENTS AND EXPERTS............................................. 39
OTHER BUSINESS............................................................... 39
</TABLE>
4
<PAGE> 7
<TABLE>
PAGE
----
<S> <C>
LITIGATION................................................................... 39
NOTICE TO BANKS, BROKER-DEALERS, VOTING TRUSTEES AND THEIR NOMINEES.......... 39
SHAREHOLDER INQUIRIES........................................................ 39
APPENDIX I -- AGREEMENT AND PLAN OF REORGANIZATION........................... I-1
APPENDIX II -- MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE................... II-1
</TABLE>
5
<PAGE> 8
SUMMARY
The following is a summary of certain information relating to the proposed
Reorganization, the parties thereto and the transactions contemplated thereby,
and is qualified by reference to the more complete information contained
elsewhere in this Combined Prospectus/Proxy Statement, the Prospectuses and
Statements of Additional Information of the SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund and PH Blue Chip Fund, PH Asset Allocation
Fund and PH Intermediate Bond Fund, and the Reorganization Agreement attached to
this Combined Prospectus/Proxy Statement as Appendix I and which are all
incorporated herein by reference. Seafirst's Semi-Annual Report to Shareholders
and its Annual Report to Shareholders may be obtained free of charge by calling
1-800-323-9919 or writing 701 Fifth Avenue, Seattle, Washington 98104. Pacific
Horizon's Semi-Annual Reports to Shareholders of the Blue Chip, Asset Allocation
and Intermediate Bond Funds and Annual Reports to Shareholders of the Blue Chip,
Asset Allocation, and Intermediate Bond Funds may be obtained free of charge by
calling 1-800-332-3863 or writing 3435 Stelzer Road, Columbus, Ohio 43219.
REASONS FOR REORGANIZATION. In light of certain potential benefits and
other factors, the Board of Trustees of Seafirst, including the non-interested
Trustees, has determined that it is in the best interests of Seafirst, and of
the shareholders of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF
Bond Fund, to reorganize into funds of Pacific Horizon.
The Seafirst Funds and the Pacific Horizon Funds are both "feeder" funds
which invest in the same master portfolio and therefore have identical
investment objectives and policies. More specifically, the SRF Blue Chip and PH
Blue Chip Funds invest their assets in the Blue Chip Master Portfolio of the
Master Trust; the SRF Asset Allocation Fund and PH Asset Allocation Fund invest
their assets in the Asset Allocation Master Portfolio of the Master Trust; and
the SRF Bond Fund and PH Intermediate Bond Fund invest their assets in the
Investment Grade Bond Master Portfolio of the Master Trust. Each portfolio of
the Master Trust is managed by Bank of America. Upon consummation of the
Reorganization, the PH Asset Allocation Fund is expected to withdraw its
investment from the Asset Allocation Master Portfolio and engage Bank of America
to manage its assets directly. Although the investment objectives and policies
of each Seafirst Fund and its corresponding Pacific Horizon Fund are identical,
their expenses and the types of investors to which they are marketed are
different.
The market for the Seafirst Funds has become saturated, and the Seafirst
Funds have been unable to increase substantially their asset size. Such asset
growth would allow the Seafirst Funds to achieve greater economies of scale and
consequently lower overall expense ratios. In addition, because both Seafirst
Funds and Pacific Horizon Funds are currently offered to similar types of
investors, the overlap of investment options has resulted in investor confusion.
In considering whether to approve the Reorganization, the Board of Trustees of
Seafirst considered the following possible benefits to shareholders:
1) Wider selection of funds to choose from -- after the transaction,
former shareholders of Seafirst Funds will be able to select from a family
of thirteen funds as opposed to the current three Seafirst Funds and the
Pacific Horizon Prime Fund.
2) Asset Growth -- the combination of Pacific Horizon Funds and
Seafirst Funds will increase the asset base of the PH Blue Chip, PH Asset
Allocation and PH Intermediate Bond Funds and eliminate inefficiencies of
maintaining separate Seafirst Funds. In addition, the reorganization of the
Seafirst Funds into the Pacific Horizon Funds would allow for the
development of a unified and comprehensive marketing strategy which could
also lead to greater asset growth.
6
<PAGE> 9
The Reorganization Agreement was submitted to the trustees of Seafirst and
the directors of Pacific Horizon at separate meetings held on October 29, 1996.
Detailed information with respect to expenses and other relevant matters was
submitted to each director and trustee prior to their respective meetings in
order to provide sufficient time for careful consideration of such material.
After full consideration of the proposals, the respective Boards approved the
Reorganization Agreement. The closing of all transactions contemplated by the
Reorganization Agreement is tentatively scheduled to occur on or about June 23,
1997.
The Board of Trustees of Seafirst also considered, among other things, as
described more fully below under "Information Relating to the Proposed
Reorganization -- Board Considerations," the relative expense ratios of each
Seafirst Fund and its corresponding Pacific Horizon Fund, and the tax-free
nature of the exchange, as well as Bank of America's agreement to bear the
expenses of the Reorganization.
Similarly, the Board of Directors of Pacific Horizon, in approving the
Reorganization, determined that it would be advantageous for Pacific Horizon,
and specifically for each of the PH Blue Chip Fund, PH Asset Allocation Fund and
PH Intermediate Bond Fund and its shareholders, to acquire the assets and known
liabilities of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond
Fund.
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, Seafirst's Board of Trustees and Pacific Horizon's Board
of Directors, including all of the non-interested members of each Board, have
determined that the proposed Reorganization is in the best interests of the
shareholders of Seafirst and Pacific Horizon, respectively. SEAFIRST'S BOARD
RECOMMENDS THE APPROVAL OF THE REORGANIZATION AGREEMENT BY THE SHAREHOLDERS OF
THE SRF BLUE CHIP FUND, SRF ASSET ALLOCATION FUND AND SRF BOND FUND,
RESPECTIVELY, AT THE MEETING.
Subject to shareholder approval, the Reorganization Agreement provides for:
(a) the acquisition by PH Blue Chip Fund, PH Asset Allocation Fund and PH
Intermediate Bond Fund of all of the assets, and the assumption by the PH Blue
Chip Fund, PH Asset Allocation Fund and PH Intermediate Bond Fund of the known
liabilities, of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond
Fund, respectively, in exchange for SRF Shares of the PH Blue Chip Fund, PH
Asset Allocation Fund and PH Intermediate Bond Fund, respectively; and (b) the
distribution of the SRF Shares of the PH Blue Chip Fund, PH Asset Allocation
Fund and PH Intermediate Bond Fund to Seafirst shareholders in liquidation of
the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund,
respectively.
As a result of the proposed Reorganization, each shareholder of the SRF
Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund will become a holder
of SRF Shares of the respective PH Blue Chip Fund, PH Asset Allocation Fund and
PH Intermediate Bond Fund and will hold, immediately after the effective time of
the reorganization (the "Effective Time of the Reorganization"), the same
aggregate dollar value of SRF Shares of the PH Blue Chip Fund, PH Asset
Allocation Fund and PH Intermediate Bond Fund as the aggregate dollar value of
the shares the shareholder held in the respective SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund immediately before the Effective Time of the
Reorganization.
For further information, see "Information Relating to the Proposed
Reorganization -- Description of the Reorganization Agreement."
FEDERAL INCOME TAX CONSEQUENCES. Shareholders of the SRF Blue Chip Fund,
SRF Asset Allocation Fund and SRF Bond Fund will recognize no gain or loss for
federal income tax purposes on their receipt of SRF Shares of the PH Blue Chip
Fund, PH Asset Allocation Fund and PH Intermediate Bond Fund in exchange for
their shares of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond
Fund, respectively. Shareholders of the PH Blue Chip Fund, PH Asset Allocation
Fund and PH Intermediate Bond
7
<PAGE> 10
Fund will have no tax consequence from the Reorganization. The SRF Blue Chip
Fund, SRF Asset Allocation Fund and SRF Bond Fund will incur no federal tax
liability as a result of the Reorganization, and the PH Blue Chip Fund, PH Asset
Allocation Fund and PH Intermediate Bond Fund will recognize no gain or loss for
federal tax purposes on its issuance of SRF Shares in the Reorganization. See
"Information Relating to the Proposed Reorganization -- Federal Income Tax
Consequences."
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS. The
investment objectives and policies of the Seafirst Funds are identical to those
of the corresponding Pacific Horizon Funds. Because the investment objectives
and policies of the Seafirst Funds and the corresponding Pacific Horizon Funds
are identical, Bank of America, Seafirst's and Pacific Horizon's investment
adviser, believes that an investment in a Seafirst Fund involves risks that are
identical to those of the corresponding Pacific Horizon Fund.
COMPARATIVE FEE AND EXPENSE TABLES. The tables below show (i) information
regarding the fees and expenses (including the operating expenses of the Master
Portfolios which are allocable to the Seafirst Funds) expected to be paid by
each Seafirst Fund during the current fiscal year, (ii) information regarding
the fees and expenses (including the operating expenses of the Master Portfolios
which are allocable to the Pacific Horizon Funds) expected to be paid by A
Shares of Pacific Horizon during the current fiscal year, and (iii) estimated
fees and expenses on a pro forma basis giving effect to the proposed
Reorganization and the PH Asset Allocation Fund's withdrawal of its investment
from the Asset Allocation Master Portfolio. SRF Shares of Pacific Horizon
automatically convert into A Shares of the same Pacific Horizon Fund on the
third anniversary of the Reorganization Date. Accordingly, disclosure is
provided for both SRF Shares and A Shares of Pacific Horizon. Bank of America
and The BISYS Group, Inc. ("BISYS") have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of the SRF
Shares (including the pro rata share of the expenses incurred by the Master
Portfolios in which the PH Blue Chip and PH Intermediate Bond Funds invest) for
the first two years and the third year after the Reorganization to 0.95% and
1.05%, respectively, of the average daily net assets of each Fund. This
limitation on expenses of the SRF Shares will continue until such shares convert
into A Shares. Expense ratios for A Shares of the PH Blue Chip, PH Asset
Allocation and PH Intermediate Bond Funds are market driven, and may be higher
than those of the Seafirst Funds and SRF Shares.
8
<PAGE> 11
<TABLE>
<CAPTION>
SEAFIRST PACIFIC HORIZON
BLUE CHIP BLUE CHIP PRO FORMA
FUND FUND COMBINED
--------- ----------------------- -------------------------------
SRF A SRF A
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering Price)............... None None 4.50% None 4.50%(1)
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)........................ None None None None None
Contingent Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable)...... None None None None None
Redemption Fee (as a percentage
of amount redeemed, if
applicable)................... None None None None None
Exchange Fee.................... None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees
(after fee waivers)............. 0.51%(2)(3) * 0.51%(4) 0.70%(5) 0.70%(5)
All Other Expenses
(after fee waivers and/or
expense reimbursements)......... 0.44%(6) * 0.79% 0.25%(7) 0.47%(7)
---- ---- ---- ----
Shareholder Service Fees
(after fee waivers)........... 0.25% * 0.25% 0.03%(8) 0.25%
Other Expenses
(after fee waivers and/or
expense reimbursements)....... 0.19%(9) * 0.54% 0.22%(10) 0.22%(10)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements)......... 0.95%(11) * 1.30%(12) .95%(13) 1.17%(13)
==== ==== ==== ====
</TABLE>
- ---------------
* SRF Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on conversion of SRF Shares to A Shares
and no sales load imposed on subsequent purchases of A Shares in Eligible
Retirement Accounts (as defined below) opened as of the Reorganization Date
as long as each account remains open.
(2) Individual Retirement Accounts including those that do not invest in the
Seafirst Funds, are charged certain fees: each pays a $15 annual
maintenance fee; and there is currently a $7 annual maintenance fee for a
spousal retirement account. Other Eligible Retirement Accounts (as defined
below) may be charged fees which vary according to the plan's sponsor.
(3) The maximum advisory fee for the Blue Chip Master Portfolio is 0.75% of the
average daily net assets of such Master Portfolio. Other expenses include
administration fees at the Blue Chip Master Portfolio level, which BISYS is
entitled to receive at the annual rate of 0.05% of the Blue Chip Master
Portfolio's average daily net assets and an administration and transfer
agent fee payable to Bank of America at the Fund level at an annual rate of
0.29% of average daily net assets. Absent fee waivers, "Management Fees"
for the SRF Blue Chip Fund are estimated to be 1.09% of its average net
assets (annualized).
9
<PAGE> 12
(4) Absent fee waivers, "Management Fees" for the PH Blue Chip Fund would be
0.95% of the average net assets (annualized). Management fees consist of an
investment advisory fee payable at the annual rate of 0.75% of the Blue
Chip Master Portfolio's average daily net assets and an administration fee
payable at the annual rate of 0.15% and 0.05% of the PH Blue Chip Fund's
and Blue Chip Master Portfolio's respective average daily net assets.
(5) Effective on the Reorganization Date, management fees consist of an
investment advisory fee payable at the annual rate of 0.50% of the Blue
Chip Master Portfolio's average daily net assets and an administration fee
payable at the annual rate of 0.15% and 0.05% of the PH Blue Chip Fund's
and Blue Chip Master Portfolio's respective average daily net assets.
(6) Absent expense reimbursements (including the Fund's proportionate share of
the Blue Chip Master Portfolio's expenses and expense reimbursements), "All
Other Expenses" for the SRF Blue Chip Fund are estimated to be 0.47% of the
average net assets (annualized).
(7) Absent fee waivers (including the Fund's proportionate share of the Blue
Chip Master Portfolio's fee waivers and expenses), "All Other Expenses" for
the pro forma combined PH Blue Chip Fund's SRF and A Shares are estimated
to be 0.50% and 0.50% of the respective average net assets (annualized).
(8) Absent fee waivers, "Shareholder Service Fees" for the pro forma combined
PH Blue Chip Fund's SRF shares would be 0.25% of average net assets
(annualized).
(9) Absent expense reimbursements, "Other Expenses" for the SRF Blue Chip Fund
are estimated to be 0.22% of average net assets (annualized).
(10) Absent fee waivers, "Other Expenses" are estimated to be 0.25% and 0.25% of
average net assets (annualized), respectively, for the pro forma combined
PH Blue Chip Fund's SRF Shares and A Shares.
(11) Absent fee waivers and expense reimbursements, "Total Operating Expenses"
of the SRF Blue Chip Fund are estimated to be 1.56% of average net assets
(annualized). Bank of America has agreed to reimburse the SRF Blue Chip
Fund in such amounts as are necessary to limit the expenses of the Fund in
any year, including its pro rata share of the expenses incurred by the
Master Portfolio in which it invests (but excluding interest, brokerage
commissions, litigation expenses and certain other items), to 0.95%, 0.85%
and 0.75% of the Fund's average daily net assets if the average daily net
assets of the corresponding Master Portfolio in which the Fund invests in
such year is less than $250 million, $250 million to $500 million, or more
than $500 million, respectively.
(12) Absent fee waivers and expense reimbursements (including the PH Blue Chip
Fund's proportionate share of the Blue Chip Master Portfolio's expenses,
fee waivers and expense reimbursements), "Total Operating Expenses" for the
A Shares of the PH Blue Chip Fund are estimated to be 1.74% of average net
assets (annualized).
(13) Absent fee waivers (including the Fund's proportionate share of the Blue
Chip Master Portfolio's expenses and fee waivers), "Total Operating
Expenses" for the pro forma combined PH Blue Chip Fund's SRF Shares and A
Shares are estimated to be 1.20% and 1.20% of their respective average net
assets (annualized), respectively. Bank of America and BISYS have agreed to
waive fees and reimburse expenses in such amounts as are necessary to limit
the expenses of the SRF Shares (including the pro rata share of the
expenses incurred by the Master Portfolio in which the PH Blue Chip
invests) for the first two years and the third year after the
Reorganization to 0.95% and 1.05%, respectively, of the average daily net
assets of the Fund. This limitation on expenses of the SRF Shares will
continue until
10
<PAGE> 13
such shares convert into A Shares. Expense ratios for A Shares of the PH Blue
Chip Fund are market driven, and may be higher than those of the Seafirst Funds
and SRF Shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
SRF Blue Chip Fund....................................... $ 10 $30 $53 $117
PH Blue Chip Fund
SRF Shares............................................. N/A N/A N/A N/A
A Shares(1)............................................ $ 58 $84 $113 $195
Pro Forma Combined
SRF Shares............................................. $ 10 $32(2) N/A N/A
A Shares(3)............................................ $ 56 $80 $106 $181
</TABLE>
- ---------------
(1) Assumes deduction at time of purchase of the maximum applicable front-end
sales charge. Eligible Retirement Accounts are not subject to the front-end
sales charge and such amounts would be $13, $41, $71 and $157 without
deducting the front-end sales charge.
(2) SRF Shares will convert to A Shares on the third anniversary of the
Reorganization Date.
(3) Assumes deduction at time of purchase of the maximum applicable front-end
sale charge. Eligible Retirement Accounts are not subject to the front-end
sales charge and such amounts would be $12, $37, $64 and $142 without
deducting the front-end sales charge.
11
<PAGE> 14
<TABLE>
<CAPTION>
PACIFIC HORIZON
ASSET ALLOCATION PRO FORMA
SEAFIRST FUND COMBINED*
ASSET ------------------------ -----------------------------
ALLOCATION SRF A SRF A
FUND SHARES SHARES SHARES SHARES
---------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed
on Purchases (as a
percentage of offering
Price).................... None None 4.50% None 4.50%(1)
Maximum Sales Load Imposed
on Reinvested Dividends
(as a percentage of
offering price)........... None None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable)............... None None None None None
Redemption Fee (as a
percentage of amount
redeemed, if
applicable)............... None None None None None
Exchange Fee................ None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management Fees
(after fee waivers)......... 0.45%(2)(3) + 0.18%(4) 0.55%(5) 0.55%(5)
All Other Expenses
(after fee waivers)......... 0.50% + 1.17% 0.40%(6) 0.45%(6)
---- ---- ---- ----
Shareholder Service Fees
(after fee waivers)....... 0.25% + 0.25% 0.20%(7) 0.25%
Other Expenses
(after fee waivers and/or
expense reimbursements)... 0.25% + 0.92% 0.20%(8) 0.20%(8)
Total Operating Expenses
(after fee waivers and/or
expense reimbursements)..... 0.95%(9) + 1.35%(10) 0.95%(11) 1.00%(11)
==== ==== ==== ====
</TABLE>
- ---------------
* The PH Asset Allocation Fund currently operates in a master-feeder
structure wherein it invests substantially all of its assets in the Asset
Allocation Master Portfolio. Upon consummation of the Reorganization it is
expected that the PH Asset Allocation Fund will withdraw its investment in
the Asset Allocation Master Portfolio and engage Bank of America to manage
its assets directly.
+ SRF Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on conversion of SRF Shares to A Shares
and no sales load imposed on subsequent purchases of A Shares in Eligible
Retirement Accounts (as defined below) opened as of the Reorganization Date
as long as each account remains open.
(2) Individual Retirement Accounts including those that do not invest in the
Seafirst Funds, are charged certain fees: each pays a $15 annual
maintenance fee; and there is currently a $7 annual maintenance fee for a
spousal retirement account. Other Eligible Retirement Accounts (as defined
below) may be charged fees which vary according to the plan's sponsor.
12
<PAGE> 15
(3) The maximum advisory fee for the Asset Allocation Master Portfolio is 0.55%
of the average daily net assets of such Master Portfolio. Other expenses
include administration fees at the Asset Allocation Master Portfolio level,
which BISYS is entitled to receive at the annual rate of 0.05% of the Asset
Allocation Master Portfolio's average daily net assets and an
administration and transfer agent fee payable to Bank of America at the
Fund level at an annual rate of 0.29% of average daily net assets. Absent
fee waivers, "Management Fees" for the SRF Asset Allocation Fund are
estimated to be 0.89% of average net assets (annualized).
(4) Absent fee waivers, "Management Fees" for the PH Asset Allocation Fund
would be 0.75% of the average net assets (annualized). Management fees
consist of an investment advisory fee of 0.55% of the Asset Allocation
Master Portfolio's average daily net assets and an administration fee
payable at the annual rate of 0.15% and 0.05% of the PH Asset Allocation
Fund's and Asset Allocation Master Portfolio's respective average daily net
assets.
(5) Effective on the Reorganization Date, management fees consist of an
investment advisory fee and an administration fee payable at the annual
rates of 0.40% and 0.15%, respectively of the pro forma combined Asset
Allocation Fund's average daily net assets.
(6) Absent fee waivers, "All Other Expenses" for the pro forma combined PH
Asset Allocation Fund's SRF Shares and A Shares are estimated to be 0.50%
and 0.50% of their respective average net assets (annualized).
(7) Absent fee waivers, "Shareholder Service Fees" for the pro forma combined
PH Asset Allocation Fund's SRF Shares would be 0.25% of average net assets
(annualized).
(8) Absent expense reimbursements, "Other Expenses" for the PH Asset Allocation
Fund's SRF Shares and A Shares are estimated to be 0.25% and 0.25% of their
respective average net assets (annualized).
(9) Absent fee waivers and expense reimbursements, "Total Operating Expenses"
of the SRF Asset Allocation Fund are estimated to be 1.39% of average net
assets (annualized). Bank of America has agreed to reimburse the SRF Asset
Allocation Fund in such amounts as are necessary to limit the expenses of
the Fund in any year, including its pro rata share of the expenses incurred
by the Master Portfolio in which it invests (but excluding interest,
brokerage commissions, litigation expenses and certain other items), to
0.95%, 0.85% and 0.75% of the Fund's average daily net assets if the
average daily net assets of the corresponding Master Portfolio in which the
Fund invests in such year is less than $250 million, $250 million to $500
million, or more than $500 million, respectively.
(10) Absent fee waivers and expense reimbursements (including the PH Asset
Allocation Fund's proportionate share of the Asset Allocation Master
Portfolio's expenses, fee waivers and expense reimbursements) "Total
Operating Expenses" for the A Shares of the PH Asset Allocation Fund are
estimated to be 1.92% of average net assets (annualized).
(11) Absent fee waivers, "Total Operating Expenses" for the pro forma combined
PH Asset Allocation Fund's SRF Shares and A Shares are estimated to be
1.05% and 1.05% of their respective average net assets (annualized). Bank
of America and BISYS have agreed to waive fees and reimburse expenses in
such amounts as are necessary to limit the expenses of the SRF Shares for
the first two years and the third year after the Reorganization to 0.95%
and 1.05%, respectively, of the average daily net assets of the Fund. This
limitation on expenses of the SRF Shares will continue until such shares
convert into A Shares. Expense ratios for A Shares of the Asset Allocation
Fund are market driven, and may be higher than those of the Seafirst Funds
and SRF Shares.
13
<PAGE> 16
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
SRF Asset Allocation Fund................................ $ 10 $30 $53 $117
PH Asset Allocation Fund
SRF Shares............................................. N/A N/A N/A N/A
A Shares(1)............................................ $ 58 $86 $116 $200
Pro Forma Combined
SRF Shares............................................. $ 10 $32(2) N/A N/A
A Shares(3)............................................ $ 55 $75 $98 $162
</TABLE>
- ---------------
(1) Assumes deduction at time of purchase of the maximum applicable front-end
sales charge. Eligible Retirement Accounts are not subject to the front-end
sales charge and such amounts would be $14, $43, $74 and $162 without
deducting the front-end sales charge.
(2) SRF Shares will convert to A Shares on the third anniversary of the
Reorganization Date.
(3) Assumes deduction at time of purchase of the maximum applicable front-end
sales charge. Eligible Retirement Accounts are not subject to the front-end
sales charge and such amounts would be $10, $32, $55 and $122 without
deducting the front-end sales.
14
<PAGE> 17
<TABLE>
<CAPTION>
PACIFIC HORIZON
SEAFIRST INTERMEDIATE BOND PRO FORMA
BOND FUND FUND COMBINED*
----------- ------------------------ -----------------------------
SRF A SRF A
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................. None None 4.50% None 4.50%(1)
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)... None None None None None
Contingent Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable)........ None None None None None
Redemption Fee (as a percentage of
amount redeemed, if
applicable)..................... None None None None None
Exchange Fee...................... None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees
(after fee waivers)............... 0.28%(2)(3) * 0.17%(4) 0.50%(5) 0.50%(5)
All Other Expenses
(after fee waivers and/or expense
reimbursements)................... 0.67% * 0.63%(6) 0.45%(7) 0.45%(7)
---- ---- ---- ----
Shareholder Service Fees (after
fee waivers).................. 0.25% * 0.25% 0.00%(8) 0.00%(8)
Other Expenses (after fee
waivers and/or expense
reimbursement)................ 0.42% * 0.38%(9) 0.45%(10) 0.45%(10)
Total Operating Expenses
(after fee waivers and/or expense
reimbursements)................... 0.95%(11) * 0.80%(12) 0.95%(13) 0.95%(13)
==== ==== ==== ====
</TABLE>
- ---------------
* SRF Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on conversion of SRF Shares to A Shares
and no sales load imposed on subsequent purchases of A Shares in Eligible
Retirement Accounts (as defined below) opened as of the Reorganization Date
as long as each account remains open.
(2) Individual Retirement Accounts including those that do not invest in the
Seafirst Funds, are charged certain fees: each pays a $15 annual
maintenance fee; and there is currently a $7 annual maintenance fee for a
spousal retirement account. Other Eligible Retirement Accounts (as defined
below) may be charged fees which vary according to the plan's sponsor.
(3) The maximum advisory fee for the Investment Grade Bond Master Portfolio is
0.45% of the average daily net assets of such Master Portfolio. Other
expenses include administration fees at the Investment Grade Bond Master
Portfolio level which BISYS is entitled to receive at the annual rate of
0.05% of the Investment Grade Bond Master Portfolio's average daily net
assets and an administration and transfer agent fee payable to Bank of
America at the Fund level at the annual rate of 0.29% of the average daily
net assets. Absent fee waivers, "Management Fees" for the SRF Bond Fund are
estimated to be 0.79% of average net assets (annualized).
15
<PAGE> 18
(4) Absent fee waivers, "Management Fees" for the PH Intermediate Bond Fund
would be 0.65% of the average daily net assets (annualized). Management
fees consist of an investment advisory fee payable at the annual rate of
.45% of the Intermediate Bond Master Portfolio's average daily net assets
and an administration fee payable at the annual rate of 0.15% and 0.05% of
the Intermediate Bond Fund's and Intermediate Master Portfolio's respective
average daily net assets.
(5) Effective on the Reorganization Date, management fees consist of an
investment advisory fee payable at the annual rate of 0.30% of the
Investment Grade Bond Master Portfolio's average daily net assets and an
administration fee payable at the annual rate of 0.15% and 0.05% of the PH
Intermediate Bond Fund's and Investment Grade Bond Master Portfolio's
respective average daily net assets.
(6) Absent expense reimbursements (including the Fund's proportionate share of
the Investment Grade Bond Master Portfolio's expenses, and expense
reimbursements), "All Other Expenses" for the PH Intermediate Bond Fund are
estimated to be 1.72% of average net assets (annualized).
(7) Absent fee waivers and expense reimbursements (including the Fund's
proportionate share of the Investment Grade Bond Master Portfolio's
expenses and fee waivers), "All Other Expenses" for the pro forma combined
PH Intermediate Bond Fund's SRF and A Shares are estimated to be 0.85% and
0.85% of the respective average net assets (annualized).
(8) Absent fee waivers, "Shareholder Service Fees" for the pro forma combined
PH Intermediate Bond Fund's SRF and A Shares would be 0.25% of average net
assets (annualized).
(9) Absent expense reimbursements, "Other Expenses" for the PH Intermediate
Bond Fund are estimated to be 1.47% of average net assets (annualized).
(10) Absent fee waivers and expense reimbursements, "Other Expenses" are
estimated to be 0.60% and 0.60% of average net assets (annualized),
respectively, for the pro forma combined PH Intermediate Bond Fund's SRF
and A Shares.
(11) Absent fee waivers and expense reimbursements, "Total Operating Expenses"
of the SRF Bond Fund are estimated to be 1.46% of average net assets
(annualized). Bank of America has agreed to reimburse the SRF Bond Fund in
such amounts as are necessary to limit the expenses of the Fund in any
year, including its pro rata share of the expenses incurred by the Master
Portfolio in which it invests (but excluding interest, brokerage
commissions, litigation expenses and certain other items), to 0.95%, 0.85%
and 0.75% of the Fund's average daily net assets if the average daily net
assets of the corresponding Master Portfolio in which the Fund invests in
such year is less than $250 million, $250 million to $500 million, or more
than $500 million, respectively.
(12) Absent fee waivers and expense reimbursements (including the PH
Intermediate Bond Fund's proportionate share of the Investment Grade Bond
Master Portfolio's expenses, fee waivers and expense reimbursements) "Total
Operating Expenses" for the A Shares of the PH Intermediate Bond Fund are
estimated to be 2.37% of average net assets (annualized).
(13) Absent fee waivers and expense reimbursements (including the Fund's
proportionate share of the Investment Grade Bond Master Portfolio's
expenses, fee waivers and expense reimbursements), "Total Operating
Expenses for the pro forma combined PH Intermediate Bond Fund's SRF Shares
and A Shares are estimated to be 1.35% and 1.35% of average net assets
(annualized), respectively. Bank of America and BISYS have agreed to waive
fees and reimburse expenses in such amounts as are necessary to limit the
expenses of the SRF Shares (including the pro rata share of the expenses
incurred by the Master Portfolio in which the PH Intermediate Bond Fund
invests) for the first two years and the third year after the
Reorganization to 0.95% and 1.05%, respectively, of the average daily net
assets of
16
<PAGE> 19
the Fund. This limitation on expenses of the SRF Shares will continue until such
shares convert into A Shares. Expense ratios for A Shares of the PH Intermediate
Bond Fund are market driven, and may be higher than those of the Seafirst Funds
and SRF Shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
SRF Bond Fund............................................ $ 10 $30 $53 $117
PH Intermediate Bond Fund
SRF Shares............................................. N/A N/A N/A N/A
A Shares(1)............................................ $ 53 $69 $87 $140
Pro Forma Combined
SRF Shares............................................. $ 10 $32(2) N/A N/A
A Shares(3)............................................ $ 54 $74 $95 $156
</TABLE>
- ---------------
(1) Assumes deduction at time of purchase of the maximum applicable front-end
sales charge. Eligible Retirement Accounts are not subject to the front-end
sales charge and such amounts would be $8, $26, $44 and $99 without
deducting the front-end sales charge.
(2) SRF Shares will convert to A Shares on the third anniversary of the
Reorganization Date.
(3) Assumes deduction at time of purchase of the maximum applicable front-end
sales charge. Eligible Retirement Accounts are not subject to the front-end
sales charge and such amounts would be $10, $30, $63 and $99 without
deducting the front-end sale charge.
EXPENSE RATIOS -- SEAFIRST FUNDS. The following table sets forth (i) the
ratios of operating expenses to average net assets of the Seafirst Funds for the
period ended December 31, 1996 (a) after fee waivers and expense reimbursements,
and (b) absent fee waivers and expense reimbursements:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
------------------- -------------------
<S> <C> <C>
SEAFIRST
Blue Chip Fund.................................... .95% 1.54%
Asset Allocation Fund............................. .95% 1.40%
Bond Fund......................................... .95% 1.47%
</TABLE>
17
<PAGE> 20
EXPENSE RATIOS -- PACIFIC HORIZON FUNDS. The following tables set forth
(i) the ratios of operating expenses to average net assets of the Pacific
Horizon Funds for the period ended December 31, 1996 (a) after fee waivers and
expense reimbursements, and (b) absent fee waivers and expense reimbursements:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
------------------- -------------------
<S> <C> <C>
PACIFIC HORIZON
Blue Chip Fund
SRF Shares.......................... --%(1) --%(1)
A Shares............................ 1.27% 1.73%
Asset Allocation Fund
SRF Shares.......................... --%(1) --%(1)
A Shares............................ 1.25% 1.92%
Intermediate Bond Fund
SRF Shares.......................... --%(1) --%(1)
A Shares............................ 0.75% 2.27%
</TABLE>
- ---------------
(1) The SRF Shares of Pacific Horizon will not be issued until the
Reorganization is effective.
ORGANIZATION. Seafirst is organized as a Delaware business trust and
Pacific Horizon is organized as a Maryland corporation.
CERTAIN ARRANGEMENTS WITH SERVICE PROVIDERS -- THE INVESTMENT ADVISER. The
Seafirst Funds and the Pacific Horizon Funds have not retained the services of
an investment adviser since they each seek to achieve their investment objective
by investing substantially all of their investable assets in their corresponding
Master Portfolio.
Bank of America serves as investment adviser for the investment portfolios
of the Master Trust and is currently entitled to receive advisory fees from
them, computed daily and paid monthly, at the following annual rates, expressed
as a percentage of average daily net assets. However, effective on the
Reorganization Date, Bank of America will reduce its contractual advisory fee
rates to the following rates:
<TABLE>
<CAPTION>
MASTER CURRENT POST-REORGANIZATION
TRUST PORTFOLIOS ADVISORY FEE ADVISORY FEE
----------------------------------------------- ------------ -------------------
<S> <C> <C>
Blue Chip Master Portfolio..................... 0.75% 0.50%
Asset Allocation Master Portfolio.............. 0.55% 0.40%(1)
Investment Grade Bond Master Portfolio......... 0.45% 0.30%
</TABLE>
- ---------------
(1) Upon consummation of the Reorganization, the PH Asset Allocation Fund is
expected to withdraw its investment from the Asset Allocation Master
Portfolio and engage Bank of America to manage its assets directly. Bank of
America will manage the PH Asset Allocation Fund pursuant to an investment
advisory agreement which is substantially similar to the agreement currently
in place for the Asset Allocation Master Portfolio.
18
<PAGE> 21
In its advisory agreement, Bank of America has agreed to manage each Master
Portfolio's investments and to be responsible for, place orders for, and make
decisions with respect to, all purchases and sales of the securities held by
each Master Portfolio. The advisory agreement also provides that Bank of America
may, in its discretion, provide advisory services through its own employees or
employees of one or more of its affiliates that are under the common control of
Bank of America's parent, BankAmerica Corporation, provided such employees are
under the management of Bank of America.
THE ADMINISTRATORS. Bank of America is responsible for certain accounting,
administrative, transfer agency and dividend disbursing services to Seafirst.
For its services, Bank of America is entitled to receive a fee from each
Seafirst Fund at an annual rate of 0.29% of the average daily net asset value of
such Seafirst Fund.
Bank of America has engaged Concord Holding Corporation ("Concord"), a
wholly-owned subsidiary of BISYS, to assist it in providing certain
administrative and compliance services to the Seafirst Funds. For its services
as sub-administrator Concord is paid by Bank of America and not by the Seafirst
Funds.
BISYS through its wholly-owned subsidiary, BISYS Fund Services, L.P.,
serves as administrator to Pacific Horizon, and to the Master Trust. Prior to
November 1, 1996, Concord served as administrator to each Pacific Horizon Fund
and the Master Trust. For its services as administrator, BISYS is entitled to
receive a fee from each Pacific Horizon Fund at the annual rate of 0.15% of such
Fund's average daily net assets and an administration fee from each Master
Portfolio at the annual rate of 0.05% of such Master Portfolio's average daily
net assets.
Upon consummation of the Reorganization, it is expected that the PH Asset
Allocation Fund will withdraw its investment in the Asset Allocation Master
Portfolio. Accordingly, BISYS will then no longer provide services to the Asset
Allocation Master Portfolio.
Pursuant to the authority granted in its agreements with Bank of America,
Pacific Horizon and the Master Trust, Concord and BISYS, as applicable, have
entered into an agreement with PFPC, Inc. ("PFPC") under which PFPC performs
certain accounting, bookkeeping, pricing,and dividend and distribution
calculation services with respect to the Seafirst Funds, the Pacific Horizon
Funds and the Master Portfolios. The monthly fees charged by PFPC under the fund
accounting agreements are borne by the Seafirst Funds, the Pacific Horizon Funds
and the Master Portfolios.
THE DISTRIBUTOR. Concord Financial Group, Inc. ("CFG"), 125 West 55th
Street, New York, New York 10019, serves as distributor to Seafirst and Pacific
Horizon. CFG is a wholly-owned subsidiary of Concord.
SHAREHOLDER SERVICES PLAN. The Seafirst Funds, and both SRF Shares and A
Shares of the Pacific Horizon Funds, have each adopted a Shareholder Services
Plan pursuant to which the respective Seafirst Fund, SRF Shares and A Shares of
the respective Pacific Horizon Fund reimburse CFG for shareholder servicing
expenses CFG pays to service organizations (which are institutions such as a
bank or broker-dealer that has entered into a selling and/or servicing agreement
with CFG) ("Service Organizations"). Service Organizations may include Bank of
America and Concord, or their affiliates. The terms of each Shareholder Service
Plan are identical.
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by CFG and payments to Service Organizations for
support services for the beneficial owners of such Fund's Seafirst, SRF Shares
or A Shares. Examples of support services include, but are not limited to,
establishing and maintaining accounts and records relating to the Service
Organization's clients who invest in
19
<PAGE> 22
Fund shares, assisting those clients in processing exchange and redemption
requests and in changing dividend options and account designations, and
responding to inquiries from clients concerning their investments.
Under each Shareholder Service Plan, payments by a Fund for shareholder
servicing expenses may not exceed 0.25% (annualized) of the average daily net
assets of such Seafirst Fund or SRF Shares or A Shares of a Pacific Horizon Fund
(as applicable). Excluded from these calculations, however, are all shares
acquired via a transfer of assets from trust and agency accounts at Bank of
America. These amounts may be reduced pursuant to undertakings by CFG.
THE TRANSFER AGENTS. As mentioned above, Bank of America serves as
transfer agent and dividend disbursing agent for the Seafirst Funds pursuant to
their Administration and Transfer Agency Agreement. The fees received for such
transfer agency and dividend disbursing agent services are included in the fee
described above under "The Administrators."
BISYS Fund Services, Inc. ("BFS"), an indirect affiliate of Concord, is the
transfer agent and dividend disbursing agent for the Pacific Horizon Funds.
THE CUSTODIANS. Bank of America serves as custodian for the Seafirst
Funds. For such services, Bank of America receives a fee of 0.03% of each
Seafirst Fund's average net assets, plus out-of-pocket expenses. Bank of America
has entered into a sub-custody agreement with PNC Bank, National Association
("PNC Bank") wherein PNC Bank provides these custodial services to the Seafirst
Funds on behalf of Bank of America. For its custodial services PNC Bank is paid
by Bank of America and not by the Seafirst Funds.
PNC Bank serves as the custodian for the Pacific Horizon Funds and the
Master Portfolios.
FEE WAIVERS AND EXPENSE REIMBURSEMENTS. Except as noted, the service
providers bear all expenses in connection with the performance of their
services, and the Seafirst Funds, Pacific Horizon Funds and Master Portfolios
each bear the expenses incurred in their operations. Expenses may be reduced by
agreement, voluntary fee waivers and expense reimbursements by Bank of America,
BISYS and Concord.
Bank of America has agreed to reimburse the Seafirst Funds in such amounts
as are necessary to limit the expenses, including each Seafirst Funds' pro rata
share of the expenses incurred by its corresponding Master Portfolio (but
excluding interest, brokerage commissions, litigation expenses and certain other
items), to specified levels of assets of the corresponding Master Portfolios in
which the Seafirst Funds invest their assets. In any given fiscal year, Bank of
America's reimbursements will be in an amount sufficient to limit such expenses
of each Seafirst Fund to 0.95%, 0.85% and 0.75% of such Seafirst Fund's average
daily net assets if the average daily net assets of the corresponding Master
Portfolio in which the Seafirst Fund invests in such year is less than $250
million, $250 million to $500 million, or more than $500 million, respectively.
With respect to the Pacific Horizon Funds and the Master Portfolios, Bank
of America and BISYS may, during the course of a fiscal year, prospectively
choose not to receive fee payments and/or may assume certain expenses of the
Pacific Horizon Funds or the Master Portfolios as a result of competitive
pressures and in order to preserve and protect the business and reputation of
Bank of America and BISYS. However, the service providers retain the ability to
discontinue such fee waivers and/or expense reimbursements at any time.
In connection with the Reorganization, Bank of America and BISYS have
prospectively agreed to waive fees and reimburse expenses in order to limit the
expense ratios of SRF Shares (including the pro rata share of the expenses
incurred by the Master Portfolios in which the PH Blue Chip and Intermediate
Bond Funds invest) for the first two years and the third year after the
Reorganization to 0.95% and 1.05%, respectively, of
20
<PAGE> 23
each SRF Share's average daily net assets. On the third anniversary of the
Reorganization Date, SRF Shares will automatically convert to A Shares.
CONVERSION FEATURE. SRF Shares of a Pacific Horizon Fund will
automatically convert to A Shares of the same Pacific Horizon Fund on the third
anniversary of the Reorganization Date. The conversion from SRF Shares to A
Shares will take place at net asset value, as a result of which a shareholder
will receive dollar-for-dollar the same value of A Shares of a Pacific Horizon
Fund as the shareholder had of SRF Shares. Because of this conversion feature,
current rules of the SEC require that certain disclosures be provided in this
Combined Prospectus/Proxy Statement regarding A Shares.
PURCHASE AND REDEMPTION PROCEDURES -- SHARES OF THE SEAFIRST FUNDS AND SRF
SHARES OF THE PACIFIC HORIZON FUNDS. Shares of the Seafirst Funds and SRF
Shares of the Pacific Horizon Funds (collectively, "Shares") are sold without a
sales charge to Eligible Retirement Accounts. Eligible Retirement Accounts are
accounts which meet one of the following descriptions:
- Individual Retirement Accounts ("IRAs") that are exempt under Section
408(e) are maintained in conformity with Section 408(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), including a) rollover
accounts and Simplified Employee Pension Plans ("SEPs") for which
Seafirst Bank ("SB"), a division of Bank of America, or one of its
affiliates, serves as custodian or b) IRAs opened after the
Reorganization Date under a SEP Plan that was open as of the
Reorganization Date and has remained open continuously since that date
("Eligible IRAs"), and
- Qualified pension or profit sharing trusts that are exempt under Section
501(a) and that are maintained in conformity with Section 401(a) of the
Code, including a) corporate pension or profit-sharing trusts, b) pension
or profit sharing trusts benefiting one or more self-employed individuals
(generally referred to as H.R. 10 or Keogh plans), or c) accounts opened
for new participants in a qualified pension or profit-sharing trust that
was open as of the Reorganization Date and has remained open continuously
since that date ("Eligible Pension or Profit Sharing Trusts").
Maintenance of Eligible Retirement Account status is a prerequisite to all
transactions with Pacific Horizon described below with respect to SRF Shares. An
individual for whose benefit an Eligible Retirement Account is maintained or who
may be entitled to receive benefits from an Eligible Retirement Account, is
referred to as a "Participant." The minimum initial investment requirement for
shares of the Seafirst Fund is $500 and there is no minimum requirement for
initial investment in SRF Shares of the Pacific Horizon Funds and subsequent
investments in Seafirst or Pacific Horizon. Both Seafirst and Pacific Horizon
reserve the right to increase or decrease the minimum investment amounts.
The procedures for purchasing and redeeming Shares are essentially the
same.
EXCHANGE PROCEDURES -- SHARES OF THE SEAFIRST FUNDS AND SRF SHARES OF THE
PACIFIC HORIZON FUNDS. Shares of the Seafirst Funds may be exchanged without
cost for shares in any other Seafirst Fund, or for Pacific Horizon Shares of the
Pacific Horizon Prime Fund, a money market fund for which Bank of America acts
as investment adviser ("Seafirst Exchange Funds").
The following exchange privileges are available for SRF Shares:
1. SRF Shares held in any Pacific Horizon Fund may be exchanged for
SRF Shares of any other Pacific Horizon Fund;
2. SRF Shares held in any Pacific Horizon Fund may be exchanged for A
Shares in any other taxable, non-money market fund offered by Pacific
Horizon or a Time Horizon Fund, another open-end
21
<PAGE> 24
investment company managed by Bank of America (a "Time Horizon Fund")
without incurring the front-end sales charge otherwise applicable on sales
of A Shares ("Eligible Pacific Horizon Exchange Shares");
3. SRF Shares or Eligible Pacific Horizon Exchange Shares may be
exchanged for Pacific Horizon Shares of the Pacific Horizon Prime Fund;
4. Eligible Pacific Horizon Exchange Shares may be further exchanged
for A Shares in any taxable, non-money market fund offered by Pacific
Horizon or a Time Horizon Fund without incurring the front-end sales
charges otherwise applicable, or for SRF Shares offered by a Pacific
Horizon Fund; and
5. SRF Shares or Eligible Pacific Horizon Exchange Shares held in an
IRA account for which a Participant's surviving spouse is the beneficiary
may continue to be exchanged for SRF Shares or A Shares as described above.
DIVIDENDS, DISTRIBUTIONS AND PRICING. Shareholders of the SRF Blue Chip
and PH Blue Chip Funds and shareholders of the SRF Bond and PH Intermediate Bond
Funds are entitled to dividends and distributions arising from the net
investment income and net realized gains, if any, earned on investments in the
corresponding Master Portfolios that are allocable to each Fund. Any
distributions made by the Seafirst Funds will be made on the last business day
of the month to shareholders of record at the end of the prior business day. All
distributions are automatically reinvested in additional shares of the
particular Seafirst Fund making the distribution. The SRF Blue Chip Fund makes
distributions at least annually, and the SRF Asset Allocation Fund and SRF Bond
Fund make monthly distributions.
The PH Blue Chip and PH Asset Allocation Fund's net investment income is
declared quarterly and paid quarterly within five business days after the
quarter end. The PH Intermediate Bond Fund's net investment income is declared
daily and paid within five business days after the end of each month. Each
Pacific Horizon Fund's net realized capital gains, if any, are distributed at
least annually. With respect to SRF Shares, dividends and capital gains
distributions are automatically reinvested in additional SRF Shares of the
Pacific Horizon Fund for which the dividend or distribution was declared.
The net asset value per share of each Seafirst Fund is determined by
dividing the total value of the Seafirst Fund's assets, less any liabilities, by
the number of outstanding shares of the Seafirst Fund. The value of the assets
held in each Seafirst Fund is determined as of 1:00 p.m. (Pacific time) (or at
such other time as may be determined by the Seafirst Board of Trustees) on each
day on which such value must be determined in accordance with the 1940 Act.
The net asset value per share is determined separately for SRF Shares of
each Pacific Horizon Fund by dividing the total value of the assets of the Fund
attributable to a particular class of shares, less any liabilities of the Fund
attributable to such class, by the number of outstanding shares of the class.
Net asset value with respect to SRF Shares of the Pacific Horizon Funds is
determined as of the close of regular trading hours on the New York Stock
Exchange (currently, 4:00 p.m. Eastern time) on days the Exchange is open.
As the assets of the SRF Blue Chip Fund and PH Blue Chip Fund and the SRF
Bond and PH Intermediate Bond Fund include their proportionate share of the
assets and liabilities of their corresponding Master Portfolios, the value of
each such Fund's assets depends on the Fund's proportionate investment in its
corresponding Master Portfolio. The Fund's proportionate investment in its
corresponding Master Portfolio is determined in the same manner as the net asset
value per share described above for the particular Fund.
22
<PAGE> 25
Each Master Portfolio's and the PH Asset Allocation Fund's (once it begins
to invest in portfolio securities directly) investments are valued at market
value or, where market quotations are not readily available, at fair value as
determined in good faith by the Master Portfolios or PH Asset Allocation Fund,
as appropriate, pursuant to procedures adopted by the Master Portfolios' Board
of Trustees and the PH Asset Allocation Fund's Board of Directors. Short-term
debt securities are valued at amortized cost, which approximates market value.
VOTING INFORMATION. This Combined Prospectus/Proxy Statement is being
furnished in connection with the solicitation of proxies by Seafirst's Board of
Trustees for use at the Meeting. Only shareholders of record at the close of
business on April 1, 1997 will be entitled to vote at the Meeting or any
adjournment thereof. Shares represented by a properly executed proxy will be
voted in accordance with the instructions thereon or if no specification is
made, the persons named as proxies will vote in favor of the proposal set forth
in the Notice of Meeting. Proxies may be revoked at any time before they are
exercised by the subsequent execution and submission of a revised proxy, by
written notice of revocation to Seafirst, or by voting in person at the Meeting.
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 I to this Combined Prospectus/Proxy Statement
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 SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond
Fund will be transferred to and assumed by the PH Blue Chip Fund, PH Asset
Allocation Fund and PH Intermediate Bond Fund, respectively. In exchange for the
transfer of the assets of, and the assumption of the known liabilities of, the
SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund, Pacific Horizon
will issue at the Effective Time of the Reorganization full and fractional SRF
Shares of the respective PH Blue Chip Fund, PH Asset Allocation Fund and PH
Intermediate Bond Fund equal in aggregate dollar value to the aggregate dollar
value of full and fractional Shares of the SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund, respectively, as determined at the valuation
time specified in the Reorganization Agreement. The Reorganization Agreement
provides that Seafirst 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 SRF
Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond 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 SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond
Fund by, the PH Blue Chip Fund, PH Asset Allocation Fund and PH Intermediate
Bond Fund, respectively, Seafirst will distribute the SRF Shares of the PH Blue
Chip Fund, PH Asset Allocation Fund and PH Intermediate Bond Fund received from
Pacific Horizon to the shareholders of Seafirst in liquidation of the SRF Blue
Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund. Each shareholder of
Seafirst at the Effective Time of the Reorganization will receive an amount of
SRF Shares of equal 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 shares
of
23
<PAGE> 26
Seafirst. Following the Reorganization, the registration of Seafirst as an
investment company under the 1940 Act will be terminated, and Seafirst will be
terminated under state law.
The Reorganization with respect to the SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund is subject to a number of conditions,
including without limitation approval of the Reorganization Agreement and the
transactions contemplated thereby described in this Combined Prospectus/Proxy
Statement by the shareholders of Seafirst; 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 Drinker Biddle & Reath that the shares of
the PH Blue Chip Fund, PH Asset Allocation Fund and PH Intermediate Bond Fund
issued to shareholders of the respective SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund in accordance with the terms of the
Reorganization Agreement will be validly issued, fully paid and non-assessable);
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 June 23, 1997 or such other date
as is agreed to by the parties.
The Reorganization Agreement provides that with respect to expenses
incurred by Pacific Horizon and Seafirst in connection with the Reorganization
Agreement and the transactions contemplated thereby, Bank of America shall be
responsible for the payment of all of such expenses.
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 SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF
Bond 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 or the failure to satisfy
any of the conditions to its obligations (such waiver to be in writing and
authorized by an officer 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 Trustees of Seafirst, including all of those trustees who are
deemed not to be "interested persons" (as defined in the 1940 Act) of Seafirst
under the 1940 Act, at a meeting held on October 29, 1996 has unanimously
determined that (i) the proposed Reorganization is in the best interests of the
shareholders of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond
Fund and (ii) the interests of the Seafirst shareholders would not be diluted as
a result of the Reorganization. Accordingly, Seafirst's Board of Trustees
recommended the approval of the Reorganization Agreement by Seafirst's
shareholders at the Meeting.
During its deliberations, the Seafirst Board considered, among other
things: the terms of the Reorganization Agreement; a comparison of each of the
Seafirst Fund's expense ratios with those of the SRF Shares of the corresponding
Pacific Horizon Funds; Bank of America's agreement to pay all of the expenses of
the Reorganization; Bank of America's and BISYS' agreement to cap the total
operating expense ratios of SRF Shares for three years after the Reorganization;
the effect of such merger on Seafirst; the recommendation of Bank of America
with respect to the proposed consolidation of the Seafirst Funds and Pacific
Horizon Funds; the fact that the Reorganization would constitute a tax-free
reorganization; and the fact that the interests of
24
<PAGE> 27
shareholders would not be diluted as a result of the Reorganization. See
"SUMMARY -- Reasons For Reorganization" for further information regarding the
reasons for the Proposed Transactions.
Similarly, at a meeting also held on October 29, 1996, the Board of
Directors of Pacific Horizon considered the proposed Reorganization with respect
to the PH Blue Chip Fund, PH Asset Allocation Fund and PH Intermediate Bond
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
Directors unanimously determined that (i) the proposed Reorganization is in the
best interests of the shareholders of the PH Blue Chip Fund, PH Asset Allocation
Fund and PH Intermediate Bond Fund and (ii) the interests of the Pacific Horizon
shareholders would not be diluted as a result of the Reorganization.
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the Reorganization is
subject to the condition that Seafirst and Pacific Horizon receive an opinion,
based on reasonable assumptions and representations, from Drinker Biddle & Reath
to the effect that for Federal income tax purposes (i) the transfers of all of
the assets and known liabilities of the SRF Blue Chip Fund, SRF Asset Allocation
Fund and SRF Bond Fund to the respective PH Blue Chip Fund, PH Asset Allocation
Fund and PH Intermediate Bond Fund in exchange for SRF Shares of the PH Blue
Chip Fund, PH Asset Allocation Fund and PH Intermediate Bond Fund and the
liquidating distributions to shareholders of the SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund of the SRF Shares of the respective PH Blue
Chip Fund, PH Asset Allocation Fund and PH Intermediate Bond 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 Seafirst Funds and the Pacific Horizon Funds 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 SRF Blue Chip Fund, SRF
Asset Allocation Fund and SRF Bond Fund as a result of such transactions; (iii)
no gain or loss will be recognized by the PH Blue Chip Fund, PH Asset Allocation
Fund and PH Intermediate Bond Fund as a result of such transactions; (iv) no
gain or loss will be recognized by the shareholders of the SRF Blue Chip Fund,
SRF Asset Allocation Fund and SRF Bond Fund on the distribution to such
shareholders of SRF Shares of the respective PH Blue Chip Fund, PH Asset
Allocation Fund and PH Intermediate Bond Fund in exchange for their shares of
the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund; (v) the
basis of the PH Blue Chip Fund, PH Asset Allocation Fund and PH Intermediate
Bond Fund shares received by a shareholder of the respective SRF Blue Chip Fund,
SRF Asset Allocation Fund and SRF Bond Fund will be the same as the basis of the
shareholder's SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund
shares immediately before the Reorganization; (vi) the basis to the PH Blue Chip
Fund, PH Asset Allocation Fund and PH Intermediate Bond Fund of the assets of
the respective SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund
received pursuant to such transactions will be the same as the basis of such
assets in the hands of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF
Bond Fund immediately before such transactions; (vii) a shareholder's holding
period for the PH Blue Chip Fund, PH Asset Allocation Fund and PH Intermediate
Bond Fund shares will be determined by including the period for which the
shareholder held the respective SRF Blue Chip Fund, SRF Asset Allocation Fund
and SRF Bond Fund shares exchanged therefor, provided that the shareholder held
such SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund shares as a
capital asset; and (viii) the PH Blue Chip Fund, PH Asset Allocation Fund and PH
Intermediate Bond 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 respective SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund.
25
<PAGE> 28
Neither Seafirst nor Pacific Horizon has sought a tax ruling from the
Internal Revenue Service ("IRS"). The tax opinion described in the preceding
paragraph will not be binding on the IRS and will not preclude the IRS from
adopting a contrary position. Shareholders should consult their own advisors
concerning the potential tax consequences to them, including state and local
income tax consequences.
CAPITALIZATION. Pacific Horizon currently offers three classes of shares,
A Shares (Class M Common Stock, Class N Common Stock and Class O Common Stock),
K Shares (Class M -- Special Series 5 Common Stock, Class N -- Special Series 5
Common Stock and Class O -- Special Series 5 Common Stock) and SRF Shares (Class
M -- Special Series 7 Common Stock, Class N -- Special Series 7 Common Stock and
Class O -- Special Series 7 Common Stock) in the PH Intermediate Bond Fund, PH
Blue Chip Fund and PH Asset Allocation Fund, respectively. In connection with
the Reorganization, shareholders of the SRF Blue Chip Fund, SRF Asset Allocation
Fund and SRF Bond Fund will receive SRF Shares in the corresponding Pacific
Horizon Fund. Each SRF Share in Pacific Horizon 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 such Pacific
Horizon Fund and in the net distributable assets of such Pacific Horizon Fund on
liquidation. Holders of SRF Shares of Pacific Horizon will reimburse CFG,
Pacific Horizon's distributor, for shareholder servicing fees CFG pays to
Service Organizations under Pacific Horizon's Shareholder Services Plan for SRF
Shares. The fees paid under the Shareholder Services Plan are for (a)
non-distribution shareholder services provided by CFG to Service Organizations
and (b) fees paid to Service Organizations for the provision of support services
for shareholders for whom the Service Organization is the dealer or holder of
record in connection with SRF Shares.
Because the PH Blue Chip Fund, PH Asset Allocation Fund and PH Intermediate
Bond Fund will be combined with the SRF Blue Chip Fund, SRF Asset Allocation
Fund and SRF Bond Fund, respectively, in the Reorganization, the total
capitalization of the PH Blue Chip Fund, PH Asset Allocation Fund and PH
Intermediate Bond Fund, after the Reorganization is expected to be greater than
the current capitalization of the SRF Blue Chip Fund, SRF Asset Allocation Fund
and SRF Bond Fund, respectively. The following table sets forth as of December
31, 1996 (i) the capitalization of the SRF Blue Chip Fund, SRF Asset Allocation
Fund and SRF Bond Fund; (ii) the capitalization of the PH Blue Chip Fund, PH
Asset Allocation Fund and PH Intermediate Bond Fund ; and (iii) the pro forma
capitalization of the PH Blue Chip Fund, PH Asset Allocation Fund and SRF Bond
Fund as adjusted to give effect to the proposed Reorganization of the SRF Blue
Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund, respectively. 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.
26
<PAGE> 29
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SRF PH PRO-FORMA
BLUE CHIP FUND BLUE CHIP FUND COMBINED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Net Assets $240,048,143 $0 (SRF Shares) $240,048,143 (SRF Shares)
$129,963,625 (A Shares) $129,963,625 (A Shares)
$582,554 (K Shares) $582,554 (K Shares)
- ----------------------------------------------------------------------------------------------------
Shares Outstanding 10,484,130 0 (SRF Shares) 10,484,130 (SRF Shares)
5,542,096 (A Shares) 5,542,096 (A Shares)
24,847 (K Shares) 24,847 (K Shares)
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share $22.90 -- (SRF Shares) $22.90 (SRF Shares)
$23.45 (A Shares) $23.45 (A Shares)
$23.45 (K Shares) $23.45 (K Shares)
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SRF ASSET PH ASSET PRO-FORMA
ALLOCATION FUND ALLOCATION FUND COMBINED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Net Assets $160,033,940 $0 (SRF Shares) $160,033,940 (SRF Shares)
$31,002,512 (A Shares) $31,002,512 (A Shares)
$679,973 (K Shares) $679,793 (K Shares)
- -----------------------------------------------------------------------------------------------------
Shares Outstanding 10,392,530 0 (SRF Shares) 10,392,530 (SRF Shares)
1,660,244 (A Shares) 1,660,244 (A Shares)
36,388 (K Shares) 36,388 (K Shares)
- -----------------------------------------------------------------------------------------------------
Net Asset Value Per Share $15.40 -- (SRF Shares) $15.43 (SRF Shares)
$18.67 (A Shares) $18.67 (A Shares)
$18.68 (K Shares) $18.68 (K Shares)
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SRF PRO-FORMA
BOND FUND PH INTERMEDIATE COMBINED
BOND FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Net Assets $40,763,594 $0 (SRF Shares) $40,763,594 (SRF Shares)
$20,354,923 (A Shares) $20,354,923 (A Shares)
$315,680 (K Shares) $315,680 (K Shares)
- --------------------------------------------------------------------------------------------------
Shares Outstanding 3,794,633 0 (SRF Shares) 3,794,633 (SRF Shares)
2,122,973 (A Shares) 2,122,973 (A Shares)
32,935 (K Shares) 32,935 (K Shares)
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share $10.74 -- (SRF Shares) $10.74 (SRF Shares)
$9.59 (A Shares) $9.59 (A Shares)
$9.58 (K Shares) $9.58 (K Shares)
- --------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
COMPARISON OF THE FUNDS
The investment objectives, policies and restrictions of the Seafirst Funds
are identical to those of the corresponding Pacific Horizon Funds. The only
difference is that upon consummation of the Reorganization the PH Asset
Allocation Fund will no longer invest substantially all of its assets in the
Asset Allocation Master Portfolio, but will instead invest directly in a
portfolio of securities.
OTHER INFORMATION. Seafirst and Pacific Horizon are registered as open-end
management investment companies under the 1940 Act. Currently, Seafirst offers
three investment portfolios and Pacific Horizon offers seventeen investment
portfolios.
Seafirst is organized as a Delaware business trust and is subject to the
provisions of its Declaration of Trust and Bylaws. Pacific Horizon is organized
as a Maryland corporation and subject to the provisions of its Articles of
Incorporation and Amended and Restated By-laws. Although the rights of
shareholders of a Maryland corporation vary in certain respects from the rights
of shareholders of a Delaware business trust, the attributes of a share of
common stock in Pacific Horizon are comparable to those of a share of beneficial
interest in Seafirst. Shares of both Seafirst and Pacific Horizon: (i) are
entitled to one vote for each full share held and a proportionate fractional
vote for each fractional share held; (ii) will vote in the aggregate and not by
class except as otherwise expressly required by law or when class voting is
permitted by the respective Board of Trustees or Directors; and (iii) are
entitled to participate equally in the dividends and distributions that are
declared with respect to a particular investment portfolio and in the net
distributable assets of such portfolio on liquidation (except for payments to
service organizations that are borne by Pacific Horizon's A Shares, K Shares and
SRF Shares and except for payment to distribution organizations that are borne
by K Shares). Shares of the Seafirst Funds have no par value. Shares of the
Pacific Horizon Funds have a par value of $.001. In addition, shares of the
Seafirst Funds and Pacific Horizon Funds have no preemptive rights and only such
conversion and exchange rights as the respective Boards of Trustees or Directors
may grant in their discretion. Currently, SRF Shares of Pacific Horizon are
scheduled to convert to A Shares automatically on the third anniversary of the
Reorganization Date. When issued for payment as described in their Prospectuses,
Seafirst Fund shares and Pacific Horizon Fund shares are fully paid and
non-assessable by such entities.
Shareholders of Seafirst and Pacific Horizon will vote together in the
aggregate and not by class on all matters, except as described in the next
paragraph and except only SRF Shares of a Pacific Horizon Fund will be entitled
to vote on matters submitted to a vote of shareholders pertaining to such
Pacific Horizon Fund's payments to service organizations under the Shareholder
Services Plan for SRF Shares; and as otherwise required by law or when permitted
by their respective Board of Trustees or 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 Seafirst or Pacific Horizon shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding voting
securities (as defined in the 1940 Act) 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 Rule 18f-2 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 Seafirst or Pacific Horizon voting without regard to
particular Funds.
28
<PAGE> 31
A Shares and K Shares each have certain purchase, redemption and exchange
privileges and certain shareholder services. For example, A Shares have certain
privileges such as TeleTrade, an automatic investment program, an automatic
withdrawal plan and a direct deposit program.
The foregoing is only a summary. Shareholders may obtain copies of the
Declaration of Trust and By-laws of Seafirst and the Articles of Incorporation
and By-laws of Seafirst upon written request at the addresses shown on the cover
page of this Combined Prospectus/Proxy Statement.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Prospectus/Proxy Statement is being
furnished in connection with the solicitation of proxies by the Board of
Trustees of Seafirst for use at the Meeting. It is expected that the
solicitation of proxies will be primarily by mail. Seafirst's officers and
service providers may also solicit proxies by telephone, facsimile machine,
telegraph or personal interview. Seafirst requests that shareholders who return
their proxy via facsimile machine fax both sides of the proxy card. Seafirst
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, Seafirst has retained D.F.
King to aid in the solicitation of proxies at a cost to Bank of America of
approximately $35,000 and other out-of-pocket expenses. Any shareholder giving a
proxy may revoke it at any time before it is exercised by submitting to Seafirst
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 April 1, 1997 will
be entitled to vote at the Meeting. On that date, there were outstanding and
entitled to be voted 11,181,591.616 shares of the SRF Blue Chip Fund,
10,804,585.151 shares of the SRF Asset Allocation Fund and 3,620,826.206 shares
of the SRF Bond Fund. Each share or fraction thereof is entitled to one vote or
fraction thereof, and all shares will vote separately on a Fund by Fund basis.
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 AND BOARD APPROVALS. Approval of the Reorganization Agreement
(and the transactions contemplated thereby) requires the affirmative vote of at
least a majority of the outstanding shares present at a meeting for which there
is a quorum present of each of the SRF Blue Chip Fund, SRF Asset Allocation Fund
and SRF Bond Fund. The Reorganization is not approved unless the shareholders of
each of the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund
approve the Reorganization.
The term "majority of the outstanding shares" of Seafirst or a particular
Seafirst Fund means the lesser of (a) 67% or more of the shares present in
person or represented by proxy at the Meeting, provided that shareholders of
more than 50% of the outstanding shares of record are present in person or
represented by proxy or (b) more than 50% of the outstanding shares of record.
The vote of the shareholders of Pacific Horizon 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
29
<PAGE> 32
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. A shareholder vote may be taken with respect to one of the SRF
Funds (but not the other SRF Funds) prior to any such adjournment if sufficient
votes have been received for approval with respect to one of the SRF Funds.
Under the Declaration of Trust of Seafirst, a quorum is constituted with respect
to Seafirst by the presence in person or by proxy of the holders of more than
one-third of the outstanding shares of Seafirst entitled to vote at the Meeting.
For purposes of determining the presence of a quorum for transacting business at
the Meeting, abstentions will be treated as shares that are present at the
Meeting but which have not been voted. Abstentions will have the effect of a
"no" vote for purposes of obtaining the requisite approvals. Broker "non-votes"
(that is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares on a particular matter with respect to which the brokers or nominees
do not have discretionary power) will not be treated as shares that are present
at the Meeting and, accordingly, could make it more difficult to obtain the
requisite approvals.
ANNUAL MEETINGS. Neither Seafirst nor Pacific Horizon 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, 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 Pacific Horizons's outstanding shares of common stock. To the extent
required by law and Pacific Horizon's undertaking with the SEC, Pacific Horizon
will assist in shareholder communications in such matters. In addition Pacific
Horizon will hold special meetings of shareholders when required under the 1940
Act or in accordance with SEC policy.
The approval of the Reorganization Agreement by the Board of Trustees of
SRF is discussed above under "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION -- Board Considerations."
PRINCIPAL SHAREHOLDERS.
SEAFIRST FUNDS. At April 1, 1997, the trustees and officers of Seafirst as
a group owned beneficially less than 1% of the outstanding shares of each of
Seafirst's investment portfolios.
At April 1, 1997, no shareholder owned beneficially or of record more than
5% of the outstanding Shares of the Seafirst Funds.
PACIFIC HORIZON FUNDS. As of April 1, 1997, no SRF Shares of Pacific
Horizon were outstanding.
At April 1, 1997, the directors and officers of Pacific Horizon as a group
owned beneficially less than 1% of the outstanding shares of each of Pacific
Horizon's investment portfolios.
At April 1, 1997, no shareholder owned beneficially more than 5% of any
class of shares of the Pacific Horizon Funds.
30
<PAGE> 33
At April 1, 1997, the name, address and share ownership of the persons who
held as record owners more than 5% of any class of the Pacific Horizon Funds and
the percentage of shares that would be owned by such person upon consummation of
the Reorganization based upon their holdings at April 1, 1997 were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE PERCENTAGE
CLASS AND PERCENTAGE OF FUND SHARES OF CLASS OF FUND
PACIFIC HORIZON NAME AND AMOUNT OF CLASS OWNED OWNED ON OWNED UPON OWNED UPON
FUNDS ADDRESS SHARES OWNED ON RECORD DATE RECORD DATE CONSUMMATION CONSUMMATION
- -------------------- ------------------------------------ ------------ -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip........... Bank of America NT&SA Class A 9.36% 9.27% 9.36% 6.42%
The Private Bank 589,850.636
Attn: Common Trust Funds Unit 38329
P.O. Box 3577 Terminal Annex
Los Angeles, CA 90051
Corelink Financial Inc. Class K 99.92% 0.96% 99.92% 0.56%
P.O. Box 4054 60,796.751
Concord, CA 94524
Asset Allocation.... Corelink Financial Inc. Class A 6.51% 6.38% 6.51% 1.32%
P.O. Box 4054 119,712.270
Concord, CA 94524
Corelink Financial Inc. Class K 99.85% 2.09% 99.85% 0.43%
P.O. Box 4054 39,329.299
Concord, CA 94524
Intermediate Bond... Bank of America NT&SA Class A 49.75% 49.08% 49.75% 19.45%
The Private Bank 1,306,821.976
Attn: Common Trust Funds Unit 31329
P.O. Box 3577 Terminal Annex
Los Angeles, CA 90051
Corelink Financial Inc. Class K 99.69% 1.33% 99.69% 0.53%
P.O. Box 4054 35,365.21
Concord, CA 94524
</TABLE>
ADDITIONAL INFORMATION ABOUT PACIFIC HORIZON AND SEAFIRST
Information about the PH Blue Chip, PH Asset Allocation and PH Intermediate
Bond Funds and their A and SRF Shares is included in the Prospectus dated April
8, 1997 accompanying this Combined Prospectus/Proxy Statement, and is
incorporated by reference herein, and information about the SRF Blue Chip Fund,
SRF Asset Allocation and SRF Bond Fund is included in the Prospectus dated July
1, 1996, which is also incorporated herein by reference. Additional Information
about the SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund is
included in the Seafirst Funds' Statement of Additional Information, which has
been filed with the SEC. Additional information about the PH Blue Chip Fund, PH
Asset Allocation and PH Intermediate Bond Fund is included in the Pacific
Horizon Funds' Statement of Additional Information dated April 8, 1997 with
respect to their SRF Shares, which has been filed with the SEC. Copies of the PH
Blue Chip Fund, PH Asset Allocation and PH Intermediate Bond Fund Annual Reports
to Shareholders and most recent Semi-Annual Reports to Shareholders may be
obtained without charge by writing to BISYS, 3435 Stelzer Road, Columbus, Ohio
43219 or calling 1- 800-332-3863. Copies of the SRF Blue Chip Fund, SRF Asset
Allocation and SRF Bond Fund Annual Report to Shareholders and most recent
Semi-Annual Report to Shareholders may be obtained without charge by calling
1-800-323-9919. Pacific Horizon and Seafirst 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 BISYS Fund Services, Inc.
listed above and at the SEC's Regional Offices at 7 World Trade Center, Suite
1300, New
31
<PAGE> 34
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.
SEAFIRST FINANCIAL HIGHLIGHTS. The tables below show certain information
concerning the investment results for the Seafirst Funds for the periods
indicated. The information for the periods ended February 29, 1996 and February
28, 1995 and 1994 have been audited by Price Waterhouse LLP, Seafirst's
independent accountants, whose unqualified report on the financial statements
containing such information is incorporated by reference into the Statement of
Additional Information.
The financial statements for the period January 1, 1993 through December 5,
1993, for the years ended December 31, 1992, 1991, 1990 and 1989, and for the
period from March 9, 1988 (commencement of operations) to December 31, 1988,
were audited by other independent accountants whose report dated December 30,
1993 expressed an unqualified opinion on such financial statements.
32
<PAGE> 35
BLUE CHIP FUND
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FOR THE PERIOD
SIX MONTH PERIOD FOR THE FOR THE DEC. 6, 1993 JAN. 1, 1993
ENDED YEAR ENDED YEAR ENDED THROUGH THROUGH
AUG. 31, 1996 FEB. 29, 1996 FEB. 28, 1995 FEB. 28, 1994 DEC. 5, 1993(1)
---------------- ------------- ------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period.................... $ 21.09 $ 17.35 $ 17.75 $ 17.34 $ 15.65
--------- -------- -------- -------- --------
Income from investment operations:
Net investment income.................... 0.15 0.31 0.28 0.05 0.29
Net realized and unrealized gain
(loss) on securities................... 0.52 5.35 0.88 0.37 1.69
--------- -------- -------- -------- --------
Total income (loss) from
investment operations.................. 0.67 5.66 1.16 0.42 1.98
--------- -------- -------- -------- --------
Less dividends and distributions:
Dividends to shareholders from
net investment income................ (0.15) (0.31) (0.26) (0.01) (0.29)
Distributions to shareholders
from net realized gains................ -- (1.61) (1.30) -- --
--------- -------- -------- -------- --------
Total dividends and
distributions.......................... (0.15) (1.92) (1.56) (0.01) (0.29)
--------- -------- -------- -------- --------
Net asset value per share,
end of period.......................... $ 21.61 $ 21.09 $ 17.35 $ 17.75 $ 17.34
========= ======== ======== ======== ========
Total Return............................. 3.02%(3) 33.37% 6.95% 2.42%(3) 12.74%(3)
Ratios/supplemental data:
Net assets, end of period (000).......... $ 221,082 $206,220 $151,267 $132,916 $123,257
--------- -------- -------- -------- --------
Ratio of expenses to average net assets.. 0.95%(4,5) 0.95%(5) 0.82%(5) 0.95%(4,5) 0.95%(4)
Ratio of net investment income to
average net assets..................... 1.45%(4,5) 1.53%(5) 1.64%(5) 1.28%(4,5) 1.91%(4)
Portfolio turnover rate.................. N/A N/A N/A N/A 4%
========= ======== ======== ======== ========
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1992(1) 1991(1) 1990(1) 1989(1) 1988(1,2)
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period.................... $ 15.17 $ 12.68 $ 13.35 $ 10.68 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income.................... 0.30 0.33 0.44 0.51 0.36
Net realized and unrealized gain
(loss) on securities................... 0.48 2.49 (0.67) 2.67 0.68
------- ------- ------- ------- -------
Total income (loss) from
investment operations.................. 0.78 2.82 (0.23) 3.18 1.04
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends to shareholders from
net investment income................ (0.30) (0.33) (0.44) (0.51) (0.36)
Distributions to shareholders
from net realized gains................ -- -- -- -- --
------- ------- ------- ------- -------
Total dividends and
distributions.......................... (0.30) (0.33) (0.44) (0.51) (0.36)
------- ------- ------- ------- -------
Net asset value per share,
end of period.......................... $ 15.65 $ 15.17 $ 12.68 $ 13.35 $ 10.68
======= ======= ======= ======= =======
Total Return............................. 5.16% 22.52% (1.79%) 30.25% 10.61%(3)
Ratios/supplemental data:
Net assets, end of period (000).......... $96,206 $49,838 $24,727 $ 8,782 $ 663
------- ------- ------- ------- -------
Ratio of expenses to average net assets.. 0.95% 0.95% 0.57% 0.00% 0.00%
Ratio of net investment income to
average net assets..................... 2.08% 2.37% 3.40% 4.29% 4.70%(4)
Portfolio turnover rate.................. 27% 16% 22% 38% 41%(4)
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Represents activity of the Fund prior to its reorganization from the Blue
Chip Fund of Collective Investment Trust for Seafirst Retirement Accounts.
Since the operation and organization of the Fund was changed upon
reorganization, this activity may not be reflective of activity after the
reorganization.
(2) From March 9, 1988 (commencement of operations) to December 31, 1988.
(3) For the period indicated, not annualized.
(4) Annualized.
(5) Reflects the Fund's proportionate share of the Master Portfolio's expenses
and fee waivers and expense reimbursements by the Master Portfolio's
investment adviser and administrator and the Fund's administrator and
distributor. Such fee waivers and expense reimbursements 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 0.62%, 0.59%, 0.80%
and 0.93% (annualized) for the periods ended August 31, 1996, February 29,
1996, February 28, 1995 and February 28, 1994, respectively.
N/A -- Not applicable.
33
<PAGE> 36
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
FOR THE
SIX MONTH PERIOD FOR THE PERIOD FOR THE PERIOD
ENDED FOR THE FOR THE DEC. 6, 1993 JAN. 1, 1993
AUG. 31, 1996 YEAR ENDED YEAR ENDED THROUGH THROUGH
(UNAUDITED) FEB. 29, 1996 FEB. 28, 1995 FEB. 28, 1994 DEC. 5, 1993(1)
---------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period............. $ 14.96 $ 13.48 $ 13.94 $ 13.86 $ 12.99
--------- -------- -------- -------- --------
Income from investment
operations:
Net investment income............ 0.24 0.47 0.46 0.05 0.43
Net realized and unrealized gain
(loss) on securities............ 0.03 2.49 0.12 0.08 0.87
--------- -------- -------- -------- --------
Total income (loss) from
investment operations........... 0.27 2.96 0.58 0.13 1.30
--------- -------- -------- -------- --------
Less dividends and distributions:
Dividends to shareholders from
net investment income......... (0.24) (0.47) (0.46) (0.05) (0.43)
Distributions to shareholders
from net realized gains......... -- (1.01) (0.58) -- --
--------- -------- -------- -------- --------
Total dividends and
distributions................... (0.24) (1.48) (1.04) (0.05) (0.43)
--------- -------- -------- -------- --------
Net asset value per share, end of
period.......................... $ 14.99 $ 14.96 $ 13.48 $ 13.94 $ 13.86
========= ======== ======== ======== ========
Total Return..................... 1.70%(3) 22.44% 4.49% 0.94%(3) 10.15%(3)
Ratios/supplemental data:
Net assets, end of period
(000)........................... $ 155,473 $158,485 $145,132 $156,955 $149,719
Ratio of expenses to average net
assets.......................... 0.95%(4,5) 0.94%(5) 0.78%(5) 0.95%(4,5) 0.95%(4)
Ratio of net investment income to
average net assets.............. 2.90%(4,5) 3.19%(5) 3.40%(5) 2.64%(4,5) 3.47%(4)
Portfolio turnover rate.......... N/A N/A N/A N/A 79%
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1992(1) 1991(1) 1990(1) 1989(1) 1988(1,2)
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period............. $ 12.75 $ 11.30 $ 11.47 $ 10.31 $ 10.00
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment income............ 0.46 0.56 0.62 0.74 0.50
Net realized and unrealized gain
(loss) on securities............ 0.24 1.45 (0.17) 1.16 0.31
-------- ------- ------- ------- -------
Total income (loss) from
investment operations........... 0.70 2.01 0.45 1.90 0.81
-------- ------- ------- ------- -------
Less dividends and distributions:
Dividends to shareholders from
net investment income......... (0.46) (0.56) (0.62) (0.74) (0.50)
Distributions to shareholders
from net realized gains......... -- -- -- -- --
-------- ------- ------- ------- -------
Total dividends and
distributions................... (0.46) (0.56) (0.62) (0.74) (0.50)
-------- ------- ------- ------- -------
Net asset value per share, end of
period.......................... $ 12.99 $ 12.75 $ 11.30 $ 11.47 $ 10.31
======== ======= ======= ======= =======
Total Return..................... 5.62% 18.11% 4.21% 18.94% 8.23%(3)
Ratios/supplemental data:
Net assets, end of period
(000)........................... $106,822 $47,825 $23,608 $ 8,013 $ 1,210
Ratio of expenses to average net
assets.......................... 0.95% 0.95% 0.58% 0.00% 0.00%
Ratio of net investment income to
average net assets.............. 3.68% 4.72% 5.58% 7.07% 6.94%(4)
Portfolio turnover rate.......... 171% 124% 121% 71% 23%(4)
</TABLE>
- ---------
(1) Represents activity of the Fund prior to its reorganization from the Asset
Allocation Fund of Collective Investment Trust for Seafirst Retirement
Accounts. Since the operation and organization of the Fund was changed upon
reorganization, this activity may not be reflective of activity after the
reorganization.
(2) From March 9, 1988 (commencement of operations) to December 31, 1988.
(3) For the period indicated, not annualized.
(4) Annualized.
(5) Reflects the Fund's proportionate share of the Master Portfolio's expenses
and fee waivers and expense reimbursements by the Master Portfolio's
investment adviser and administrator and the Fund's administrator and
distributor. Such fee waivers and expense reimbursements 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 0.46%, 0.48%, 0.60%
and 0.69% (annualized) for the periods ended August 31, 1996, February 29,
1996, February 28, 1995 and February 28, 1994, respectively.
N/A -- Not applicable.
34
<PAGE> 37
BOND FUND
<TABLE>
<CAPTION>
FOR THE
SIX MONTH PERIOD FOR THE PERIOD FOR THE PERIOD
ENDED FOR THE FOR THE DEC. 6, 1993 JAN. 1, 1993
AUG. 31, 1996 YEAR ENDED YEAR ENDED THROUGH THROUGH
(UNAUDITED) FEB. 29, 1996 FEB. 28, 1995 FEB. 28, 1994 DEC. 5, 1993(1)
---------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period............. $ 10.87 $ 10.48 $ 11.00 $ 11.14 $ 10.99
--------- -------- -------- -------- --------
Income from investment
operations:
Net investment income............ 0.29 0.64 0.61 0.12 0.58
Net realized and unrealized gain
(loss) on securities............ (0.31) 0.39 (0.46) (0.14) 0.15
--------- -------- -------- -------- --------
Total income (loss) from
investment operations........... (0.02) 1.03 0.15 (0.02) 0.73
--------- -------- -------- -------- --------
Less dividends and distributions:
Dividends to shareholders from
net investment income......... (0.29) (0.64) (0.61) (0.12) (0.58)
Distributions to shareholders
from net realized gains......... -- -- (0.06) -- --
--------- -------- -------- -------- --------
Total dividends and
distributions................... (0.29) (0.64) (0.67) (0.12) (0.58)
--------- -------- -------- -------- --------
Net asset value per share, end of
period.......................... $ 10.56 $ 10.87 $ 10.48 $ 11.00 $ 11.14
========= ======== ======== ======== ========
Total Return..................... (0.24%)(3) 9.90% 1.57% (0.23%)(3) 6.80%(3)
Ratios/supplemental data:
Net assets, end of period
(000)........................... $ 41,888 $ 47,062 $ 55,791 $ 76,773 $ 82,970
--------- -------- -------- -------- --------
Ratio of expenses to average net
assets.......................... 0.95%(4) 0.95%(5) 0.83%(5) 0.95%(4,5) 0.95%(4)
Ratio of net investment income to
average net assets.............. 5.14%(4,5) 5.74%(5) 5.64%(5) 4.38%(4,5) 5.60%(4)
Portfolio turnover rate.......... N/A N/A N/A N/A 95%
--------- -------- -------- -------- --------
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1992(1) 1991(1) 1990(1) 1989(1) 1988(1,2)
-------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period............. $ 11.01 $ 10.40 $ 10.30 $ 9.98 $ 10.00
-------- ------- ------- ------ -------
Income from investment
operations:
Net investment income............ 0.67 0.72 0.82 0.86 0.55
Net realized and unrealized gain
(loss) on securities............ (0.02) 0.61 0.10 0.32 (0.02)
-------- ------- ------- ------ -------
Total income (loss) from
investment operations........... 0.65 1.33 0.92 1.18 0.53
-------- ------- ------- ------ -------
Less dividends and distributions:
Dividends to shareholders from
net investment income......... (0.67) (0.72) (0.82) (0.86) (0.55)
Distributions to shareholders
from net realized gains......... -- -- -- -- --
-------- ------- ------- ------ -------
Total dividends and
distributions................... (0.67) (0.72) (0.82) (0.86) (0.55)
-------- ------- ------- ------ -------
Net asset value per share, end of
period.......................... $ 10.99 $ 11.01 $ 10.40 $10.30 $ 9.98
======== ======= ======= ====== =======
Total Return..................... 6.04% 13.28% 9.43% 12.23% 6.49%(3)
Ratios/supplemental data:
Net assets, end of period
(000)........................... $ 73,826 $53,469 $ 9,445 $2,653 $ 1,318
-------- ------- ------- ------ -------
Ratio of expenses to average net
assets.......................... 0.95% 0.66% 0.00% 0.00% 0.00%
Ratio of net investment income to
average net assets.............. 6.15% 7.13% 8.31% 8.61% 7.06%(4)
Portfolio turnover rate.......... 154% 197% 113% 96% 205%(4)
-------- ------- ------- ------ -------
</TABLE>
- ---------
(1) Represents activity of the Fund prior to its reorganization from the Bond
Fund of Collective Investment Trust for Seafirst Retirement Accounts. Since
the operation and organization of the Fund was changed upon reorganization,
this activity may not be reflective of activity after the reorganization.
(2) From March 9, 1988 (commencement of operations) to December 31, 1988.
(3) For the period indicated, not annualized.
(4) Annualized.
(5) Reflects the Fund's proportionate share of the Master Portfolio's expenses
and fee waivers and expense reimbursements by the Master Portfolio's
investment adviser and administrator and the Fund's administrator and
distributor. Such fee waivers and expense reimbursements 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 0.49%, 0.61%, 0.58%
and 0.84% (annualized) for the periods ended August 31, 1996, February 29,
1996, February 28, 1995 and February 28, 1994, respectively.
N/A -- Not applicable.
35
<PAGE> 38
PACIFIC HORIZON FINANCIAL HIGHLIGHTS. The tables below show certain
information concerning the investment results for A shares of the Pacific
Horizon Funds for the periods indicated. During the periods shown, the Funds did
not offer SRF Shares. Actual investment results of the SRF Shares may be
different. The information for each of the fiscal years ended February 29, 1996
and February 28, 1995 and 1994 have been audited by Price Waterhouse LLP,
independent accountants, whose unqualified reports on the financial statements
containing such information are incorporated by reference in the Statement of
Additional Information.
BLUE CHIP FUND
Selected data for an A Share of common stock outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 13, 1994
SIX MONTH FOR THE FOR THE (COMMENCEMENT
PERIOD ENDED YEAR ENDED YEAR ENDED OF OPERATIONS)
AUGUST 31, FEBRUARY 29, FEBRUARY 28, THROUGH
1996 1996 1995 FEBRUARY 28, 1994
-------------- ------------ ------------ -----------------
(UNAUDITED)(a)
<S> <C> <C> <C> <C>
Net asset value per share, beginning of
period.................................. $ 20.53 $ 15.81 $14.97 $15.00
------- -------- ------ ------
Income From Investment Operations:
Net investment income................... 0.11 0.26 0.31 0.02
Net realized and unrealized gains
(losses) on securities............... 0.48 4.96 0.80 (0.05)
------- -------- ------ ------
Total income (loss) from investment
operations........................... 0.59 5.22 1.11 (0.03)
------- -------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................... (0.11) (0.28) (0.27) --
Distributions to shareholders from net
realized gains on securities......... -- (0.22) -- --
------- -------- ------ ------
Total dividends and distributions....... (0.11) (0.50) (0.27) --
------- -------- ------ ------
Net change in net asset value............. 0.48 4.72 0.84 (0.03)
------- -------- ------ ------
Net asset value per share, end of
period.................................. $ 21.01 $ 20.53 $15.81 $14.97
======= ======== ====== ======
Total Return*............................. 2.88% 33.39% 7.60% (0.20)%
Ratios/Supplemental Data:
Net assets, end of period (000)......... $95,163 $ 66,933 $6,002 $1,180
Ratio of expenses to average net
assets**............................. 1.27%+ 0.83% 0.00% 0.00%+
Ratio of net investment income to
average net assets**................. 2.28%+ 1.63% 2.46% 2.92%+
</TABLE>
- ---------------
* The total returns listed are not annualized for the periods ended August 31,
1996 and February 28, 1994, and do not include the effect of the maximum
4.50% sales charge on A Shares.
** Reflects the Blue Chip Fund's proportionate share of the Master Portfolio's
expenses, the Master Portfolio's fee waivers and expense reimbursements by
the Master Portfolio's investment adviser and administrator and fee waivers
and expense reimbursements by the Blue Chip Fund's administrator and
distributor. Such fee waivers and expense reimbursements 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 0.48%, 1.45%, 6.32%
and 55.00% (annualized) for the periods ended August 31, 1996, February 29,
1996, February 28, 1995 and February 28, 1994, respectively.
+ Annualized.
(a) As of July 22, 1996, the Fund designated the existing series of shares as
"A" Shares.
36
<PAGE> 39
ASSET ALLOCATION FUND
Selected data for an A Share of common stock outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 18, 1994
FOR THE SIX (COMMENCEMENT
MONTH PERIOD FOR THE YEAR FOR THE YEAR OF OPERATIONS)
ENDED ENDED ENDED THROUGH
AUGUST 31, 1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED)(a) 1996 1995 1994
--------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Net asset value per share, beginning
of period......................... $ 17.52 $ 15.15 $14.84 $15.00
------- ------- ------ ------
Income from Investment Operations:
Net investment income............. 0.14 0.52 0.48 0.03
Net realized and unrealized gains
(losses) on securities......... 0.03 $ 2.86 0.24 (0.19)
------- ------- ------ ------
Total income (loss) from
investment operations........ 0.17 $ 3.38 0.72 (0.16)
------- ------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.............. (0.13) (0.53) (0.41) --
Distributions to shareholders from
net realized gains on
securities..................... -- (0.48) -- --
------- ------- ------ ------
Total dividends and distributions... (0.13) (1.01) (0.41) --
------- ------- ------
Net change in net asset value....... (0.04) $ 2.37 0.31 (0.16)
------- ------- ------ ------
Net asset value per share, end of
period............................ $ 17.56 $ 17.52 $15.15 $14.84
======= ======= ====== ======
Total Return++...................... 1.55% 22.80% 5.03% (1.07)%
Ratios/Supplemental Data:
Net assets, end of period
(000)........................ $26,319 $ 22,355 $5,694 $ 666
Ratio of expenses to average
net assets*.................. 1.25%+ 0.62% 0.00% 0.00%+
Ratio of net investment income
to average net assets*....... 2.62%+ 3.49% 4.25% 4.20%+
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Reflects the Asset Allocation Fund's proportionate share of the Master Portfolio's
expenses and fee waivers and expense reimbursements by the Master Portfolio's
investment adviser and administrator and the Asset Allocation Fund's administrator and
distributor. Such fee waivers and expense reimbursements 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 0.71%, 2.30%, 7.89% and 83.95% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1995 and February 28,
1994, respectively.
+ Annualized.
++ The total returns listed are not annualized for the periods ended August 31, 1996 and
February 28, 1994, and do not include the effect of the maximum 4.50% sales charge on A
Shares.
(a) As of July 22, 1996, the Fund designated the existing series of shares as "A" Shares.
</TABLE>
37
<PAGE> 40
INTERMEDIATE BOND FUND
Selected data for an A Share of common stock outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 24, 1994
SIX MONTH FOR THE YEAR FOR THE YEAR (COMMENCEMENT
PERIOD ENDED ENDED ENDED OF OPERATIONS)
AUGUST 31, FEBRUARY 29, FEBRUARY 28, THROUGH
1996 1996 1995 FEBRUARY 28, 1994
-------------- ------------ ------------ -----------------
(UNAUDITED)(a)
<S> <C> <C> <C> <C>
Net asset value per share, beginning of
period................................ $ 9.75 $ 9.44 $ 9.81 $10.00
------- -------- ------ ------
Income from Investment Operations:
Net investment income................. 0.26 0.59 0.59 0.08
Net realized and unrealized gains
(losses) on securities............. (0.27) 0.33 (0.37) (0.19)
------- -------- ------ ------
Total income (loss) from
investment operations......... (0.01) 0.92 0.22 (0.11)
------- -------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income.................. (0.26) (0.59) (0.59) (0.08)
Distributions to shareholders from net
realized gains on securities....... -- (0.02) -- --
------- -------- ------ ------
Total dividends and distributions....... (0.26) (0.61) (0.59) (0.08)
------- -------- ------ ------
Net change in net asset value........... (0.27) 0.31 (0.37) (0.19)
------- -------- ------ ------
Net asset value per share, end of
period................................ $ 9.48 $ 9.75 $ 9.44 $ 9.81
======= ======== ====== ======
Total Return+........................... (0.10%) 10.45% 2.27% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period (000).... $14,792 $ 13,179 $1,964 $ 356
Ratio of expenses to average net
assets*.......................... 0.75%++ 0.27% 0.00% 0.00%++
Ratio of net investment income to
average net assets*.............. 5.36%++ 6.13% 6.43% 5.70%++
</TABLE>
- ---------------
* Reflects the Intermediate Bond Fund's proportionate share of the Master
Portfolio's expenses and fee waivers and expense reimbursements by the
Master Portfolio's investment adviser and administrator and the Intermediate
Bond Fund's administrator and distributor. Such fee waivers and expense
reimbursements 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 1.64%, 4.73%, 17.95% and 160.20% (annualized) for the periods
ended August 31, 1996, February 29, 1996, February 28, 1995 and February 28,
1994, respectively.
+ The total returns listed are not annualized for the periods ended August 31,
1996 and February 28, 1994, and do not include the effect of the maximum
4.50% sales charge on A Shares.
++ Annualized.
(a) As of July 22, 1996, the Fund designated the existing shares as "A" Shares.
38
<PAGE> 41
FINANCIAL STATEMENTS AND EXPERTS
The Financial Highlights of the Seafirst Retirement Funds included in this
Combined Prospectus/Proxy Statement (except for the six month period ended
August 31, 1996) and the financial statements set forth in the Annual Report to
Shareholders for the fiscal year ended February 29, 1996 and incorporated by
reference in the Statement of Additional Information dated July 1, 1996 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 of the Pacific Horizon Funds included in this
Combined Prospectus/Proxy Statement (except for the six month period ending
August 31, 1996) and the financial statements set forth in the Annual Report to
Shareholders for the fiscal year ended February 29, 1996 and incorporated by
reference in the Statement of Additional Information dated April 9, 1997 have
been audited by Price Waterhouse LLP for the periods indicated in its report
thereon. 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.
OTHER BUSINESS
Seafirst's Board of Trustees 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 Seafirst nor Pacific Horizon is involved in any litigation which
would have any material adverse financial effect upon either the Seafirst
Retirement Funds or the Pacific Horizon Funds.
NOTICE TO BANKS, BROKER-DEALERS,
VOTING TRUSTEES AND THEIR NOMINEES
Please advise Seafirst, c/o Colleen Chupik, 701 Fifth Avenue, Seattle,
Washington 98104 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 Prospectus/Proxy Statement and other soliciting material you wish to
receive in order to supply copies to beneficial owners. Seafirst 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 Seafirst in writing at the
address on the cover page of this Combined Prospectus/Proxy Statement or by
telephoning (800) 323-9919.
* * *
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.
39
<PAGE> 42
APPENDIX I -- AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
PACIFIC HORIZON FUNDS, INC.
AND
SEAFIRST RETIREMENT FUNDS
DATED AS OF APRIL 9, 1997
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Transfer of Assets of an Acquired Fund..................................... I-1
Liquidating Distributions of SRF........................................... I-2
Termination of SRF......................................................... I-2
Valuation Time............................................................. I-3
Certain Representations, Warranties and Agreements of SRF.................. I-3
Certain Representations, Warranties and Agreements of Pacific Horizon...... I-5
Shareholder Action on Behalf of an Acquired Fund........................... I-6
N-14 Registration Statement................................................ I-7
Effective Time of the Reorganization....................................... I-7
Pacific Horizon Conditions................................................. I-7
SRF Conditions............................................................. I-9
Tax Documents.............................................................. I-10
Further Assurances......................................................... I-10
Termination of Representations and Warranties.............................. I-11
Termination of Agreement................................................... I-11
Amendment and Waiver....................................................... I-11
Governing Law.............................................................. I-11
Successors and Assigns..................................................... I-11
Beneficiaries.............................................................. I-11
Pacific Horizon Liability.................................................. I-12
SRF Liability.............................................................. I-12
Notices.................................................................... I-12
Expenses................................................................... I-13
Entire Agreement........................................................... I-13
Counterparts............................................................... I-13
</TABLE>
<PAGE> 44
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made as of the 9th
day of April, 1997 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 Seafirst Retirement Funds ("SRF"), a business trust
organized under the laws of the State of Delaware on January 28, 1993.
WHEREAS, each of Pacific Horizon and SRF 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 Bond Fund, an investment portfolio offered by SRF ("SRF Bond Fund"), be
transferred to, and be acquired and assumed by, the Intermediate Bond Fund, an
investment portfolio offered by Pacific Horizon ("PH Bond Fund"), as stated
herein, in exchange for Class SRF Shares (Class M-Special Series 7 Common Stock)
of the PH Bond Fund which shall thereafter be distributed by SRF to the holders
of shares of the SRF Bond Fund; the parties further desire that all of the
assets and known liabilities of the Blue Chip Fund, an investment portfolio
offered by SRF ("SRF Blue Chip Fund"), be transferred to, and be acquired and
assumed by, the Blue Chip Fund, an investment portfolio offered by Pacific
Horizon ("PH Blue Chip Fund"), as stated herein, in exchange for Class SRF
Shares (Class N-Special Series 7 Common Stock) shares of the PH Blue Chip Fund
which shall thereafter be distributed by SRF to the holders of shares of the SRF
Blue Chip Fund; and the parties further desire that all of the assets and known
liabilities of the Asset Allocation Fund, an investment portfolio offered by
SRF, be transferred to, and be acquired and assumed by, the Asset Allocation
Fund, an investment portfolio offered by Pacific Horizon ("PH Asset Allocation
Fund"), as stated herein, in exchange for Class SRF Shares (Class O-Special
Series 7 Common Stock) of the PH Asset Allocation Fund which shall thereafter be
distributed by SRF to the holders of shares of the SRF Asset Allocation Fund
(the "Reorganization") (The SRF Bond Fund, SRF Blue Chip Fund and SRF Asset
Allocation Fund are each hereinafter referred to as an "Acquired Fund," and the
PH Bond Fund, PH Blue Chip Fund and PH Asset Allocation Fund are each
hereinafter referred to as an "Acquiring Fund");
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 AN ACQUIRED 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 an Acquired 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 "Acquired Fund Assets") shall be
transferred and conveyed by each Acquired Fund to Pacific Horizon, on
behalf of its respective Acquiring Fund, and shall be accepted by Pacific
Horizon, on behalf of such Acquiring Fund, and Pacific Horizon on behalf of
such Acquiring Fund, shall assume all known liabilities whether accrued,
absolute, contingent or otherwise, of such Acquired Fund reflected as such
in the calculation of such Acquired Fund's net asset value (such known
liabilities are herein referred to as the "Acquired 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 each
Acquired Fund shall become and be the assets of its respective Acquiring
Fund; and (ii) all known liabilities of each Acquired Fund reflected as
such in the calculation of an Acquired Fund's net asset value shall attach
to its respective Acquiring Fund as aforesaid and may thenceforth be
enforced against such Acquiring Fund to the extent as if the same had been
incurred by it. Without limiting the generality
I-1
<PAGE> 45
of the foregoing, it is understood that the Acquired Fund Assets shall
include all property and assets of any nature whatsoever, including,
without limitation, all cash, cash equivalents, securities, claims and
receivables (including interest receivables) owned by an Acquired Fund, and
any deferred or prepaid expenses shown as an asset on an Acquired Fund's
books, at the Effective Time of the Reorganization, and all good will, all
other intangible property and all books and records belonging to an
Acquired Fund. It is further understood that Acquired Fund Liabilities
shall include all obligations of SRF to indemnify the trustees of SRF
acting in their capacity as such with respect to any claims alleging any
breach of fiduciary duty with respect to the transactions contemplated by
this Agreement or otherwise to the fullest extent permitted by law and
SRF's Declaration of Trust as in effect on the date hereof. It is further
understood that recourse for the Acquired Fund Liabilities assumed by an
Acquiring Fund shall, at and after the Effective Time of the
Reorganization, be limited to the assets of the corresponding Acquiring
Fund.
(b) In exchange for the transfer of the Acquired Fund Assets and the
assumption of the Acquired Fund Liabilities, Pacific Horizon shall
simultaneously issue at the Effective Time of the Reorganization to an
Acquired Fund a number of full and fractional Class SRF Shares ("SRF
Shares") of the respective Acquiring Fund (to the third decimal place) all
determined and adjusted as provided in this Section 1. The number of SRF
Shares of an Acquiring Fund so issued will have an aggregate net asset
value equal to the value of the Acquired Fund Assets so conveyed to such
Acquiring Fund.
(c) The net asset value of SRF Shares of an Acquiring Fund and the net
asset value of shares of an Acquired Fund shall be determined as of the
Valuation Time specified in Section 4. The net asset value of SRF Shares of
an Acquiring Fund shall be computed in the manner set forth in an Acquiring
Fund's then current prospectus under the Securities Act of 1933, as amended
(the "1933 Act"). The net asset value of shares of an Acquired Fund shall
be computed in the manner set forth in an Acquired Fund's then current
prospectus under the 1933 Act.
2. LIQUIDATING DISTRIBUTIONS OF SRF.
At the Effective Time of the Reorganization, each Acquired Fund shall
distribute in complete liquidation: pro rata to the recordholders of shares of
an Acquired Fund at the Effective Time of the Reorganization the SRF Shares of
an Acquiring Fund received by such Acquired Fund pursuant to Section 1; In
addition, each shareholder of record of an Acquired 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 an
Acquired Fund that are held by the shareholder at the Effective Time of the
Reorganization. In accordance with instructions it receives from SRF, Pacific
Horizon shall record on its books the ownership of the SRF Shares of an
Acquiring Fund by the recordholders of the shares of an Acquired Fund. All of
the issued and outstanding shares of an Acquired Fund shall be cancelled on the
books of SRF at the Effective Time of the Reorganization and shall thereafter
represent only the right to receive SRF Shares of an Acquiring Fund, and an
Acquired Fund's transfer books shall be closed permanently.
3. TERMINATION OF SRF.
At the Effective Time of the Reorganization, SRF shall be terminated
pursuant to Section 9.2 of its Declaration of Trust, such that (a) the affairs
of SRF shall be immediately wound up, its contracts discharged and its business
liquidated; and (b) the Trustees of SRF shall execute and lodge among the
records of SRF an instrument in writing setting forth the fact of such
termination. Immediately after the Effective Time of the Reorganization, SRF
shall file an application pursuant to Section 8(f) of the 1940 Act for an order
declaring
I-2
<PAGE> 46
that it has ceased to be an investment company. As a result of the termination
of SRF as aforesaid, at and after the Effective Time of the Reorganization: (a)
the Acquired Fund Assets of each Acquired Fund shall become and be the assets of
the corresponding Acquiring Fund to which they have been transferred; and (b)
all known liabilities of each Acquired Fund shall become the liabilities of the
corresponding Acquiring Fund which has assumed them as described and may
thenceforth be enforced against such Acquiring 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 Acquired Fund Assets shall include all good will and all
other intangible property and all books and records belonging to SRF on behalf
of an Acquired Fund. It is further understood that recourse for the liabilities
of an Acquired Fund shall, at and after the Effective Time of the
Reorganization, be limited to the Acquired Fund which has expressly assumed such
liabilities under this Agreement.
4. VALUATION TIME.
The Valuation Time shall be 4:00 P.M., Eastern Time, on June 20, 1997, or
such earlier or later date and time as may be mutually agreed by an officer of
each of the parties and set forth in writing signed by such officers.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SRF.
SRF, on behalf of itself and each Acquired Fund, represents and warrants
to, and agrees with, Pacific Horizon as follows:
(a) It is a Delaware 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 State of Delaware. 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 approvals of shareholders referred to in Section 7, 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
SRF, and represents SRF's valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to the effect of
bankruptcy, insolvency, reorganization, arrangement, moratorium, and other
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles and provided that the provisions of
this Agreement intended to limit liability for particular matters to an
investment portfolio and its assets, including but not limited to Sections
1(a), 20 and 21 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 SRF'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) Each Acquired 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.
I-3
<PAGE> 47
(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
Acquired Fund Assets due or properly shown to be due on any return filed by
any Acquired 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 Acquired Fund Assets.
(f) The financial statements of each Acquired Fund for its fiscal year
ended February 29, 1997, examined by Price Waterhouse LLP, copies of which
have been previously furnished to Pacific Horizon, present fairly the
financial position of each Acquired 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, each Acquired 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 net
investment company income, if any, for the taxable periods or years ended
on or before December 31, 1996 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,
1996 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 known liabilities of an Acquired Fund,
whether accrued, absolute, contingent or otherwise, not reflected in the
aggregate net asset value per share of Share of an Acquired Fund.
(i) There are no legal, administrative or other proceedings pending
or, to its knowledge threatened, against SRF or an Acquired Fund which
could result in liability on the part of SRF or an Acquired Fund.
(j) Subject to the approvals of shareholders referred to in Section 7,
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 Acquired Fund Assets and, upon delivery and payment for the
Acquired Fund Assets as contemplated herein, an Acquiring 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 SRF 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 SRF, (i) the registration
statement filed by Pacific Horizon on Form N-14 relating to the shares of
an Acquiring 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 SRF and the prospectuses of SRF and
Pacific Horizon 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 7 and at the
I-4
<PAGE> 48
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 shares of an Acquired 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 an Acquired 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 an
Acquiring Fund to be received in the transactions contemplated herein,
except in distribution to its shareholders as contemplated herein.
6. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PACIFIC HORIZON.
Pacific Horizon, on behalf of itself and each Acquiring Fund, represents
and warrants to, and agrees with, SRF 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 to carry
out and consummate the transactions contemplated herein, and has all
necessary federal, state and local authorizations to carry on its business
as now being conducted and to consummate the transactions contemplated by
this Agreement.
(c) This Agreement has been duly authorized, executed and delivered by
Pacific Horizon, and represents Pacific Horizon's valid and binding
contract, enforceable in accordance with its terms, subject as to
enforcement to the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
and provided that the provisions of this Agreement intended to limit
liability for particular matters to an investment portfolio and its assets,
including but not limited to Sections 1(a), 20 and 21 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) Each Acquiring 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 each Acquiring Fund for its fiscal
year ended February 29, 1997, examined by Price Waterhouse LLP, copies of
which have been previously furnished to SRF, present fairly the financial
position of each Acquiring Fund as of the date indicated and the results of
its operations for the periods indicated, in conformity with generally
accepted accounting principles.
I-5
<PAGE> 49
(f) At both the Valuation Time and the Effective Time of the
Reorganization, there shall be no known liabilities of an Acquiring Fund,
whether accrued, absolute, contingent or otherwise, not reflected in the
net asset value per share of its SRF Shares, respectively, issued pursuant
to this Agreement.
(g) There are no legal, administrative or other proceedings pending
or, to its knowledge, threatened against Pacific Horizon or an Acquiring
Fund which could result in liability on the part of Pacific Horizon or an
Acquiring Fund.
(h) 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 1934 Act, the 1940 Act, the rules and
regulations under those Acts, or state securities laws.
(i) Insofar as the following relate to Pacific Horizon, 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
7 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.
(j) The SRF Shares of an Acquiring Fund to be issued and delivered to
an Acquired Fund for the account of recordholders of shares and of an
Acquired 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, duly and
validly issued, fully paid and nonassessable, and no shareholder of Pacific
Horizon shall have any preemptive right of subscription or purchase in
respect thereto.
(k) For the period beginning at the Effective Time of the
Reorganization and ending 36 months thereafter, Pacific Horizon shall
provide for a liability policy for the officers and trustees of SRF
covering their actions as officers and trustees of SRF during the period
they served as such, either (i) by causing the directors and officers
liability policy carried by SRF with Federal Insurance Company and Gulf
Insurance Company on the date hereof to be continued in full force and
effect at the current coverage and deductible amounts or (ii) by adding the
trustees and officers of SRF as named insureds to the directors and
officers liability policy carried by Pacific Horizon for its own directors
and officers, which policy shall be on terms and conditions that, in the
determination of the Board of Directors of Pacific Horizon, are no less
favorable than those considered to be standard by a majority of
participants in the industry.
7. SHAREHOLDER ACTION ON BEHALF OF AN ACQUIRED 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 Trustees of SRF shall call, and SRF
shall hold, a meeting of the shareholders of an Acquired 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 Acquired Fund Assets belonging to an
Acquired Fund to an Acquiring Fund, and the assumption by an Acquiring
Fund of the Acquired Fund Liabilities, in exchange for SRF Shares of an
Acquiring Fund.
I-6
<PAGE> 50
(ii) The liquidation of an Acquired Fund through the distribution
to its recordholders of the SRF Shares of an Acquiring Fund as described
in this Agreement.
(b) Such other matters as may be determined by the Boards of Trustees
or Directors (as applicable) of the parties.
8. N-14 REGISTRATION STATEMENT.
Pacific Horizon shall file the N-14 Registration Statement. Pacific Horizon
and SRF 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.
9. EFFECTIVE TIME OF THE REORGANIZATION.
Delivery of the Acquired Fund Assets and the shares of an Acquiring Fund to
be issued pursuant to Section 1 and the liquidation of an Acquired 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 an officer 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 any Acquired Fund Assets are, for any reason,
not transferred at the Effective Time of the Reorganization, SRF shall cause
such Acquired Fund Assets to be transferred in accordance with this Agreement at
the earliest practicable date thereafter.
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 SRF (including the
determinations required by Rule 17a-8(a) under the 1940 Act) and by the
shareholders of each Acquired Fund of SRF, both in the manner required by
law.
(b) SRF shall have duly executed and delivered to Pacific Horizon such
bills of sale, assignments, certificates and other instruments of transfer
("Transfer Documents") as Pacific Horizon may deem necessary or desirable
to transfer all of an Acquired Fund's right, title and interest in and to
such Acquired Fund Assets. The Acquired 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 SRF 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 an
Acquired 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 statement
referred to in Section 5(f) including changes due to net redemptions. 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 SRF stating that each
of the conditions set forth in Section 10(a) and in this Section 10(c) have
been met.
I-7
<PAGE> 51
(d) Pacific Horizon shall have received an opinion of Drinker Biddle &
Reath, 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) SRF is a Delaware business trust duly organized and
validly existing under the laws of the State of Delaware; (ii) the shares
of an Acquired Fund outstanding at the Effective Time of the Reorganization
are duly authorized, validly issued, fully paid and non-assessable by an
Acquired Fund (except that shareholders of an Acquired Fund may under
certain circumstances be held personally liable for its obligations), and
to such counsel's knowledge, no shareholder of SRF has any option, warrant
or pre-emptive right to subscription or purchase in respect thereof; (iii)
this Agreement and the Transfer Documents have been duly authorized,
executed and delivered by SRF and represent legal, valid and binding
contracts, enforceable in accordance with their terms, subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and such counsel shall express no opinion
with respect to the application of equitable principles in any proceeding,
whether at law or in equity, or with respect to the provisions of this
Agreement intended to limit liability for particular matters to an Acquired
Fund and its assets, including but not limited to Sections 1(a), 20 and 21
of this Agreement; or with respect to the provisions of Section 1(a)
pertaining to the indemnification of the SRF trustees; (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 SRF or any material agreement known to
such counsel to which SRF is a party or by which SRF 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 SRF
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 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.
(e) Pacific Horizon shall have received an opinion of Drinker Biddle &
Reath, addressed to Pacific Horizon and SRF 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
transfers of all of the Acquired Fund Assets to an Acquiring Fund, and the
assumptions by an Acquiring Fund of the Acquired Fund Liabilities, in
exchange for shares of an Acquiring Fund, and the distribution of said
shares to the shareholders of an Acquired Fund, as provided in this
Agreement, will each 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 each reorganization, the Acquired Fund and the Acquiring 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 any Acquired Fund
as a result of such transactions; (iii) in accordance with Section 1032 of
the Code, no gain or loss will be recognized by an Acquiring 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 an
Acquired Fund on the distribution to them by an Acquired Fund of shares of
an Acquiring Fund in exchange for their shares of an Acquired Fund; (v) in
accordance with Section 358(a)(1) of the Code, the basis of Acquiring Fund
shares received by each shareholder of an Acquired Fund will be the same as
the basis of the shareholder's Acquired Fund shares immediately prior to
the transactions; (vi) in accordance with Section 362(b) of the Code, the
basis of the Acquired Fund Assets to each Acquiring Fund will be the same
as the basis of such Acquired Fund Assets in the hands of an Acquired Fund
immediately prior to the exchange; (vii) in accordance with Section 1223 of
the Code, a shareholder's holding period for
I-8
<PAGE> 52
Acquiring Fund shares will be determined by including the period for which
the shareholder held the shares of an Acquired Fund exchanged therefor,
provided that the shareholder held such shares of an Acquired Fund as a
capital asset; and (viii) in accordance with Section 1223 of the Code, the
holding period of an Acquiring Fund with respect to the Acquired Fund
Assets will include the period for which such Acquired Fund Assets were
held by an Acquired 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 Pacific Horizon, 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 SRF shall have certified that
SRF 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. SRF CONDITIONS.
The obligations of SRF 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
(including the determinations required by Rule 17a-8(a) under the 1940 Act)
and by the shareholders of each Acquired Fund of SRF, both in the manner
required by law.
(b) 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 an
Acquiring Fund since the date of the financial statements referred to in
Section 6(e) 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 6(e) including changes due to net
redemptions. 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. SRF shall have
received a certificate from the President or Vice President of Pacific
Horizon stating that each of the conditions set forth in Section 11(a) and
this Section 11(b) have been met.
(c) SRF shall have received an opinion of Drinker Biddle & Reath,
addressed to SRF 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 an Acquiring Fund to be delivered to an Acquired Fund as
provided for by this Agreement are duly authorized and upon delivery will
be validly issued, fully paid and non-assessable by an Acquiring Fund and
to such counsel's knowledge, no shareholder of Pacific Horizon has any
option, warrant or pre-emptive right to subscription or purchase in respect
thereof; (iii) this Agreement has been duly authorized, executed and
delivered by Pacific Horizon and represents a legal, valid and binding
contract, enforceable in accordance with its terms, subject to the effect
of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and such
I-9
<PAGE> 53
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 an Acquiring Fund and its assets,
including but not limited to Sections 1(a), 20 and 21 of this Agreement; or
with respect to the provisions of Section 1(a) pertaining to the
indemnification of the SRF trustees; (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 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 SRF.
(d) SRF shall have received an opinion of Drinker Biddle & Reath,
addressed to Pacific Horizon and SRF in the form reasonably satisfactory to
them and dated the Effective Time of the Reorganization, with respect to
the matters specified in Section 10(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 Pacific Horizon, 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 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.
12. TAX DOCUMENTS.
SRF shall deliver to Pacific Horizon at the Effective Time of the
Reorganization confirmations or other adequate evidence as to the adjusted tax
basis of the Acquired Fund Assets delivered to an Acquiring Fund in accordance
with the terms of this Agreement.
13. 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 Pacific Horizon, each account, book, record or other document of
SRF 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).
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<PAGE> 54
14. TERMINATION OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the parties set forth in this
Agreement shall terminate upon the delivery of the Acquired Fund Assets to an
Acquiring Fund and the issuance of the shares of an Acquiring Fund at the
Effective Time of the Reorganization.
15. 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 Pacific Horizon if the conditions set forth in Section 10 are
not satisfied as specified in said Section;
(b) By SRF if the conditions set forth in Section 11 are not satisfied
as specified in said Section; or
(c) By mutual consent of both parties.
This Agreement may be terminated at any time by the mutual consent of the
parties. If a party terminates this Agreement because one or more of its
conditions have not been fulfilled, or if this Agreement is terminated by mutual
consent, this Agreement will become null and void insofar as it is so terminated
without any liability of any party to the other parties.
16. 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 SRF (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 an
officer of the waiving party with or without the approval of such party's
shareholders).
17. GOVERNING LAW.
This Agreement and the transactions contemplated hereby shall be governed,
construed and enforced in accordance with the laws of the State of Maryland,
without giving effect to the conflicts of law principles otherwise applicable
therein, except that the provisions of Section 21 shall be construed in
accordance with Delaware law, without giving effect to the conflicts of law
principles otherwise applicable therein.
18. 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.
19. 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.
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<PAGE> 55
20. PACIFIC HORIZON LIABILITY.
Each party specifically acknowledges and agrees that all obligations of
Pacific Horizon under this Agreement are binding only with respect to an
Acquiring Fund; that any liability of Pacific Horizon under this Agreement with
respect to an Acquiring Fund, or in connection with the transactions
contemplated herein with respect to an Acquiring Fund, shall be discharged only
out of the assets of that Acquiring Fund; and that no other portfolio of Pacific
Horizon shall be liable with respect to this Agreement or in connection with the
transactions contemplated herein.
21. SRF LIABILITY.
(a) The names "Seafirst Retirement Funds" and "Trustees of Seafirst
Retirement Funds" 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 January 28, 1993, which is hereby
referred to and a copy of which is on file at the principal office of SRF.
The obligations of SRF 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 SRF personally, but bind only the trust
property, and all persons dealing with any series of shares of SRF must
look solely to the trust property belonging to such series for the
enforcement of any claims against SRF.
(b) Each party specifically acknowledges and agrees that all
obligations of SRF under this Agreement are binding only with respect to an
Acquired Fund; and that any liability of SRF under this Agreement with
respect to an Acquired Fund, or in connection with the transactions
contemplated herein with respect to an Acquired Fund, shall be discharged
only out of the assets of that Acquired Fund and that no other portfolio of
SRF shall be liable with respect to this Agreement or in connection with
the transactions contemplated herein.
22. 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 BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
With copies to:
Michael P. Malloy, Esq.
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
Telecopier Number: (215) 988-2757
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<PAGE> 56
If to SRF:
Seafirst Retirement Funds
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
With copies to:
Michael P. Malloy, Esq.
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
Telecopier Number: (215) 988-2757
23. EXPENSES.
With regard to the expenses incurred by Pacific Horizon and Seafirst 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.
24. 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.
25. 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.
[SIGNATURES OMITTED]
I-13
<PAGE> 57
APPENDIX II -- MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<PAGE> 58
PACIFIC HORIZON
BLUE CHIP FUND
[JAMES D. MILLER PHOTO]
JAMES D. MILLER, CFA
Chief Investment Officer
Bank of America Illinois
Investment Advisors Division
Mr. Miller is a leading member of the investment management team for the Blue
Chip Fund.
GOAL:
The Pacific Horizon Blue Chip Fund seeks long-term capital appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified group of "blue chip" common stocks,
which are included in either the Dow Jones Industrial Average or the Standard &
Poor's 500 Index.
APPROPRIATE FOR:
Investors who want to participate in the growth potential of some of America's
major companies. The Fund is a diversified equity product that can be used as
part of many investment strategies.
INCEPTION:
January 13, 1994
SIZE OF FUND AS OF
FEBRUARY 29, 1996:
Over $66 million
Q HOW DID YOU MANAGE THE FUND DURING THE RECENT PERIOD?
A We continued to manage the Fund in our very disciplined quantitative style
and concentrated heavily on risk management. We start by neutralizing most
of the divergent risk factors to the benchmark S&P 500. This includes sector and
size risk, among others. By this, we mean that the portfolio's holdings are
designed to mirror the sector allocations of the Standard & Poor's 500 Stock
Index. Likewise, the portfolio's average weighted size should approximate that
of the index.
The result is that our Fund is designed not to suffer or benefit any more than
the index when a particular sector performs well or badly. Likewise, the Fund is
designed not to decline more or less than the index when small- or
large-capitalization stocks have an especially good or bad year. Since we keep
risks in line with those in the benchmark, we attempt to add value through stock
selection.
For the 12 months ended February 29, 1996, the Fund performed more or less in
line with the index with a total return of 33.39% (without the sales charge),
compared to 34.60% for the S&P 500.+
Q HOW IS THE FUND DIFFERENT FROM AN INDEX FUND?
A As I said before, unlike an index fund, we attempt to add value through
individual security selection. Our goal is to buy the best stocks in each
sector -- by which we mean the stocks that add the most potential reward to our
portfolio for the least risk.
Q HOW DID YOU CHOOSE STOCKS DURING THE RECENT PERIOD?
A We looked at a number of different factors that can affect a stock's
performance and weighted most heavily those having the most impact during
the period. Then we used that information to select stocks that we believed
would do well.
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<PAGE> 59
For example, during the past year one of the most important factors determining
stock prices included something we call "earnings certainty." We found that
people were buying shares of companies that had similar earnings estimates from
different analysts.
Likewise, investors liked stocks of companies that had experienced the biggest
increases in analysts' earnings estimates -- our "rising earnings expectations"
model. And we discovered that investors were looking for companies whose shares
were selling at a low multiple of earnings. Consequently, we purchased lower P/E
stocks that demonstrated a clearer, brighter future earnings potential.
Q WHAT ARE SOME STOCKS YOU BOUGHT BASED ON THOSE THREE FACTORS?
A A number of our picks were large, well-known companies such as Chrysler
(1.14% of net assets as of February 29, 1996) and Merck (1.56%), both of
which scored well based on all three factors. Pepsico (2.43%) was particularly
attractive as well, largely on the basis of rising earnings expectations and
earnings certainty.++
Q ARE YOU PLANNING ANY IMPORTANT STRATEGIC CHANGES FOR THE COMING PERIOD?
A No. As always, we will make no attempt to forecast the direction of stock
prices in general or specific market sectors. Instead, we will continue to
keep track of the factors that are most likely to affect the returns of specific
stocks. Then we will invest in stocks with the appropriate characteristics.
- ---------------
+ Fund performance with the 4.50% maximum sales charge was 27.39% for the
period.
++ The composition of the Fund's holdings is subject to change.
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<PAGE> 60
PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 29, 1996)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LIPPER GROWTH
(FISCAL YEAR COVERED) FUND FUNDS AVERAGE S&P 500
<S> <C> <C> <C>
01/31/94 9550.00 10000.00 10000.00
02/28/94 9374.66 9667.00 9730.00
03/31/94 8989.56 9201.69 9303.96
04/30/94 9064.89 9232.36 9424.26
05/31/94 9177.88 9271.20 9579.29
06/30/94 8971.89 8960.00 9342.29
07/31/94 9306.05 9196.19 9651.24
08/31/94 9709.57 9620.33 10043.95
09/30/94 9448.58 9442.53 9801.79
10/31/94 9676.87 9591.79 10025.96
11/30/94 9353.46 9235.37 9657.91
12/31/94 9455.20 9320.91 9798.82
01/31/95 9646.60 9395.20 10053.49
02/28/95 10086.82 9749.98 10443.56
03/31/95 10363 10034 10757
04/30/95 10620 10246 11070
05/31/95 11030 10551 11507
06/30/95 11309 11001 11777
07/31/95 11746 11532 12170
08/31/95 11734 11617 12202
09/30/95 12212 11961 12714
10/31/94 12173 11791 12669
11/30/95 12664 12208 13227
12/31/95 12839 12256 13471
01/31/96 13304 12528 13935
02/29/96 13679.00 12806.00 14058.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon Blue Chip Fund to the S&P 500, which is
an unmanaged index often used as a performance benchmark for equity investments.
The hypothetical investment in the S&P 500 does not reflect any sales or
management fees that would be incurred if an investor were to actually purchase
individual securities or mutual funds, while the performance of the Fund
reflects all expenses and management fees and the effect of the maximum sales
charge.
The Fund fared well compared to other growth funds. The average of growth funds
as tracked by Lipper Analytical Services, Inc. measures the performance of other
funds with investment objectives and policies similar to those of the Pacific
Horizon Blue Chip Fund. An initial $10,000 investment in the Fund made on
January 31, 1994 would now be worth $13,679, while the same investment made in
the Lipper Growth Funds Average would be worth only $12,806.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Fund and administrative and advisory fees for the
Master Investment Trust, in which the Fund is wholly invested. The administrator
is also reimbursing expenses for the Fund. If the adviser and administrator had
not waived fees and reimbursed expenses, total return would have been lower.
This voluntary waiver of fees and reimbursement of expenses may be modified or
terminated at any time, which would reduce the Fund's performance.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.
S&P 500 is a registered trademark of Standard & Poor's Corporation. Lipper
Analytical Services, Inc. is an independent mutual fund-monitoring organization.
Neither the S&P 500 nor the Lipper Growth Funds Average may be invested in
directly.
------------------------------
AVERAGE ANNUAL RETURN
------------------------------
1 year: 27.39%
..............................
Since inception
(1/13/94): 15.92%
------------------------------
II-3
<PAGE> 61
PACIFIC HORIZON
ASSET ALLOCATION FUND
[ROBERT PYLES PHOTO]
ROBERT PYLES
Director of Equity
Bank of America NT&SA
Mr. Pyles manages the equity portion of the Asset Allocation Fund.
GOAL:
The Pacific Horizon Asset Allocation Fund seeks long-term growth from capital
appreciation and dividend and interest income.
INVESTMENTS:
The Fund uses a balanced approach by investing in stocks, bonds and
cash-equivalent securities.
APPROPRIATE FOR:
Investors seeking growth and income through a diversified portfolio of stocks
and bonds.
INCEPTION:
January 18, 1994
SIZE OF FUND AS OF
FEBRUARY 29, 1996:
Over $22 million
[STEVEN L. VIELHABER PHOTO]
STEVEN L. VIELHABER
Director of Taxable Fixed Income
Bank of America NT&SA
Mr. Vielhaber is a leading member of the investment management team for the
fixed-income portion of the Asset Allocation Fund.
Q HOW DID YOU ALLOCATE THE FUND'S ASSETS AMONG STOCKS, BONDS AND CASH DURING
THE RECENT 12 MONTHS?
A We held about 56% of the Fund's investments in stocks, with 40% in bonds and
4% in cash. That was roughly a neutral position for us, reflecting our
belief that stocks and bonds were fairly valued on a relative basis. For the 12
months ended February 29, 1996, the Fund had a total return of 22.80% (without
the sales charge) compared to the Fund's benchmarks, the Standard & Poor's 500
Stock Index and the Lehman Brothers Aggregate Index, which returned 34.60% and
12.24%, respectively.+
Q WHAT WAS THE BASIS FOR THAT DECISION?
A Stock prices climbed sharply during the year, but that increase was
justified by strongly rising corporate earnings and lower bond yields. We
also felt that stocks were a better value than low-yield cash instruments.
II-4
<PAGE> 62
Q WHAT KIND OF STOCKS DID YOU CHOOSE FOR THE PORTFOLIO?
A We believe that earnings drive stock prices. We look for firms that we think
can deliver strong profit growth over time and try to buy those firms'
shares at reasonable prices. We also make moderate bets on specific sectors of
the stock market -- we emphasize individual stock selection within the sectors.
During the recent period we felt that the economy was going through a temporary
slowdown that would likely last six to nine months before giving way to faster
economic growth. Those views encouraged us to reduce, but not eliminate, our
moderate overweighting in economically sensitive sectors such as capital goods
and technology. Firms such as Alco Standard (1.39% of net assets as of February
29, 1996), General Electric (2.04%), Intel (1.17%) and Emerson Electric (0.76%)
performed well. We believe that they will continue to benefit from faster
economic growth. What's more, they offer significant productivity benefits to
their customers.
We also held shares of large growth companies such as Household International
(1.23%) and Pfizer (0.60%). They performed well as investors sought to buy
stocks of firms that can deliver solid earnings growth even in a slow economic
environment.++
Q HOW DO YOU MANAGE THE BONDS IN THE PORTFOLIO?
A The bond portion of the portfolio includes government, corporate and
mortgage securities. Its average duration generally stays close to the
average for the Lehman Brothers Aggregate Bond Index. For the past 12 months,
that meant an average duration of 4.5 to 5 years. Since a portfolio's average
duration determines its sensitivity to changes in interest rates, we kept the
average duration of the Fund's bonds pretty much in line with the market as a
whole.
Q LOOKING AHEAD, DO YOU EXPECT TO MAKE SIGNIFICANT CHANGES IN THE FUND'S
PORTFOLIO?
A It seems likely that the pace of economic growth will increase during the
coming period, while inflation will likely remain low. In that environment,
we'll continue to look for companies that can deliver steady earnings growth in
a variety of conditions -- but also can benefit from an economic expansion. We
expect to continue to hold a relatively stable mix of stocks, bonds and cash in
the near term.
- ---------------
+ Fund performance with the 4.50% maximum sales charge was 17.27% for the
period.
++ The composition of the Fund's holdings is subject to change.
II-5
<PAGE> 63
PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 29, 1996)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER LEHMAN BROTHERS
MEASUREMENT PERIOD FLEXIBLE FUNDS AGGREGATE
(FISCAL YEAR COVERED) FUND AVERAGE BOND INDEX S&P 500
<S> <C> <C> <C> <C>
1/31/94 9548 10000 10000 10000
2/28/94 9446 9663 9826 9730
3/31/94 9195 9311.08 9583.30 9303.96
4/30/94 9144 9330.45 9506.63 9424.26
5/31/94 9208 9359.77 9505.68 9579.29
6/30/94 9077 9196.77 9484.77 9342.29
7/31/94 9334 9388.69 9673.52 9651.24
8/31/94 9584 9618.83 9685.12 10043.95
9/30/94 9386 9449.71 9542.75 9801.79
10/31/94 9509 9501.61 9534.16 10025.96
11/30/94 9302 9273.96 9513.19 9657.91
12/31/94 9397 9351.99 9578.83 9798.82
1/30/95 9581 9453.05 9768.49 10053.49
2/28/95 9921 9732.77 10000.98 10443.56
3/31/95 10109 9956 10062 10757
4/30/95 10314 10149 10203 11070
5/31/95 10704 10485 10598 11507
6/30/95 10913 10702 10675 11777
7/31/95 11080 10972 10652 12170
8/31/95 11180 11064 10780 12202
9/30/95 11420 11310 10885 12714
10/31/95 11441 11247 11027 12669
11/30/95 11783 11590 11192 13227
12/31/95 11926 11744 11348 13471
1/30/96 12155 11988 11424 13935
2/28/96 12183 12066.00 11225.00 14058.00
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon Asset Allocation Fund to the S&P 500,
which is an unmanaged index typically used as a performance benchmark for equity
investments and to the Lehman Brothers Aggregate Index, an unmanaged index with
investment policies similar to the Fund. Hypothetical investments in the S&P 500
and Lehman Brothers Aggregate Bond Index do not reflect any sales or management
fees that would be incurred if an investor were to actually purchase individual
securities or mutual funds, while the performance of the Fund reflects all
expenses and management fees and the effect of the maximum sales charge.
The Fund fared well compared to other asset allocation funds. The average of
asset allocation funds as tracked by Lipper Analytical Services, Inc. measures
the performance of other funds with investment objectives and policies similar
to those of the Pacific Horizon Asset Allocation Fund. An initial $10,000
investment in the Fund made on January 31, 1994 would now be worth $12,183,
while the same investment made in the Lipper Flexible Funds Average would be
worth $12,066.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Fund and administrative and advisory fees for the
Master Investment Trust, in which the Fund is wholly invested. The administrator
is also reimbursing all expenses for the Fund. If the adviser and administrator
had not waived fees and reimbursed expenses, total return would have been lower.
This voluntary waiver of fees and reimbursement of expenses may be modified or
terminated at any time, which would reduce the Fund's performance.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.
S&P 500 is a registered trademark of Standard & Poor's Corporation. Lipper
Analytical Services, Inc. is an independent mutual fund-monitoring organization.
Neither the S&P 500 Index, the Lipper Flexible Funds Average, nor the Lehman
Brothers Aggregate Bond Index may be invested in directly.
------------------------------
AVERAGE ANNUAL RETURN
------------------------------
1 year: 17.27%
..............................
Since inception
(1/18/94): 9.83%
------------------------------
II-6
<PAGE> 64
PACIFIC HORIZON
FLEXIBLE BOND FUND
[STEVEN L. VIELHABER]
STEVEN L. VIELHABER
Director of Taxable Fixed Income
Bank of America NT&SA
Mr. Vielhaber is a leading member of the investment management team for the
Flexible Bond Fund.
GOAL:
The Pacific Horizon Flexible Bond Fund seeks interest income and capital
appreciation.
INVESTMENTS:
The Fund invests in a diversified portfolio of investment-grade, intermediate-
and longer-term bonds, including corporate and government fixed-income
obligations, mortgage-backed securities, municipal securities and cash
equivalents.
APPROPRIATE FOR:
Investors who want interest income and capital appreciation from a diversified
portfolio of fixed-income securities.
INCEPTION:
January 24, 1994
SIZE OF FUND AS OF
FEBRUARY 29, 1996:
Over $13 million
Q HOW DID YOU MANAGE THE FUND DURING THE RECENT PERIOD?
A The Fund maintained a relatively stable average duration of about 3.25 years
during the 12 months ended February 29, 1996. That was relatively close to
the average duration of the Fund's benchmark, the Lehman Brothers
Government/Corporate Index. Duration is a measure of a fund's price sensitivity
to changes in interest rates; thus, our Fund's share price was about as
sensitive as the index to interest-rate changes. A duration of about three years
is fairly short and means that the Fund's net asset value (NAV) is likely to be
more stable than the NAVs of longer-duration portfolios. (The tradeoff for
enhanced stability: potentially lower returns if interest rates fall.)
There are different ways to meet a specific duration target. For example, one
way is to create an average duration of three years by combining very short-term
issues with longer term issues. Instead of this strategy, we chose a "bulleted"
approach, with a concentration in intermediate-term issues. We feel that our
approach tends to provide better returns when the Federal Reserve reduces
short-term interest rates, as it did during the recent period.
Our strategy resulted in a total return of 10.45% (without the sales charge) for
the Fund for the 12-months ended February 29, 1996, compared to 10.76% for the
Lehman Brothers Government/Corporate Intermediate Bond Index, for the same
period.+
Q HOW DID YOU CHANGE THE FUND'S EXPOSURE TO DIFFERENT SECTORS OF THE BOND
MARKET?
A We upgraded the credit quality of the Fund as the economy continued to slow.
When the economy slows, investors tend to prefer bonds whose issuers are in
a strong position to weather a sluggish environment. We sold our 5% stake in
bonds rated BBB, which are at the low end of the investment-grade spectrum. We
also reduced the
II-7
<PAGE> 65
maturity of our corporate holdings. That trimmed our risk in the corporate
sector while allowing us to pick up some extra yield over Treasury bonds.
Because of their high credit quality, the Fund's longer-maturity holdings were
concentrated in Treasury securities.
Q WHAT DO YOU SEE AHEAD FOR THE BOND MARKET AND THE FUND?
A It seems likely that the economy will continue to grow at a relatively slow
rate during the coming period. In this environment, the Fund will continue
to emphasize higher-quality issues. We'll also concentrate on intermediate-term
securities and maintain a relatively neutral average duration -- that is, one
that is close to that of the Lehman Brothers index. And we'll continue to look
for opportunities to add value by purchasing undervalued securities.
- ---------------
+ Fund performance with the 4.50% maximum sales charge was 5.48% for the period.
II-8
<PAGE> 66
PACIFIC HORIZON
FLEXIBLE BOND FUND
(AS OF FEBRUARY 29, 1996)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LEHMAN BROTHERS
LIPPER GOVERNMENT/
INTERMEDIATE CORPORATE
MEASUREMENT PERIOD INVESTMENT INTERMEDIATE
(FISCAL YEAR COVERED) FUND FUNDS AVERAGE BOND INDEX
<S> <C> <C> <C>
1/31/94 9551 10000 10000
02/28/94 9428.01 9691.54 9782.00
03/31/94 9299.11 9481.69 9542.34
04/30/94 9232.22 9398.46 9463.14
05/31/94 9235.03 9383.63 9446.11
06/30/94 9241.71 9365.66 9424.38
07/31/94 9359.38 9506.33 9612.87
08/31/94 9377.91 9525.75 9616.71
09/30/94 9327.81 9414.81 9471.50
10/31/94 9330.90 9400.45 9461.08
11/30/94 9298.83 9372.20 9444.05
12/31/94 9334.07 9418.40 9506.38
01/30/95 9469.25 9571.17 9688.90
02/28/95 9642.48 9772.16 9913.69
03/31/95 9698 9843 9971
04/30/95 9801 9972 10094
05/31/95 10082 10328 10399
06/30/95 10135 10393 10469
07/31/95 10141 10368 10470
08/31/95 10243 10483 10565
09/30/95 10323 10576 10641
10/31/95 10433 10706 10759
11/30/95 10561 10858 10900
12/31/95 10670 10994 11015
01/30/96 10767 11069 11109
2/28/96 10629.00 10882.00 10981
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon Flexible Bond Fund to the Lehman Brothers
Government/Corporate Intermediate Bond Index, which is an unmanaged index used
as a performance benchmark for intermediate term investments. The hypothetical
investment in the index does not reflect any sales or management fees that would
be incurred if an investor were to actually purchase individual bonds,
securities or mutual funds, while the performance of the Fund reflects all
expenses and management fees and the effect of the maximum sales charge.
The Fund tracked other bond funds. The average of intermediate investment funds
reported by Lipper Analytical Services, Inc. measures the performance of other
funds with investment objectives and policies similar to those of the Pacific
Horizon Flexible Bond Fund. An initial $10,000 investment in the Fund made on
January 31, 1994 would be worth $10,629 on February 29, 1996, while the same
investment made in the Lipper Intermediate Investment Funds Average would be
worth $10,882.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Fund and administrative and advisory fees for the
Master Investment Trust, in which the Fund is wholly invested. The administrator
is also reimbursing expenses for the Fund. If the adviser and administrator had
not waived fees and reimbursed expenses, total return would have been lower.
This voluntary waiver of fees and reimbursement of expenses may be modified or
terminated at any time, which would reduce the Fund's performance.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization.
Neither the Lipper Intermediate Investment Funds Average nor the Lehman Brothers
Government/ Corporate Intermediate Bond Index may be invested in directly.
------------------------------
AVERAGE ANNUAL RETURN
------------------------------
1 year: 5.48%
..............................
Since inception
(1/24/94): 3.14%
------------------------------
II-9
<PAGE> 67
SEAFIRST
BLUE CHIP FUND
[JAMES D. MILLER PHOTO]
JAMES D. MILLER, CFA
Chief Investment Officer
Bank of America Illinois
Investment Advisors Division
Mr. Miller is a leading member of the investment management team for the Blue
Chip Fund.
GOAL:
The Seafirst Blue Chip Fund seeks long-term capital appreciation.
INVESTMENTS:
The Fund invests primarily in a diversified group of "blue chip" common stocks,
which are included in either the Dow Jones Industrial Average or the Standard &
Poor's 500 Index.
APPROPRIATE FOR:
Investors who want to participate in the growth potential of some of America's
major companies. The Fund is a diversified equity product that can be used as
part of many investment strategies.
INCEPTION:
March 9, 1988
SIZE OF FUND AS OF
FEBRUARY 29, 1996:
Over $206 million
Q HOW DID YOU MANAGE THE FUND DURING THE RECENT PERIOD?
A We continued to manage the Fund in our very disciplined quantitative style
and concentrated heavily on risk management. We start by neutralizing most
of the divergent risk factors to the benchmark S&P 500. This includes sector and
size risk, among others. By this, we mean that the portfolio's holdings are
designed to mirror the sector allocations of the Standard & Poor's 500 Stock
Index. Likewise, the portfolio's average weighted size should approximate that
of the index.
The result is that our Fund is designed not to suffer or benefit any more than
the index when a particular sector performs well or badly. Likewise, the Fund is
designed not to decline more or less than the index when small- or
large-capitalization stocks have an especially good or bad year. Since we keep
risks in line with those in the benchmark, we attempt to add value through stock
selection.
For the 12 months ended February 29, 1996, the Fund performed more or less in
line with the index with a total return of 33.37%, compared to 34.60% for the
S&P 500.
Q HOW IS THE FUND DIFFERENT FROM AN INDEX FUND?
A As I said before, unlike an index fund, we attempt to add value through
individual security selection. Our goal is to buy the best stocks in each
sector -- by which we mean the stocks that add the most potential reward to our
portfolio for the least risk.
Q HOW DID YOU CHOOSE STOCKS DURING THE RECENT PERIOD?
A We looked at a number of different factors that can affect a stock's
performance and weighted most heavily those having the most impact during
the period. Then we used that information to select stocks that we believed
would do well.
II-10
<PAGE> 68
For example, during the past year one of the most important factors determining
stock prices included something we call "earnings certainty." We found that
people were buying shares of companies that had similar earnings estimates from
different analysts.
Likewise, investors liked stocks of companies that had experienced the biggest
increases in analysts' earnings estimates -- our "rising earnings expectations"
model. And we discovered that investors were looking for companies whose shares
were selling at a low multiple of earnings. Consequently, we purchased lower P/E
stocks that demonstrated a clearer, brighter future earnings potential.
Q WHAT ARE SOME STOCKS YOU BOUGHT BASED ON THOSE THREE FACTORS?
A A number of our picks were large, well-known companies such as Chrysler
(1.14% of net assets as of February 29, 1996) and Merck (1.56%), both of
which scored well based on all three factors. Pepsico (2.43%) was particularly
attractive as well, largely on the basis of rising earnings expectations and
earnings certainty.+
Q ARE YOU PLANNING ANY IMPORTANT STRATEGIC CHANGES FOR THE COMING PERIOD?
A No. As always, we will make no attempt to forecast the direction of stock
prices in general or specific market sectors. Instead, we will continue to
keep track of the factors that are most likely to affect the returns of specific
stocks. Then we will invest in stocks with the appropriate characteristics.
- ---------------
+ The composition of the Fund's holdings is subject to change.
II-11
<PAGE> 69
SEAFIRST
BLUE CHIP FUND
(AS OF FEBRUARY 29, 1996)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LIPPER GROWTH
(FISCAL YEAR COVERED) FUND FUNDS AVERAGE S&P 500
<S> <C> <C> <C>
03/31/88 10000.00 10000 10000.00
04/30/88 10178.67 9858 10125.00
05/31/88 10221.81 9790 10189.80
06/30/88 10699.34 10326 10660.57
07/31/88 10644.69 10185 10634.98
08/31/88 10280.06 9885 10258.80
09/30/88 10639.84 10260 10697.57
10/31/88 10857.56 10358 11006.73
11/30/88 10756.62 10147 10832.82
12/31/88 11039.32 10412 11025.65
01/31/89 11904.53 11059 11842.65
02/28/89 11573.03 10916 11535.92
03/31/89 11798.97 11165 11811.63
04/30/89 12437.42 11733 12437.65
05/31/89 12775.26 12241 12910.28
06/30/89 12620.41 12090 12844.44
07/31/89 13714.03 12965 14014.56
08/31/89 14111.78 13309 14269.63
09/30/89 13993.44 13348 14215.40
10/31/89 13704.17 12917 13898.40
11/30/89 14109.27 13110 14168.03
12/31/89 14380.07 13242 14510.90
01/31/90 13536.50 12366 13556.08
02/28/90 13802.89 12572 13713.33
03/31/90 14225.57 12950 14086.33
04/30/90 13964.35 12671 13749.67
05/31/90 15193.81 13877 15053.14
06/30/90 15169.73 13929 14962.82
07/31/90 15282.77 13680 14926.91
08/31/90 13828.93 12396 13567.07
09/30/90 13033.30 11666 12917.20
10/31/90 12975.58 11436 12873.29
11/30/90 13723.90 12203 13686.88
12/31/90 14130.52 12620 14068.74
01/31/91 14658.83 13449 14680.73
02/28/91 15521.05 14427 15730.40
03/31/91 15708.72 14895 16111.08
04/30/91 15539.72 14873 16149.75
05/31/91 16308.03 15507 16845.80
06/30/91 15682.54 14722 16074.26
07/31/91 16319.76 15497 16823.32
08/31/91 16477.25 15989 17222.04
09/30/91 16335.94 15838 16934.43
10/31/91 16647.59 16162 17161.35
11/30/91 15767.95 15532 16469.75
12/31/91 17304.01 17336 18353.89
01/31/92 17497.93 17379 18012.50
02/29/92 17760.28 17637 18246.67
03/31/92 17564.51 17082 17890.86
04/30/92 18171.76 16981 18416.85
05/31/92 18309.25 17105 18507.09
06/30/92 17926.78 16586 18231.33
07/31/92 18364.30 17180 18977.00
08/31/92 17708.02 16804 18587.97
09/30/92 17834.47 17082 18807.31
10/31/92 17660.87 17432 18871.25
11/30/92 18227.96 18327 19514.76
12/31/92 18203.22 18660 19754.79
01/31/93 18261.38 18913 19920.73
02/28/93 18645.22 18632 20191.65
03/31/93 18981.15 19160 20617.70
04/30/93 18934.40 18608 20118.75
05/31/93 19542.17 19300 20655.92
06/30/93 19407.23 19351 20715.82
07/31/93 19501.15 19293 20632.96
08/31/93 20182.11 20125 21414.95
09/30/93 19645.96 20314 21250.05
10/31/93 20270.95 20622 21689.93
11/30/93 20436.04 20206 21483.87
12/31/93 20522.67 20798 21743.83
01/31/94 20759.67 21459 22483.12
02/28/94 21434.69 21104 21871.58
03/31/94 21020.20 20089 20918.20
04/30/94 20130.92 20175 21188.67
05/31/94 20321.06 20284 21537.22
06/30/94 20570.62 19588 21004.39
07/31/94 20064.59 20118 21699.01
08/31/94 20814.34 21035 22581.94
09/30/94 21730.69 20610 22037.49
10/31/94 21104.32 20927 22541.49
11/30/94 20854.23 20131 21713.99
12/31/94 21081.30 20317 22030.80
01/31/95 21508.88 20458 22603.38
02/28/95 22481 21260 23480
03/31/95 23100 21855 24175
04/30/95 23659 22319 24879
05/31/95 24570 22984 25861
06/30/95 25194 23965 26469
07/31/95 26150 25120 27350
08/31/95 26124 25306 27424
09/30/95 27201 26060 28513
10/31/95 27109 25690 28473
11/30/95 28214 26597 29726
12/31/95 28605 26703 29276
01/31/96 29642 27293 31318
02/29/96 29984 27893 31604
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Seafirst Blue Chip Fund to the S&P 500 Index, which is an
unmanaged index often used as a performance benchmark for equity investments.
The hypothetical investment in the S&P 500 Index does not reflect any sales or
management fees that would be incurred if an investor were to actually purchase
individual securities or mutual funds, while the performance of the Fund
reflects all expenses and management fees.
The Fund fared well compared to other growth funds. The average of growth funds
as tracked by Lipper Analytical Services, Inc. measures the performance of other
funds with investment objectives and policies similar to those of the Seafirst
Blue Chip Fund. An initial $10,000 investment in the Fund made on March 31, 1988
would now be worth $29,984, while the same investment made in the Lipper Growth
Funds Average would be worth only $27,893.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Master Investment Trust, in which the Fund is wholly
invested. If the adviser and administrator had not waived fees, total return
would have been lower. This voluntary waiver of fees may be modified or
terminated at any time, which would reduce the Fund's performance.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any.
S&P 500 is a registered trademark of Standard & Poor's Corporation. Lipper
Analytical Services, Inc. is an independent mutual fund-monitoring organization.
Neither the S&P 500 nor the Lipper Growth Funds Average may be invested in
directly.
------------------------------
AVERAGE ANNUAL RETURN
------------------------------
1 year: 33.37%
..............................
5 year: 14.06%
..............................
Since inception
(3/9/88): 14.78%
------------------------------
II-12
<PAGE> 70
SEAFIRST
ASSET ALLOCATION FUND
[ROBERT PYLES PHOTO]
ROBERT PYLES
Director of Equity
Bank of America NT&SA
Mr. Pyles manages the equity portion of the Asset Allocation Fund.
GOAL:
The Seafirst Asset Allocation Fund seeks long-term growth from capital
appreciation and dividend and interest income.
INVESTMENTS:
The Fund uses a balanced approach by investing in stocks, bonds and
cash-equivalent securities.
APPROPRIATE FOR:
Investors seeking growth and income through a diversified portfolio of stocks
and bonds.
INCEPTION:
March 9, 1988
SIZE OF FUND AS OF
FEBRUARY 29, 1996:
Over $158 million
[STEVEN L. VIELHABER PHOTO]
STEVEN L. VIELHABER
Director of Taxable Fixed Income
Bank of America NT&SA
Mr. Vielhaber is a leading member of the investment management team for the
fixed-income portion of the Asset Allocation Fund.
Q HOW DID YOU ALLOCATE THE FUND'S ASSETS AMONG STOCKS, BONDS AND CASH DURING
THE RECENT 12 MONTHS?
A We held about 56% of the Fund's investments in stocks, with 40% in bonds and
4% in cash. That was roughly a neutral position for us, reflecting our
belief that stocks and bonds were fairly valued on a relative basis. For the 12
months ended February 29, 1996, the Fund had a total return of 22.44% compared
to the Fund's benchmarks, the Standard & Poor's 500 Stock Index and the Lehman
Brothers Aggregate Bond Index, which returned 34.60% and 12.24%, respectively.
Q WHAT WAS THE BASIS FOR THAT DECISION?
A Stock prices climbed sharply during the year, but that increase was
justified by strongly rising corporate earnings and lower bond yields. We
also felt that stocks were a better value than low-yield cash instruments.
II-13
<PAGE> 71
Q WHAT KIND OF STOCKS DID YOU CHOOSE FOR THE PORTFOLIO?
A We believe that earnings drive stock prices. We look for firms that we think
can deliver strong profit growth over time and try to buy those firms'
shares at reasonable prices. We also make moderate bets on specific sectors of
the stock market -- we emphasize individual stock selection within the sectors.
During the recent period we felt that the economy was going through a temporary
slowdown that would likely last six to nine months before giving way to faster
economic growth. Those views encouraged us to reduce, but not eliminate, our
moderate overweighting in economically sensitive sectors such as capital goods
and technology. Firms such as Alco Standard (1.39% of net assets as of February
29, 1996), General Electric (2.04%), Intel (1.17%) and Emerson Electric (0.76%)
performed well. We believe that they will continue to benefit from faster
economic growth. What's more, they offer significant productivity benefits to
their customers.
We also held shares of large growth companies such as Household International
(1.23%) and Pfizer (0.60%). They performed well as investors sought to buy
stocks of firms that can deliver solid earnings growth even in a slow economic
environment.+
Q HOW DO YOU MANAGE THE BONDS IN THE PORTFOLIO?
A The bond portion of the portfolio includes government, corporate and
mortgage securities. Its average duration generally stays close to the
average for the Lehman Brothers Aggregate Bond Index. For the past 12 months,
that meant an average duration of 4.5 to 5 years. Since a portfolio's average
duration determines its sensitivity to changes in interest rates, we kept the
average duration of the Fund's bonds pretty much in line with the market as a
whole.
Q LOOKING AHEAD, DO YOU EXPECT TO MAKE SIGNIFICANT CHANGES IN THE FUND'S
PORTFOLIO?
A It seems likely that the pace of economic growth will increase during the
coming period, while inflation will likely remain low. In that environment,
we'll continue to look for companies that can deliver steady earnings growth in
a variety of conditions -- but also can benefit from an economic expansion. We
expect to continue to hold a relatively stable mix of stocks, bonds and cash in
the near term.
- ---------------
+ The composition of the Fund's holdings is subject to change.
II-14
<PAGE> 72
SEAFIRST
ASSET ALLOCATION FUND
(AS OF FEBRUARY 29, 1996)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
SEAFIRST ASSET LEHMAN BROTHERS LIPPER
MEASUREMENT PERIOD ALLOCATION AGGREGATE FLEXIBLE FUNDS
(FISCAL YEAR COVERED) FUND BOND INDEX S&P 500 AVERAGE
<S> <C> <C> <C> <C>
3/31/88 10000 10000 10000 10000
4/30/88 10136 9946 10125 9797
5/31/88 10158 9879 10190 9759
6/30/88 10478 10117 10661 10044
7/31/88 10453 10064 10635 9966
8/31/88 10332 10090 10259 9838
9/30/88 10592 10319 10698 10076
10/31/88 10748 10513 11007 10181
11/30/88 10683 10385 10833 10096
12/31/88 10829 10396 11026 10204
1/31/89 11230 10546 11843 10518
2/28/89 11120 10470 11536 10438
3/31/89 11215 10515 11812 10571
4/30/89 11518 10735 12438 10867
5/31/89 11767 11017 12910 11168
6/30/89 11870 11352 12844 11208
7/31/89 12353 11594 14015 11717
8/31/89 12482 11425 14270 11833
9/30/89 12491 11483 14215 11860
10/31/89 12497 11765 13898 11695
11/30/89 12726 11877 14168 11845
12/31/89 12882 11909 14511 11946
1/31/90 12498 11767 13556 11520
2/28/90 12654 11805 13713 11620
3/31/90 12881 11813 14086 11763
4/30/90 12740 11705 13750 11597
5/31/90 13429 12051 15053 12181
6/30/90 13495 12245 14963 12247
7/31/90 13633 12414 14927 12234
8/31/90 12924 12248 13567 11668
9/30/90 12580 12349 12917 11402
10/31/90 12623 12506 12873 11362
11/30/90 13128 12775 13687 11789
12/31/90 13412 12974 14069 12057
1/31/91 13711 13135 14681 12482
2/28/91 14116 13247 15730 13013
3/31/91 14226 13338 16111 13241
4/30/91 14240 13482 16150 13259
5/31/91 14590 13561 16846 13620
6/30/91 14299 13554 16074 13220
7/31/91 14660 13742 16823 13583
8/31/91 14894 14039 17222 13895
9/30/91 14977 14324 16934 13941
10/31/91 15181 14483 17161 14164
11/30/91 14857 14616 16470 13871
12/31/91 15845 15050 18354 14976
1/31/92 15840 14846 18013 14929
2/29/92 15986 14942 18247 15110
3/31/92 15843 14859 17891 14828
4/30/92 16207 14966 18417 14855
5/31/92 16391 15248 18507 15025
6/30/92 16298 15459 18231 14904
7/31/92 16676 15774 18977 15341
8/31/92 16400 15933 18588 15209
9/30/92 16544 16123 18807 15381
10/31/92 16351 15909 18871 15336
11/30/92 16637 15912 19515 15638
12/31/92 16734 16165 19755 15862
1/31/93 16895 16475 19921 16123
2/28/93 17211 16763 20192 16230
3/31/93 17409 16834 20618 16610
4/30/93 17444 16952 20119 16454
5/31/93 17749 16974 20656 16736
6/30/93 17795 17281 20716 16862
7/31/93 17884 17380 20633 16915
8/31/93 18322 17684 21415 17496
9/30/93 18076 17731 21250 17584
10/31/93 18392 17797 21690 17820
11/30/93 18371 17646 21484 17554
12/31/93 18584 17741 21744 17956
1/31/94 19057 17981 22483 18422
2/28/94 18651 17668 21872 18084
3/31/94 18012 17231 20918 17424
4/30/94 18044 17093 21189 17451
5/31/94 18151 17092 21537 17504
6/30/94 17888 17054 21004 17208
7/31/94 18390 17393 21699 17566
8/31/94 18887 17414 22582 18003
9/30/94 18464 17158 22037 17762
10/31/94 18703 17143 22541 17801
11/30/94 18280 17105 21714 17390
12/31/94 18458 17223 22031 17520
1/31/95 18817 17564 22603 17627
2/28/95 19452 17982 23480 18136
3/31/95 19810 18090 24175 18486
4/30/95 20199 18343 24879 18847
5/31/95 20965 19053 25861 19849
6/30/95 21360 19192 26469 20260
7/31/95 21684 19150 27350 20771
8/31/95 21858 19382 27424 20943
9/30/95 22342 19570 28573 21408
10/31/95 22361 19824 28473 21288
11/30/95 23037 20122 29726 21937
12/31/95 23306 20403 30276 22229
1/31/96 23764 20538 31318 22258
2/29/96 23817 20183 31604 22403
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Seafirst Asset Allocation Fund to the S&P 500 Index,
which is an unmanaged index typically used as a performance benchmark for equity
investments and to the Lehman Brothers Aggregate Bond Index, an unmanaged index
with investment policies similar to the Fund. Hypothetical investments in the
S&P 500 Index and Lehman Brothers Aggregate Bond Index do not reflect any sales
or management fees that would be incurred if an investor were to actually
purchase individual securities or mutual funds, while the performance of the
Fund reflects all expenses and management fees.
The Fund fared well compared to other asset allocation funds. The average of
asset allocation funds as tracked by Lipper Analytical Services, Inc. measures
the performance of other funds with investment objectives and policies similar
to those of the Seafirst Asset Allocation Fund. An initial $10,000 investment in
the Fund made on March 31, 1988 would now be worth $23,817, while the same
investment made in the Lipper Flexible Funds Average would be worth $22,403.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Master Investment Trust, in which the Fund is wholly
invested. If the adviser and administrator had not waived fees, total return
would have been lower. This voluntary waiver of fees may be modified or
terminated at any time, which would reduce the Fund's performance.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any.
S&P 500 is a registered trademark of Standard & Poor's Corporation. Lipper
Analytical Services, Inc. is an independent mutual fund-monitoring organization.
Neither the S&P 500 Index, the Lipper Flexible Funds Average, nor the Lehman
Brothers Aggregate Bond Index may be invested in directly.
------------------------------
AVERAGE ANNUAL RETURN
------------------------------
1 year: 22.44%
..............................
5 year: 11.06%
..............................
Since inception
(3/9/88): 11.60%
------------------------------
II-15
<PAGE> 73
SEAFIRST
BOND FUND
[STEVEN L. VIELHABER PHOTO]
STEVEN L. VIELHABER
Director of Taxable Fixed Income
Bank of America NT&SA
Mr. Vielhaber is a leading member of the investment management team for the Bond
Fund.
GOAL:
The Seafirst Bond Fund seeks interest income and capital appreciation.
INVESTMENTS:
The Fund invests in a diversified portfolio of investment-grade, intermediate-
and longer-term bonds, including corporate and government fixed-income
obligations, mortgage-backed securities, municipal securities and cash
equivalents.
APPROPRIATE FOR:
Investors who want interest income and capital appreciation from a diversified
portfolio of fixed-income securities.
INCEPTION:
March 9, 1988
SIZE OF FUND AS OF
FEBRUARY 29, 1996:
Over $47 million
Q HOW DID YOU MANAGE THE FUND DURING THE RECENT PERIOD?
A The Fund maintained a relatively stable average duration of about 3.25 years
during the 12 months ended February 29, 1996. That was relatively close to
the average duration of the Fund's benchmark, the Lehman Brothers Government/
Corporate Intermediate Bond Index. Duration is a measure of a fund's price
sensitivity to changes in interest rates; thus, our Fund's share price was about
as sensitive as the index to interest-rate changes. A duration of about three
years is fairly short and means that the Fund's net asset value (NAV) is likely
to be more stable than the NAVs of longer-duration portfolios. (The trade-off
for enhanced stability: potentially lower returns if interest rates fall.)
There are different ways to meet a specific duration target. For example, one
way is to create an average duration of three years by combining very short-term
issues with longer term issues. Instead of this strategy, we chose a "bulleted"
approach, with a concentration in intermediate-term issues. We feel that our
approach tends to provide better returns when the Federal Reserve reduces
short-term interest rates, as it did during the recent period.
Our strategy resulted in a total return of 9.90% for the Fund for the 12 months
ended February 29, 1996, compared to 10.76% for the Lehman Brothers
Government/Corporate Intermediate Bond Index, for the same period.
Q HOW DID YOU CHANGE THE FUND'S EXPOSURE TO DIFFERENT SECTORS OF THE BOND
MARKET?
A We upgraded the credit quality of the Fund as the economy continued to slow.
When the economy slows, investors tend to prefer bonds whose issuers are in
a strong position to weather a sluggish environment. We sold our 5% stake in
bonds rated BBB, which are at the low end of the investment-grade spectrum. We
also reduced the
II-16
<PAGE> 74
maturity of our corporate holdings. That trimmed our risk in the corporate
sector while allowing us to pick up some extra yield over Treasury bonds.
Because of their high credit quality, the Fund's longer-maturity holdings were
concentrated in Treasury securities.
Q WHAT DO YOU SEE AHEAD FOR THE BOND MARKET AND THE FUND?
A It seems likely that the economy will continue to grow at a relatively slow
rate during the coming period. In this environment, the Fund will continue
to emphasize higher-quality issues. We'll also concentrate on intermediate-term
securities and maintain a relatively neutral average duration -- that is, one
that is close to that of the Lehman Brothers index. And we'll continue to look
for opportunities to add value by purchasing undervalued securities.
II-17
<PAGE> 75
SEAFIRST
BOND FUND
(AS OF FEBRUARY 29, 1996)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LEHMAN BROTHERS
GOVERNMENT/
CORPORATE LIPPER INTERMED
MEASUREMENT PERIOD INTERMEDIATE IATE INVESTMENT
(FISCAL YEAR COVERED) FUND INDEX GRADE AVERAGE
<S> <C> <C> <C>
3/31/88 10000.00 10000.00 10000
4/30/88 10065.49 9983.00 9846
5/31/88 10123.87 9939.07 9793
6/30/88 10211.06 10097.11 9979
7/31/88 10230.43 10075.90 9956
8/31/88 10262.40 10091.02 9977
9/30/88 10412.00 10266.60 10155
10/31/88 10539.52 10406.23 10301
11/30/88 10473.95 10317.77 10208
12/31/88 10512.11 10327.06 10217
1/31/89 10635.20 10435.49 10339
2/28/89 10599.90 10391.66 10297
3/31/89 10672.93 10437.39 10327
4/30/89 10860.85 10647.18 10503
5/31/89 11073.69 10859.06 10716
6/30/89 11322.64 11132.71 10984
7/31/89 11507.96 11360.93 11195
8/31/89 11379.31 11214.37 11046
9/30/89 11449.77 11267.08 11101
10/31/89 11659.07 11504.81 11321
11/30/89 11760.60 11615.26 11404
12/31/89 11800.10 11646.62 11426
1/31/90 11737.14 11572.08 11301
2/28/90 11798.09 11613.74 11332
3/31/90 11834.71 11628.84 11341
4/30/90 11791.10 11588.14 11255
5/31/90 12038.06 11843.08 11523
6/30/90 12193.25 12001.77 11687
7/31/90 12360.60 12168.60 11842
8/31/90 12324.11 12118.71 11720
9/30/90 12397.09 12212.02 11781
10/31/90 12548.98 12353.68 11886
11/30/90 12735.16 12541.46 12107
12/31/90 12902.68 12713.28 12271
1/31/91 13017.85 12841.68 12397
2/28/91 13091.29 12944.41 12504
3/31/91 13168.91 13032.43 12597
4/30/91 13300.72 13174.49 12735
5/31/91 13390.36 13254.85 12813
6/30/91 13378.88 13264.13 12815
7/31/91 13521.45 13411.36 12957
8/31/91 13769.69 13667.52 13243
9/30/91 13981.84 13902.60 13498
10/31/91 14137.88 14061.09 13643
11/30/91 14293.35 14222.79 13777
12/31/91 14621.60 14569.83 14203
1/31/92 14461.80 14437.24 14021
2/29/92 14504.66 14493.55 14086
3/31/92 14442.50 14437.02 14022
4/30/92 14553.87 14564.07 14116
5/31/92 14763.85 14789.81 14373
6/30/92 14974.45 15008.70 14580
7/31/92 15246.21 15307.38 14926
8/31/92 15399.56 15460.45 15063
9/30/92 15599.31 15670.71 15268
10/31/92 15374.26 15466.99 15040
11/3/92 15296.69 15408.22 15001
12/31/92 15511.72 15614.69 15217
1/31/93 15795.64 15919.17 15525
2/28/93 16025.25 16170.70 15817
3/31/93 16074.70 16235.38 15890
4/30/93 16198.27 16365.26 16005
5/31/93 16170.61 16329.26 15999
6/30/93 16362.58 16585.63 16294
7/31/93 16398.77 16625.43 16377
8/31/93 16589.58 16889.78 16688
9/30/93 16635.29 16960.72 16748
10/31/93 16652.56 17006.51 16817
11/30/93 16560.74 16911.27 16677
12/31/93 16615.36 16989.07 16775
1/31/94 16793.09 17177.64 16994
2/28/94 16521.14 16803.17 16690
3/31/94 16273.48 16391.49 16322
4/30/94 16135.73 16255.44 16171
5/31/94 16112.77 16226.18 16139
6/30/94 16111.06 16188.86 16111
7/31/94 16328.64 16512.64 16355
8/31/94 16361.34 16519.25 16398
9/30/94 16239.47 16269.81 16226
10/31/94 16234.58 16251.91 16209
11/30/94 16159.78 16222.66 16163
12/31/94 16219.61 16329.73 16232
1/31/95 16470.35 16643.26 16482
2/28/95 16722 17029 16821
3/31/95 16834 17126 16927
4/30/95 17011 17338 17150
5/31/95 17505 17862 17763
6/30/95 17615 17982 17875
7/31/95 17600 17984 17832
8/31/95 17751 18147 18030
9/30/95 17870 18278 18190
10/31/95 18068 18481 18414
11/30/95 18266 18723 18676
12/31/95 18461 18920 18909
1/31/96 18602 19030 19038
2/29/96 18377 18861 18715
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the Seafirst Bond Fund to the Lehman Brothers
Government/Corporate Intermediate Bond Index, which is an unmanaged index used
as a performance benchmark for intermediate term investments. The hypothetical
investment in the index does not reflect any sales or management fees that would
be incurred if an investor were to actually purchase individual bonds,
securities or mutual funds, while the performance of the Fund reflects all
expenses and management fees.
The Fund tracked other bond funds. The average of intermediate investment funds
reported by Lipper Analytical Services, Inc. measures the performance of other
funds with investment objectives and policies similar to those of the Seafirst
Bond Fund. An initial $10,000 investment in the Fund made on March 31, 1988
would be worth $18,377 on February 29, 1996, while the same investment made in
the Lipper Intermediate Investment Funds Average would be worth $18,715.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Master Investment Trust, in which the Fund is wholly
invested. The administrator is also reimbursing expenses for the Fund. If the
adviser and administrator had not waived fees and reimbursed expenses, total
return would have been lower. This voluntary waiver of fees and reimbursement of
expenses may be modified or terminated at any time, which would reduce the
Fund's performance.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization.
Neither the Lipper Intermediate Investment Grade Average nor the Lehman Brothers
Government/ Corporate Intermediate Bond Index may be invested in directly.
------------------------------
AVERAGE ANNUAL RETURN
------------------------------
1 year: 9.90%
..............................
5 year: 7.08%
..............................
Since inception
(3/9/88): 8.01%
------------------------------
II-18
<PAGE> 76
PACIFIC HORIZON FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OHIO 43219
PACIFIC HORIZON BLUE CHIP FUND
PACIFIC HORIZON ASSET ALLOCATION FUND
PACIFIC HORIZON INTERMEDIATE BOND FUND
SEAFIRST RETIREMENT FUNDS
701 FIFTH AVENUE
SEATTLE, WASHINGTON 98104
SEAFIRST BLUE CHIP FUND
SEAFIRST ASSET ALLOCATION FUND
SEAFIRST BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
April 9, 1997 for the Special Meeting of Shareholders of the Blue Chip Fund
(the "SRF Blue Chip Fund"), Asset Allocation Fund (the "SRF Asset Allocation
Fund") and Bond Fund (the "SRF Bond Fund"), investment portfolios offered by
Seafirst Retirement Funds ("Seafirst"), to be held on May 21, 1997. Copies of
the Combined Proxy Statement and Prospectus may be obtained at no charge by
calling 1-800-323-9919.
This Statement of Additional Information consists of: (1) this Cover
Page; (2) General Information about the Reorganization; (3) certain pro forma
financial statements; (4) the Statement of Additional Information with respect
to the SRF Shares of Pacific Horizon's Blue Chip Fund (the "PH Blue Chip Fund"),
Asset Allocation Fund (the "PH Asset Allocation Fund") and Intermediate Bond
Fund (the "PH Intermediate Bond Fund") dated April 8, 1997; (5) the Statement
of Additional Information with respect to the SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund dated July 1, 1996; (6) the audited financial
statements of Pacific Horizon's Blue Chip Fund, Asset Allocation Fund and
Intermediate Bond Fund and their corresponding Blue Chip, Asset Allocation and
Investment Grade Bond Portfolios of Master Investment Trust, Series I for the
fiscal year ended February 28, 1996 which are contained in its Annual Reports to
Shareholders which Annual Reports accompany this Statement of Additional
Information and are herein incorporated by reference thereto; (7) the audited
financial statements of Seafirst's Blue Chip Fund, Asset Allocation Fund and
Bond Fund and their corresponding Blue Chip, Asset Allocation and Investment
Grade Bond Portfolios of Master Investment Trust, Series I for the fiscal year
ended February 29, 1996 which are contained in its Annual Report to Shareholders
which Annual Report
<PAGE> 77
accompanies this Statement of Additional Information and is herein incorporated
by reference thereto; (8) the unaudited financial statements of Pacific
Horizon's Blue Chip Fund, Asset Allocation Fund and Intermediate Bond Fund and
their corresponding Blue Chip, Asset Allocation and Investment Grade Bond
Portfolios of Master Investment Trust, Series I for the six month period ended
August 31, 1996 which are contained in its Semi-Annual Reports to Shareholders
which Semi-Annual Reports accompany this Statement of Additional Information and
are herein incorporated by reference thereto; and (9) the unaudited financial
statements of Seafirst's Blue Chip Fund, Asset Allocation Fund and Bond Fund and
their corresponding Blue Chip, Asset Allocation and Investment Grade Bond
Portfolios of Master Investment Trust, Series I for the six month period ended
August 31, 1996 which are contained in its Semi-Annual Report to Shareholders
which Semi-Annual Report accompanies this Statement of Additional Information
and is herein incorporated by reference thereto.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Prospectus/Proxy Statement.
Further information about the SRF Shares of the PH Blue Chip Fund, PH
Asset Allocation Fund and PH Intermediate Bond Fund is contained in and
incorporated by reference to said Funds' Statement of Additional Information
dated April 8, 1997, copies of which are included herewith.
Further information about the SRF Blue Chip Fund, SRF Asset Allocation
Fund and SRF Bond Fund is contained in and incorporated by reference to said
Funds' Statement of Additional Information dated July 1, 1996, copies of which
are included herewith.
The date of this Statement of Additional Information is April 9, 1997.
<PAGE> 78
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
General Information................................................................... 1
Pro Forma Financial Statements........................................................ PF 1 - PF 30
Statement of Additional Information with respect
to the SRF Shares of Pacific Horizon's Blue
Chip Fund, Asset Allocation Fund and
Intermediate Bond Fund dated April 8, 1997 ........................................ SAI 1 - SAI B-14
Statement of Additional Information with respect
to Seafirst's Blue Chip Fund, Asset Allocation
Fund and Bond Fund dated July 1, 1996.............................................. SAI 1 - SAI B-14
Audited Financial Statements for the PH Blue Chip, PH Asset Allocation and PH
Intermediate Bond Funds and their corresponding Blue Chip, Asset Allocation
and Investment Grade Bond Portfolios of Master Investment Trust, Series I
dated February 29, 1996............................................................ FS 1 - FS 64
Audited Financial Statements for the SRF Blue Chip, SRF Asset Allocation and SRF
Bond Funds and their corresponding Blue Chip, Asset Allocation and Investment
Grade Bond Portfolios of Master Investment Trust, Series I
dated February 29, 1996............................................................ FS 65 - FS 104
Unaudited Financial Statement for the PH Blue Chip, PH Asset Allocation and PH
Intermediate Bond Funds and their corresponding Blue Chip, Asset Allocation
and Investment Grade Bond Portfolios of Master Investment Trust, Series I
dated August 31, 1996 (includes unaudited financial statements for the
Aggressive Growth Fund, Capital Income Fund, U.S. Government Securities Fund
and Corporate Bond Fund which are not involved in the
Reorganization).................................................................... FS 105 - FS 203
Unaudited Financial Statements for the SRF Blue Chip, SRF Asset Allocation and
SRF Bond Funds and their corresponding Blue Chip, Asset Allocation and
Investment Grade Bond Portfolios of Master Investment Trust, Series I
dated August 31, 1996 ............................................................ FS 204 - FS 241
</TABLE>
<PAGE> 79
GENERAL INFORMATION
The shareholders of the SRF Blue Chip Fund, SRF Asset Allocation Fund
and SRF Bond Fund are being asked to approve or disapprove an Agreement and Plan
of Reorganization dated as of April 9, 1997 by and between Seafirst and Pacific
Horizon and the transactions contemplated thereby. The Reorganization Agreement
contemplates the transfer of all of the assets and known liabilities of
Seafirst's Blue Chip Fund, Asset Allocation Fund and Bond Fund to Pacific
Horizon's Blue Chip Fund, Asset Allocation Fund and Intermediate Bond Fund,
respectively, and the issuance of SRF Shares of the PH Blue Chip Fund, PH Asset
Allocation Fund and PH Intermediate Bond Fund, such that each shareholder in the
SRF Blue Chip Fund, SRF Asset Allocation Fund and SRF Bond Fund at the effective
time of the reorganization will receive the same aggregate dollar value of full
and fractional SRF Shares in the PH Blue Chip Fund, PH Asset Allocation Fund and
PH Intermediate Bond Fund.
A Special Meeting of Shareholders of the SRF Blue Chip Fund, SRF Asset
Allocation Fund and SRF Bond Fund to consider the Reorganization Agreement and
the related transactions, will be held at the office of BISYS Fund Services,
Inc., 3435 Stelzer Road, Columbus, Ohio 43219, on May 21, 1997 at 10:00 a.m.
Eastern time. See the Combined Proxy Statement and Prospectus for further
information about the transaction.
1
<PAGE> 80
PACIFIC HORIZON ASSET ALLOCATION FUND
SEAFIRST ASSET ALLOCATION FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PACIFIC HORIZON SEAFIRST ADJUSTMENTS COMBINED
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
ASSETS
Investment in Master Investment Trust Series 1
--Asset Allocation Portfolio, at value $31,928 $169,043 ($200,971)(a) -
Investments at cost - - 199,042 (a) 199,042
Interest Receivable - - 989 (a) 989
Dividend Receivable - - 195 (a) 195
Receivable for Fund shares sold - - 812 (a) 812
Receivable from Administrator - - 41 (b) 41
Cash - - 4 (a) 4
Deferred organization costs, prepaid
expenses and other receivables 25 15 (9)(c) 31
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets 31,953 169,058 103 201,114
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends Payable 191 8,869 9,060
Accrued expenses and other payables:
Investment Advisory fees - - 31 (a) 31
Reports to Shareholders 40 39 (1)(a) 78
Administration fees - 43 2 (a) 45
Shareholder Servicing Fees 7 37 (a) 44
Audit fees 13 13 29 (a) 55
Transfer Agent fees 12 - (a) 12
Fund Accounting fees 6 - 13 (a) 19
Other 2 23 29 (a) 54
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 271 9,024 103 9,398
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 31,682 160,034 191,716
- ------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Capital 28,273 137,227 165,500
Net unrealized appreciation on investments 1,905 12,910 14,815
Accumulated Net Realized (Losses) 1,504 9,897 11,401
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets $31,682 $160,034 $191,716
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Class A 31,003 - 31,002
Class K 682 - 680
Class SRF - - 160,034 160,034
Seafirst - 160,034 (160,034) -
- ------------------------------------------------------------------------------------------------------------------------------
$31,682 $160,034 $191,716
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding units of beneficial interest (shares)
Class A 1,660 - 1,660
Class K 36 - 36
Class SRF - - 10,392 (d) 10,392
Seafirst - 10,392 (10,392)(d) -
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value - redemption price per share
Class A $18.67 - $18.67
Class K $18.68 - $18.66
Class SRF - - $15.40
Seafirst - $15.40 -
- ------------------------------------------------------------------------------------------ ----------------
Maximum Offering price
Class A - Sales charge 4.50% of public
offering price $19.55 - $19.55
Class K $18.68 - $18.68
Class SRF - - $15.40
Seafirst - $15.40 -
- --------------------------------------------------------------------------------------- ----------------
</TABLE>
See notes to pro forma financial statements
PF-1
<PAGE> 81
PACIFIC HORIZON ASSET ALLOCATION FUND
SEAFIRST ASSET ALLOCATION FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
Pro Forma Adjustments
(a) The Pacific Horizon Asset Allocation Fund and The Seafirst
Asset Allocation Fund operates in a master-feeder structure
wherin it invests all of its assets in the Master Investment
Trust, Series 1 -- Asset Allocation Portfolio ("The Master
Portfolio"). Upon consumption of the Reorganization of the
Seafirst Asset Allocation Fund into the Pacific Horizon Asset
Allocation Fund the Pro Forma Combined Fund will with draw its
investment in the Master Portfolio and engage Bank of America
to manage its assets directly.
For the Pro Forma Statement of Assets and Liabilities we have
assumed that the Pro Forma Combined Fund assumed all the
individual assets and liabilities (including its portfolio of
Investments) of the Master Portfolio as at December 31, 1996.
This is reflected in the Pro Forma Adjustments column.
(b) The administrator will reimburse additional costs charged to
the Fund relating to the accelerated write off of deferred
organization costs of the Seafirst Asset Allocation Fund and
the Master Investment Trust, Series 1 -- Asset Allocation
Portfolio ("the Master Portfolio").
(c) Deferred organization costs would be written off in full for
the Seafirst Asset Allocation Fund and the Master Investment
Trust, Series 1 -- Asset Allocation Portfolio ($14,804 and
$26,439 respectively).
(d) The new Class SRF shares of the Pacific Horizon Asset
Allocation Fund will be issued at the NAV of the Seafirst Fund
before dissolution.
PF-2
<PAGE> 82
PACIFIC HORIZON ASSET ALLOCATION FUND
SEAFIRST ASSET ALLOCATION FUND
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
MARCH 1, 1996 TO MARCH 1, 1996 TO MARCH 1, 1996 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
PACIFID HORIZON SEAFIRST PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income $611 $3,741 $4,352
Dividend income 239 1,462 1,701
- ----------------------------------------------------------------------------------------------------------------------
850 5,203 6,053
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fees 115 742 (232)(e) 625
Administration fees 43 460 (269)(f) 234
Shareholder service fees 55 339 394
Transfer agent fees 33 - (g) 43
Custodian fees and expenses 4 63 128 (h) 195
Registration and filing fees 37 21 (21)(i) 37
Reports to Shareholders expenses 36 20 56
Fund accounting fees and expenses 43 96 (29)(j) 110
Amortization of organization costs 23 17 41 (k) 81
Audit fees 16 39 (39)(l) 16
Legal fees 5 44 49
Directors' fees 2 18 (12)(m) 8
Other 6 18 24
Expenses voluntarily reduced (142) (593) 335 (n) (400)
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 276 1,284 (88) 1,472
- ----------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 574 3,919 88 4,581
- ----------------------------------------------------------------------------------------------------------------------
REALIZED/UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gain on securities transactions 2,226 18,390 20,616
Net change in unrealized appreciation
(depreciation) on investments 573 (1,715) (1,142)
- ----------------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains (losses)
on investments 2,799 16,675 19,474
- ----------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $3,373 $20,594 $88 $24,055
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma financial statements
PF-3
<PAGE> 83
PACIFIC HORIZON ASSET ALLOCATION FUND
SEAFIRST ASSET ALLOCATION FUND
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
Pro Forma Adjustments
For the period ended December 31, 1996 the Pacific Horizon
Asset Allocation Fund and the Seafirst Asset Allocation Fund
invested in the Master Investment Trust Series 1 Asset
Allocation Portfolio ("the Master Portfolio"). The income
stated for the Pacific Horizon Asset Allocation Fund and the
Seafirst Asset Allocation fund represents investment income
which was allocated from the Master Portfolio.
Each expense category of the Pacific Horizon Asset Allocation
Fund and the Seafirst Asset Allocation Fund includes the Fund
specific expense and the allocated amount for that expense
category from the Master Portfolio.
(e) The Pro Forma Combined Fund's Advisory fee will decrease from
0.55% of the Pro Forma combined average daily net assets to
0.40% of average daily net assets. The Advisory expenses have
been adjusted by 0.15% of the Pro forma Combined Fund's
average net assets of $187 million.
(f) The Seafirst Asset Allocation Fund was charged administration
fees at 0.29% of average daily net assets. The fund was also
allocated administration fees from the Master Portfolio based
on .05% of the Fund's average daily net assets. The Pro Forma
Combined Fund's administration fees are based on 0.15% of the
Pro Forma combined average daily net assets.
(g) The Pro forma Combined Fund will be charged additional
Transfer Agent fees for the SRF shares.
(h) The Seafirst Retirement Asset Allocation Fund incurred custody
fees of 0.03% of average daily net assets. The Pro Forma
Combined Fund will only incurr custody fees based on 0.0125%
of the pro forma Combined Fund's average daily net assets of
$187 million.
(i) Registration Fees for the Pro Forma Combined Fund are expected
to be identical to those of the Pacific Horizon Asset
Allocation Fund.
(j) Legal Fees for the Pro Forma Combined Fund are expected to be
identical to those charged at the Master Portfolio level.
(k) Organization costs of the Seafirst Asset Allocation Fund and
of the Master Portfolio will be accelerated and written off in
full.
(l) Audit Fees for the Pro Forma Combined Fund are expected to be
identical to charges of the Pacific Horizon Asset Allocation
Fund plus the audit fee charged at the Master Portfolio level.
(m) Directors Fees for the Pro Forma Combined Fund are expected to
be the combined charges to the Pacific Horizon Asset
Allocation Fund and the Seafirst Asset Allocation Fund.
(n) Bank of America will reimburse 0.25% and 0.21% in shareholder
servicing fees of the SRF share class and the Pacific Horizon
A Share class in order to maintain an expense ratio of 0.95%
and 1.00% for each share class, respectively.
PF-4
<PAGE> 84
PACIFIC HORIZON BLUE CHIP FUND
SEAFIRST BLUE CHIP FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PACIFIC PRO FORMA PRO FORMA
HORIZON SEAFIRST ADJUSTMENTS COMBINED
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
ASSETS
Investment in Master Investment Trust Series 1
-- Blue Chip Portfolio, at value $130,967 $252,705 $383,672
Receivable from Administrator - 64 15 (a) 79
Deferred organization costs, prepaid
expenses and other receivables 30 15 (15)(b) 30
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets 130,997 252,784 0 383,781
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Capital Gain Payable - 11,721 11,721
Dividends Payable 301 821 1,122
Accrued expenses and other payables:
Administration fees - 63 63
Reports to Shareholders 38 46 84
Transfer Agent fees 38 - 38
Shareholder Servicing fees 29 54 83
Audit fees 12 12 24
Fund Accounting fees 8 8 16
Other 25 11 36
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 451 12,736 13,187
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 130,546 240,048 370,594
- --------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Capital 109,872 175,105 284,977
Net unrealized appreciation on investments 19,715 61,947 81,662
Accumulated net realized gains 959 2,996 3,955
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets $130,546 $240,048 $370,594
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Class A 129,963 - 129,963
Class K 583 - 583
Class SRF - - 240,048 240,048
Seafirst - 240,048 -
- --------------------------------------------------------------------------------------------------------------------------------
$130,546 $240,048 $370,594
- --------------------------------------------------------------------------------------------------------------------------------
Outstanding units of beneficial interest (shares)
Class A 5,542 - 5,542
Class K 25 - 25
Class SRF - - 10,484 (c) 10,484
Seafirst - 10,484 (10,484)(c) -
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - redemption price per share
Class A $23.45 - $23.45
Class K $23.45 - $23.45
Class SRF - - $22.90
Seafirst - $22.90 -
- ----------------------------------------------------------------------------------------------- --------------
Maximum Offering Price
Class A - sales charge 4.50% of public offering price $24.56 - $24.56
Class K $23.45 - $23.45
Class SRF - - $22.90
Seafirst - $22.90 -
- --------------------------------------------------------------------------------------------- --------------
</TABLE>
See notes to pro forma financial statements
PF-5
<PAGE> 85
PACIFIC HORIZON BLUE CHIP FUND
SEAFIRST BLUE CHIP FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
Pro Forma Adjustments
(a) The administrator will reimburse additional costs charged to the Fund
relating to the accelerated write off of deferred organization costs of the
Seafirst Blue Chip Fund.
(b) Deferred organization costs would be written off in full for the Seafirst
Blue Chip Fund
(c) The new Class SRF shares of the Pacific Horizon Blue Chip Fund will be
issued at the NAV of the Seafirst Fund before dissolution.
PF-6
<PAGE> 86
PACIFIC HORIZON BLUE CHIP FUND
SEAFIRST BLUE CHIP FUND
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
MARCH 1, 1996 MARCH 1, 1996 MARCH 1, 1996 TO
TO DECEMBER TO DECEMBER DECEMBER 31,
31, 1996 31, 1996 1996
PACIFIC HORIZON SEAFIRST PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Investment Income from Master
Investment Trust, Series I--
Blue Chip Portfolio:
Interest income $140 $340 $480
Dividend income 1,725 4,138 5,863
- -----------------------------------------------------------------------------------------------------------------------
1,865 4,478 6,343
- -----------------------------------------------------------------------------------------------------------------------
Expenses allocated from Master Investment
Trust, Series 1 -- Blue Chip Portfolio: 691 1,741 (671)(d) 1,761
Less: Fee waivers
and expense reimbursements (197) (563) 760 (e) -
- -----------------------------------------------------------------------------------------------------------------------
494 1,178 89 1,761
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income from Master Investmen
Trust, Series I -- Blue Chip Portfolio 1,371 3,300 (89) 4,582
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES
Administration fees 118 553 (267)(f) 404
Shareholder service fees 198 477 675
Transfer agent fees 121 - 10 (g) 131
Custodian fees and expenses - 57 (57)(h) -
Registration and filing fees 39 34 (34)(i) 39
Reports to Shareholders expenses 51 16 67
Fund accounting fees and expenses 31 - 31
Amortization of organization costs 24 6 15 (j) 45
Audit fees 12 18 (18)(k) 12
Legal fees 7 37 (24)(l) 20
Directors' fees 2 10 12
Miscellaneous 43 20 (43)(m) 20
Expenses voluntarily reduced (119) (595) 240 (n) (474)
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 527 633 (178) 982
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 844 2,667 89 3,600
- -----------------------------------------------------------------------------------------------------------------------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS
FROM MASTER INVESTMENT TRUST, SERIES 1 -
BLUE CHIP PORTFOLIO:
Net realized gains on securities transactions 2,959 14,680 17,639
Net change in unrealized depreciation on investments 13,227 22,042 35,269
- -----------------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains (losses) on investments 16,186 36,722 52,908
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $17,030 $39,389 $89 $56,508
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma financial statements
PF-7
<PAGE> 87
PACIFIC HORIZON BLUE CHIP FUND
SEAFIRST BLUE CHIP FUND
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
Pro Forma Adjustments
(d) the gross Investment Advisory fees of the Master Blue Chip Portfolio
will decrease from 0.75% of average daily net assets to 0.50% of average
daily net assets. The expenses allocated from the Master Portfolio have
been adjusted by 0.25% of the Pro forma Combined Fund's average net
assets of $322 million.
(e) Fees will no longer be waived at the Master Portfolio level.
(f) The Seafirst Retirement Blue Chip Fund charged administration fees at
0.29% of average daily net assets. The Pro Forma Combined Fund's
administration fees are based on 0.15% of the Funds average daily net
assets.
(g) The Pro Forma Combined Fund will be charged additional transfer agent
fees as a result of the issunance od the new SRF share class.
(h) The Seafirst Retirement Blue Chip Fund incurred custody fees at 0.03% of
average daily net assets. The Pro Forma Combined Fund will not incur
custody fees at the feeder level. Custody fees are incurred at the
Master Portfolio level and allocated to the feeders.
(i) Registration Fees for the Pro Forma Combined Fund are expected to be
identical to charges to the Pacific Horizon Blue Chip Fund.
(j) Organization costs of the Seafirst Blue Chip will be accelerated and
written off in full.
(k) Audit Fees for the Pro Forma Combined Fund are expected to be identical
to charges to the Pacific Horizon Blue Chip Fund.
(l) Legal fees are expected to be approximately $20,000
(m) Miscellaneous expense are expected to be approximately $20,000
(n) Bank of America will reimburse the shareholder servicing fees of the SRF
share class in order to maintain an expense ratio of 0.95% for that
share class. Gross expenses of the ProForma Combined Fund are expected
to be 1.20% approximately.
PF-8
<PAGE> 88
PACIFIC HORIZON INTERMEDIATE BOND FUND
SEAFIRST BOND FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PACIFIC HORIZON SEAFIRST PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
ASSETS
Investment in Master Investment Trust Series 1
--Investment Grade Bond Portfolio, at value $20,777 $40,995 $61,772
Receivable from Administrator 29 13 11 (a) 43
Deferred organization costs, prepaid
expenses and other receivables 23 12 (11)(b) 24
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets 20,829 41,020 61,849
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends Payable 95 183 278
Accrued expenses and other payables:
Reports to Shareholders 34 39 73
Audit fees 12 14 26
Administration fees - 10 10
Shareholder Servicing fees 1 9 10
Fund Accounting fees 8 - 8
Transfer Agent fees 6 - 6
Other 2 1 3
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 158 256 414
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 20,671 40,764 61,435
- ------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Capital 20,846 43,175 64,021
Net unrealized appreciation on investments (6) 11 5
Accumulated Net Realized (Losses) (169) (2,422) (2,591)
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets $20,671 $40,764 $61,435
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Class A 20,355 - 20,355
Class K 316 - 316
Class SRF - - 40,764 40,764
Seafirst - 40,764 (40,764) -
- ------------------------------------------------------------------------------------------------------------------------------
$20,671 $40,764 $61,435
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding units of beneficial interest (shares)
Class A 2,123 - 2,123
Class K 33 - 33
Class SRF - - 3,795 (c) 3,795
Seafirst - 3,795 (3,795)(c) -
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value - redemption price per share
Class A $9.59 - $9.59
Class K $9.58 - $9.58
Class SRF - - $10.74
Seafirst - $10.74 -
- ----------------------------------------------------------------------------------------- ---------------
Maximum Offering Price
Class A - sales charge 4.50% of public offering price $10.04 - $10.04
Class K $9.58 - $9.58
Class SRF - - $10.74
Seafirst -
- $10.74 -
- ----------------------------------------------------------------------------------------- ---------------
</TABLE>
See notes to pro forma financial statements
PF-9
<PAGE> 89
PACIFIC HORIZON INTERMEDIATE BOND FUND
SEAFIRST BOND FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
Pro Forma Adjustments
(a) The administrator will reimburse additional costs charged to the Fund
relating to the accelerated write off of deferred organization costs of
the Seafirst Bond Fund.
(b) Deferred organization costs would be written off in full for the
Seafirst Bond Fund
(c) The new Class SRF shares of the Pacific Horizon Intermediate Bond Fund
will be issued at the NAV of the Seafirst Fund before dissolution.
PF-110
<PAGE> 90
PACIFIC HORIZON INTERMEDIATE BOND FUND
SEAFIRST BOND FUND
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
MARCH 1, 1996 MARCH 1, 1996 MARCH 1, 1996
TO DECEMBER TO DECEMBER TO DECEMBER 31,
31, 1996 31,1996 1996
PACIFIC PRO FORMA PRO FORMA
HORIZON SEAFIRST ADJUSTMENTS COMBINED
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Investment Income from Master Investment Trust,
Series I -- Investment Grade Bond Portfolio:
Interest income $777 $2,231 $3,008
- ----------------------------------------------------------------------------------------------------------------------------
Expenses allocated from Master Investment
Trust, Series 1 -- Investment Grade Bond Portfolio: 110 237 (73)(d) 274
Less: Fee waivers and expense reimbursements (51) (130) 181 (e) -
- ----------------------------------------------------------------------------------------------------------------------------
59 107 108 274
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Net Investment Income from Master Investment
Trust, Series I --Investment Grade Bond Portfolio 718 2,124 (108) 2,734
- ----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Administration fees 19 105 (51)(f) 73
Shareholder service fees 31 91 122
Transfer agent fees 7 - 10 (g) 17
Custodian fees and expenses - 11 (11)(h) -
Registration and filing fees 43 20 (20)(i) 43
Reports to Shareholders expenses 23 38 (25)(j) 36
Fund accounting fees and expenses 13 - 25 (k) 38
Amortization of organization costs 25 5 11 (l) 41
Audit fees 8 7 (7)(m) 8
Legal fees 1 10 11
Directors' fees - 2 2
Miscellaneous 2 2 4
Expenses voluntarily reduced (135) (53) (22)(n) (210)
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses 37 238 (90) 185
- ----------------------------------------------------------------------------------------------------------------------------
Net Investment Income 681 1,886 (18) 2,549
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED/UNREALIZED (LOSSES) ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES 1 -INVESTMENT GRADE BOND PORTFOLIO:
Net realized loss on securities transactions (169) (434) (603)
Net change in unrealized depreciation on investments (6) (132) (138)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains (losses) on investments (175) (566) (741)
- ----------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $506 $1,320 ($18) $1,808
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma financial statements
PF-11
<PAGE> 91
PACIFIC HORIZON INTERMEDIATE BOND FUND
SEAFIRST BOND FUND
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
Pro Forma Adjustments
(d) the gross Investment Advisory fees of the Master Bond Portfolio will
decrease from 0.45% of average daily net assets to 0.30% of average
daily net assets. The expenses allocated from the Master Portfolio have
been adjusted by 0.15% of the Pro forma Combined Fund's average net
assets of $58 million.
(e) Fees will no longer be waived at the Master Portfolio level.
(f) The Seafirst Retirement Bond Fund charged administration fees at 0.29%
of average daily net assets. The Pro Forma Combined Fund's
administration fees are based on 0.15% of the Funds average daily net
assets.
(g) The Pro Forma Combined Fund will be charged additional Transfer Agent
fees as a result of the issuance of the new SRF shares.
(h) The Seafirst Retirement Bond Fund charged custody fees at 0.03% of
average daily net assets. The Pro Forma Combined Fund will not incur
custody fees at the feeder level. Custody fees are incurred at the
Master Portfolio level and allocated to the feeders.
(i) Registration Fees for the Pro Forma Combined Fund are expected to be
identical to charges to the Pacific Horizon Intermediate Bond Fund.
(j) Reports to Shareholders for the Pro Forma Combined Fund are estimated to
be approximately $36,000.
(k) Fund accounting fees will increase because waivers are eliminated as the
assets of the Pro Forma Combined Fund will exceed $50 million.
(l) Organization costs of the Seafirst Bond Fund will be accelerated and
written off in full.
(m) Audit Fees for the Pro Forma Combined Fund are expected to be identical
to charges to the Pacific Horizon Intermediate Bond Fund.
(n) Bank of America will reimburse 0.25% in shareholder servicing fees of
the SRF share class and the Pacific Horizon A Share class in order to
maintain an expense ratio of 0.95% for each share class respectively. In
addition, Bank of Amerca will reimburse expenses of 0.18% of Fund
expenses.
PF-12
<PAGE> 92
MASTER INVESTMENT TRUST, SERIES I
BLUE CHIP PORTFOLIO
PRO FORMA STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
BLUE CHIP PRO FORMA PRO FORMA
PORTFOLIO ADJUSTMENTS COMBINED
<S> <C> <C> <C>
ASSETS:
Investments in securities at value (cost
$339,630,050) $425,227,949 $425,227,949
Cash 754 754
Contribution receivable 1,071,830 1,071,830
Dividends receivable 725,134 725,134
Deferred organization costs and prepaid expenses 31,745 31,745
- --------------------------------------------------------------------------------------------------------------------
Total assets 427,057,412 427,057,412
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Withdrawal payable 573,834 573,834
Advisor fees payable 168,967 168,967
Audit fees payable 27,374 27,374
Legal fees payable 21,430 21,430
Accounting fees payable 17,190 17,190
Custody fees payable 15,687 15,687
Administration fees payable 11,284 11,284
Other accrued expenses 34,104 34,104
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 869,870 869,870
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS $426,187,542 $426,187,542
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements.
PF-13
<PAGE> 93
MASTER INVESTMENT TRUST, SERIES I
BLUE CHIP PORTFOLIO
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
BLUE CHIP PRO FORMA PRO FORMA
PORTFOLIO ADJUSTMENTS COMBINED
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $505,693 $505,693
Dividends 6,099,214 6,099,214
- ---------------------------------------------------------------------------------------------------------------------
6,604,907 6,604,907
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,143,085 (722,691)(a) 1,420,394
Administration fees 142,872 142,872
Fund accounting fees and expenses 161,555 161,555
Audit fees 27,936 27,936
Custodian fees and expenses 53,359 53,359
Legal fees 33,615 33,615
Trustees fees 17,115 17,115
Amortization of organization costs 11,606 11,606
Other operating expenses 13,387 13,387
Total Expenses 2,604,530 (722,691) 1,881,839
- ---------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense
reimbursements (835,069) 835,069 (b) -
- ---------------------------------------------------------------------------------------------------------------------
1,769,461 112,378 1,881,839
- ---------------------------------------------------------------------------------------------------------------------
Net Investment Income 4,835,446 (112,378) 4,723,068
- ---------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on securities transactions 17,845,007 17,845,007
Net change in unrealized appreciation
(depreciation) on investments 39,124,143 39,124,143
- ---------------------------------------------------------------------------------------------------------------------
Net Gain on Investments 56,969,150 56,969,150
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
- ---------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS $61,804,596 ($112,378) $61,692,218
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements.
PF-14
<PAGE> 94
MASTER INVESTMENT TRUST, SERIES I
BLUE CHIP PORTFOLIO
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD ENDED DECEMBER 31, 1996
Pro Forma Adjustments
(a) The gross Investment Advisory fees of the Master Blue Chip Portfolio
will decrease from 0.75% to 0.50% of average daily net assets of $341
million.
(b) The Master Portfolio will not waive any fees for the Pro Forma Combined
Fund
PF-15
<PAGE> 95
MASTER INVESTMENT TRUST, SERIES I
INVESTMENT GRADE BOND PORTFOLIO
PRO FORMA STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT
GRADE BOND PRO FORMA PRO FORMA
PORTFOLIO ADJUSTMENTS COMBINED
<S> <C> <C> <C>
ASSETS:
Investments in securities at value (cost
$125,476,207) $125,228,892 $125,228,892
Cash 2,493 2,493
Contribution receivable 164,207 164,207
Interest receivable 2,048,675 2,048,675
Deferred organization costs and prepaid expenses 28,551 28,551
- -----------------------------------------------------------------------------------------------------------------------------
Total assets 127,472,818 127,472,818
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Advisor fees payable 30,294 30,294
Audit fees payable 28,502 28,502
Legal fees payable 5,935 5,935
Accounting fees payable 3,380 3,380
Custody fees payable 2,064 2,064
Administration fees payable 3,018 3,018
Other accrued expenses 24,307 24,307
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 97,500 97,500
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS $127,375,318 $127,375,318
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements.
PF-16
<PAGE> 96
MASTER INVESTMENT TRUST, SERIES I
INVESTMENT GRADE BOND PORTFOLIO
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT
GRADE BOND PRO FORMA PRO FORMA
PORTFOLIO ADJUSTMENTS COMBINED
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $4,548,711 $4,548,711
- -----------------------------------------------------------------------------------------------------------------------
4,548,711 4,548,711
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 331,171 (111,207)(a) 219,964
Administration fees 36,797 36,797
Fund accounting fees and expenses 49,991 49,991
Audit fees 29,353 29,353
Custodian fees and expenses 12,256 12,256
Legal fees 7,636 7,636
Trustees fees 4,435 4,435
Amortization of organization costs 11,656 11,656
Other operating expenses (3,497) (3,497)
- -----------------------------------------------------------------------------------------------------------------------
Total Expenses 479,798 (111,207) 368,591
- -----------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense
reimbursements (243,190) 243,190 (b) -
- -----------------------------------------------------------------------------------------------------------------------
236,608 131,983 368,591
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income 4,312,103 (131,983) 4,180,120
- -----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on securities transactions (562,868) (562,868)
Net change in unrealized appreciation
(depreciation) on investments (26,896) (26,896)
- -----------------------------------------------------------------------------------------------------------------------
Net Gain on Investments (589,764) (589,764)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
- -----------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS $3,722,339 ($131,983) $3,590,356
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements.
PF-17
<PAGE> 97
MASTER INVESTMENT TRUST, SERIES I
INVESTMENT GRADE BOND PORTFOLIO
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD ENDED DECEMBER 31, 1996
Pro Forma Adjustments
(a) The gross Investment Advisory fees of the Master Investment Grade Bond
Portfolio will decrease from 0.45% to 0.30% of average daily net assets
of $87 million.
(b) The Master Portfolio will not waive any fees for the Pro Forma Combined
Fund.
PF-18
<PAGE> 98
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE PRO FORMA PRO FORMA
DESCRIPTION SHARES (NOTE 2) ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE - 0.23%
AMR Corp. ................................................... 5,300 $467,063 $467,063 0.23%
----------------------------------------------
AIRLINES - 0.88%
Boeing Co. ................................................... 16,500 1,755,188 1,755,188 0.88%
----------------------------------------------
ALUMINUM - 0.40%
Aluminum Co. of America...................................... 12,400 790,500 790,500 0.40%
----------------------------------------------
AUTOMOBILES - 1.20%
Ford Motor ................................................... 28,400 905,250 905,250 0.45%
General Motors Corp. ......................................... 26,700 1,488,525 1,488,525 0.75%
----------------------------------------------
2,393,775 2,393,775 1.20%
----------------------------------------------
AUTOMOBILE PARTS - 0.15%
Cooper Tire & Rubber .......................................... 15,600 308,100 308,100 0.15%
----------------------------------------------
BANKS - 3.27%
BankOne Corp. ................................................. 30,300 1,302,900 1,302,900 0.65%
Chase Manhattan Corp. ......................................... 18,700 1,668,975 1,668,975 0.84%
CitiCorp ...................................................... 15,800 1,627,400 1,627,400 0.82%
Wells Fargo Co. ............................................... 7,100 1,915,225 1,915,225 0.96%
----------------------------------------------
6,514,500 6,514,500 3.27%
----------------------------------------------
CHEMICALS - 2.20%
Dow Chemical Co. .............................................. 6,100 478,088 478,088 0.24%
E.I. Du Pont De Nemours & Co. ................................. 19,900 1,878,063 1,878,063 0.94%
Monsanto Corp. ................................................ 52,100 2,025,388 2,025,388 1.02%
----------------------------------------------
4,381,538 4,381,538 2.20%
----------------------------------------------
COMMERICAL SERVICES - 0.40%
AC Nielsen Corp. .............................................. 1 15 15
Dun & Bradstreet Corp. ........................................ 3,100 73,625 73,625 0.04%
----------------------------------------------
73,640 73,640 0.04%
COMPUTER SOFTWARE - 2.57%
Automatic Data Processing, Inc. ............................... 15,900 681,713 681,713 0.34%
First Data Corp. .............................................. 23,000 839,500 839,500 0.42%
Microsoft Corp. ............................................... 34,800 2,875,350 2,875,350 1.44%
Silicon Graphics .............................................. 28,100 716,550 716,550 0.36%
----------------------------------------------
5,113,113 5,113,113 2.57%
----------------------------------------------
COMPUTER HARDWARE - 3.49%
Hewlett Packard Co. .......................................... 22,700 1,140,675 1,140,675 0.57%
IBM. ......................................................... 13,700 2,068,700 2,068,700 1.04%
Seagate Technology ............................................ 44,800 1,769,600 1,769,600 0.89%
Cisco Systems ................................................. 30,800 1,959,650 1,959,650 0.98%
----------------------------------------------
6,938,625 6,938,625 3.49%
----------------------------------------------
DIVERSIFIED OPERATIONS- 0.36%
Cognizant Corp. ............................................... 3,100 102,300 102,300 0.05%
Whitam Corp. .................................................. 27,200 622,200 622,200 0.31%
----------------------------------------------
724,500 724,500 0.36%
----------------------------------------------
ELECTRICAL PRODUCTS - 2.83%
Emerson Electric Co. .......................................... 15,000 1,451,250 1,451,250 0.73%
General Electric Co. .......................................... 44,700 4,182,412 4,182,412 2.10%
----------------------------------------------
5,633,662 5,633,662 2.83%
----------------------------------------------
FINANCIAL SERVICES - 2.96%
American Express .............................................. 42,100 2,378,650 2,378,650 1.20%
Household International, Inc. ................................. 15,900 1,466,775 1,466,775 0.74%
Dean Witter Discover Co. ...................................... 31,000 2,053,750 2,053,750 1.03%
----------------------------------------------
5,899,175 5,899,175 2.96%
----------------------------------------------
FOOD - 1.52%
Conagra, Inc. ................................................. 18,900 940,275 940,275 0.47%
Ralston Purina Co. ............................................ 14,500 1,063,938 1,063,938 0.53%
Sara Lee Corp. ................................................ 27,400 1,020,650 1,020,650 0.51%
----------------------------------------------
3,024,863 3,024,863 1.52%
----------------------------------------------
HEALTHCARE PRODUCTS - 0.67%
Becton Dickinson & Co. ........................................ 18,600 806,775 806,775 0.41%
Medtronic, Inc. ............................................... 7,700 523,600 523,600 0.26%
----------------------------------------------
1,330,375 1,330,375 0.67%
INSURANCE - LIFE - 0.53%
Providian Corp. ................................................. 20,600 1,058,325 1,058,325 0.53%
----------------------------------------------
</TABLE>
PF-219
<PAGE> 99
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE PRO FORMA PRO FORMA
DESCRIPTION SHARES (NOTE 2) ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS
INSURANCE - PROPERTY AND CASUALTY - 1.37%
American Intl. Group, Inc. .................................... 12,100 1,309,825 1,309,825 0.66%
Chubb Corp. ................................................... 26,300 1,413,625 1,413,625 0.71%
----------------------------------------------
2,723,450 2,723,450 1.37%
----------------------------------------------
HOUSEHOLD, GENERAL PRODUCTS - 2.77%
Archer-Daniels Midland Co. .................................... 51,100 1,124,200 1,124,200 3.60%
Colgate-Palmolive Co. ......................................... 4,300 396,675 396,675 0.20%
Gillette Co. .................................................. 14,000 1,088,500 1,088,500 0.55%
Sherwin Williams .............................................. 8,200 459,200 459,200 0.23%
Newell Co. .................................................... 17,000 535,500 535,500 0.27%
Proctor & Gamble .............................................. 17,700 1,902,750 1,902,750 0.96%
----------------------------------------------
5,506,825 5,506,825 2.77%
----------------------------------------------
LEISURE - 0.80%
Disney Walt Co. ............................................... 14,700 1,023,488 1,023,488 0.51%
Hilton Hotels Corp. ........................................... 14,700 384,038 384,038 0.19%
Mattel Inc. ................................................... 6,600 183,150 183,150 0.09%
----------------------------------------------
1,590,675 1,590,675 0.80%
----------------------------------------------
MACHINERY - 1.00%
General Signal Corp. .......................................... 16,500 705,375 705,375 0.35%
Illinois Tool Works Inc. ...................................... 16,200 1,293,975 1,293,975 0.65%
----------------------------------------------
1,999,350 1,999,350 1.00%
----------------------------------------------
MANUFACTURING -SHIPBUILDING-0.03%
Newport News Ship ............................................. 3,560 53,400 53,400 0.03%
----------------------------------------------
MEDIA, PUBLISHING - 0.76%
Gannett, Inc. ................................................. 3,900 292,013 292,013 0.15%
McGraw Hill Companies ......................................... 8,900 410,513 410,513 0.21%
Time Warner, Inc. ............................................. 9,100 341,250 341,250 0.17%
Tribune Co. ................................................... 6,000 473,250 473,250 0.24%
----------------------------------------------
1,517,025 1,517,025 0.76%
----------------------------------------------
MEDIA - BROADCASTING - 0.06%
TCI Satellite Entertainment ................................... 780 7,703 7,703 0.00%
TeleCommunications, Inc. ...................................... 7,800 101,888 101,888 0.05%
----------------------------------------------
109,590 109,590 0.06%
----------------------------------------------
METALS - 0.20%
Newmont Mining Corp. .......................................... 8,900 398,275 398,275 0.20%
----------------------------------------------
MULTI INDUSTRIES - 2.90%
Alco Standard Corp. ........................................... 36,900 1,801,713 1,801,713 0.91%
Tenneco, Inc. ................................................. 17,800 803,225 803,225 0.40%
TRW, Inc. ..................................................... 29,200 1,445,400 1,445,400 0.73%
Tyco, Int. .................................................... 32,700 1,729,013 1,729,013 0.87%
----------------------------------------------
5,779,350 5,779,350 2.90%
----------------------------------------------
OIL & GAS INTERNATIONAL - 2.24%
Chevron Corp. ................................................. 11,600 754,000 754,000 27.33%
Exxon Corp. ................................................... 18,500 1,813,000 1,813,000 65.70%
Mobil Oil. .................................................... 8,700 1,063,575 1,063,575 38.54%
Texaco, Inc. .................................................. 8,500 834,063 834,063 30.23%
----------------------------------------------
4,464,638 4,464,638 161.80%
----------------------------------------------
OIL & GAS PRODUCTION / SERVICES - 3.20%
Coastal Corp. ................................................. 19,000 928,625 928,625 0.47%
Columbia Gas Systems, Inc. .................................... 25,600 1,628,800 1,628,800 0.82%
El Paso Natural Gas Co. ....................................... 1,655 83,578 83,578 0.04%
Panenergy Corp. ............................................... 19,400 873,000 873,000 0.44%
Halliburton Co. ............................................... 12,000 723,000 723,000 0.36%
Schlumberger Ltd. ............................................. 6,500 649,188 649,188 0.33%
Williams Co. .................................................. 25,050 939,375 939,375 0.47%
USX Marathon Group. ........................................... 22,800 544,350 544,350 0.27%
----------------------------------------------
6,369,915 6,369,915 3.20%
----------------------------------------------
PAPER PRODUCTS - 0.70%
Kimberly Clark Corp. .......................................... 8,400 800,100 800,100
International Paper Co. ....................................... 14,500 585,438 585,438 0.29%
----------------------------------------------
1,385,538 1,385,538 0.70%
----------------------------------------------
PHARMACEUTICALS - 5.37%
American Home Products ........................................ 19,900 1,166,638 1,166,638 0.59%
Amgen, Inc. ................................................... 9,500 516,563 516,563 0.26%
Bristol - Meyers .............................................. 15,700 1,707,375 1,707,375 0.86%
Lilly ELI & Co. .............................................. 18,700 1,365,100 1,365,100 0.69%
Abbot Laboratories ............................................ 36,900 1,872,675 1,872,675 0.94%
Merck & Co, Inc. .............................................. 17,200 1,363,100 1,363,100 0.68%
Pfizer, Inc. .................................................. 15,700 1,301,138 1,301,138 0.65%
Schering Plough Corp. ......................................... 9,800 634,550 634,550 0.32%
Warner Lambert Co. ............................................ 5,100 382,500 382,500 0.19%
Johnson & Johnson ............................................. 7,600 378,100 378,100 0.19%
----------------------------------------------
10,687,738 10,687,738 5.37%
----------------------------------------------
PHOTOGRAPHY - 0.26%
Eastman Kodak Co .............................................. 6,500 521,625 521,625 0.26%
</TABLE>
PF-220
<PAGE> 100
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE PRO FORMA PRO FORMA
DESCRIPTION SHARES (NOTE 2) ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS
RAILROAD - 0.69%
Burlington Northern Santa FEC. ................................ 9,300 803,288 803,288 0.40%
Union Pacific Corp. ........................................... 9,600 577,200 577,200 0.29%
-----------------------------------------------
1,380,488 1,380,488 0.69%
-----------------------------------------------
RETAIL - 2.07%
Home Depo ..................................................... 21,800 1,092,725 1,092,725 0.55%
May Dept Stores ............................................... 16,700 780,725 780,725 0.39%
Wal-Mart Stores, Inc. ......................................... 68,000 1,555,500 1,555,500 0.78%
Price/Costco, Inc. ............................................ 27,900 700,988 700,988 0.35%
-----------------------------------------------
4,129,938 4,129,938 2.07%
-----------------------------------------------
SEMICONDUCTORS -2.70%
Intel Corp..................................................... 34,000 4,451,875 4,451,875 2.24%
Motorola, Inc.................................................. 15,000 920,625 920,625 0.46%
-----------------------------------------------
5,372,500 5,372,500 2.70%
-----------------------------------------------
SOFT DRINKS, BEVERAGES - 1.44%
Coca-Cola Co. ................................................. 40,200 2,115,525 2,115,525 1.06%
Pepsico ....................................................... 25,400 742,950 742,950 0.37%
-----------------------------------------------
2,858,475 2,858,475 1.44%
-----------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 0.38%
3 Com Card .................................................... 10,400 763,100 763,100 0.38%
-----------------------------------------------
TELECOMMUNICATIONS SERVICES - 3.05%
AT&T........................................................... 12,100 526,350 526,350 0.26%
GTE ........................................................... 46,200 2,102,100 2,102,100 1.06%
MCI Communications Corp. ...................................... 33,200 1,085,225 1,085,225 0.55%
Worldcom, Inc. ................................................ 90,500 2,358,656 2,358,656 1.19%
-----------------------------------------------
6,072,331 6,072,331 3.05%
-----------------------------------------------
TOBACCO - 1.28%
Philip Morris Cos., Inc. ...................................... 22,600 2,545,325 2,545,325 1.28%
-----------------------------------------------
TOYS - 0.35%
Toys "R" U's, Inc. ............................................ 23,500 705,000 705,000 0.35%
-----------------------------------------------
UTILITIES, ELECTRIC - 0.37%
Duke Power Co. ................................................ 16,000 740,000 740,000 0.37%
-----------------------------------------------
UTILITIES - GAS - 0.51%
Pacific Enterprises ........................................... 33,400 1,014,525 1,014,525 0.51%
-----------------------------------------------
Total Common Stocks - 57.83%
(Cost $100,448,379) ...................................................... $115,096,013 $115,096,013 57.83%
-----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MATURITY AMOUNT PRO FORMA PRO FORMA
DESCRIPTION RATE DATE (000) VALUE ADJUSTMENTS COMBINED
----------- ---- -------- ------ ----- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
U.S. TREASURY BONDS - 7.48%
U.S. Treasury Bonds ........................ 5.63% 02/15/06 1,900 $1,796,849 $1,796,849 0.90%
U.S. Treasury Bonds ........................ 8.13% 08/15/21 4,500 5,222,430 5,222,430 2.62%
U.S. Treasury Bonds ........................ 10.38% 11/15/12 6,100 7,861,557 7,861,557 3.95%
---------------------------------------------
14,880,836 14,880,836 7.48%
---------------------------------------------
U.S. TREASURY NOTES - 8.20%
U.S. Treasury Notes ........................ 7.75% 01/31/00 1,000 1,046,190 1,046,190 0.53%
U.S. Treasury Notes ........................ 7.88% 11/15/04 14,000 15,277,779 15,277,779 7.68%
---------------------------------------------
16,323,969 16,323,969 8.20%
---------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS - 15.68%
(Cost $31,209,255) ........................ 31,204,805 31,204,805 15.68%
---------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.71%
Federal Home Loan Mortage Corporation
Pool #G10304 .............................. 6.50% 04/01/09 851 835,927 835,927 0.42%
Pool #E60891 ............................... 6.50% 07/01/10 3,016 2,962,035 2,962,035 1.49%
FHLMC Pool #297505 ......................... 8.00% 01/06/17 12 12,361 12,361 0.01%
FHLMC Pool #533301 ......................... 10.50% 01/04/19 32 35,494 35,494 0.02%
FHlMC Pool #544066 ......................... 8.00% 01/12/19 12 11,860 11,860 0.01%
FNCI Pool #325602 .......................... 6.50% 10/01/10 553 543,218 543,218 0.27%
FNCI Pool #329451 .......................... 6.50% 03/01/11 975 957,434 957,434 0.48%
FNCI Pool #338029 .......................... 6.50% 03/01/11 405 397,147 397,147 0.20%
FNCI Pool #338572 .......................... 6.50% 03/01/11 661 648,659 648,659 0.33%
FNCI Pool #340676 .......................... 6.50% 03/01/11 974 956,066 956,066 0.48%
FNCI Pool #340686 .......................... 6.50% 03/01/11 1,241 1,218,477 1,218,477 0.61%
</TABLE>
PF-21
<PAGE> 101
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE PRO FORMA PRO FORMA
DESCRIPTION SHARES (NOTE 2) ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Government National Mortage Association
Pool #146301.............................. 10.00% 02/15/16 89 97,579 97,579 0.05%
GNSF Pool #318567 ........................ 8.00% 01/15/22 15 15,676 15,676 0.01%
GNSF Pool #317275 ........................ 8.00% 02/15/22 14 14,702 14,702 0.01%
GNSF Pool #321799 ........................ 8.00% 04/15/22 452 460,775 460,775 0.23%
GNSF Pool #323085 ........................ 8.00% 05/15/22 933 952,169 952,169 0.48%
GNSF Pool #342065 ........................ 8.00% 11/15/22 355 362,709 362,709 0.18%
FGLMC Pool #D66935 ....................... 7.50% 01/01/26 390 390,195 390,195 0.20%
FGLMC Pool #D66969 ....................... 7.50% 01/01/26 857 858,178 858,178 0.43%
FGLMC Pool #D68671 ....................... 7.50% 02/01/26 597 597,383 597,383 0.30%
FGLMC Pool #D69671 ....................... 7.50% 03/01/26 33 33,223 33,223 0.02%
FGLMC Pool #D70402 ....................... 7.50% 03/01/26 100 99,719 99,719 0.05%
FGLMC Pool #D69839 ....................... 7.50% 04/01/26 477 476,967 476,967 0.24%
FGLMC Pool #D69930 ....................... 7.50% 04/01/26 466 466,738 466,738 0.23%
FGLMC Pool #D70086 ....................... 7.50% 04/01/26 576 576,174 576,174 0.29%
FGLMC Pool #D71116 ....................... 7.50% 05/01/26 98 97,674 97,674 0.05%
FGLMC Pool #D71404 ....................... 7.50% 05/01/26 1,266 1,267,263 1,267,263 0.64%
Total U.S. Government Agency Obligations ------------------------------------------------
Cost $(4,846,653 ) ......................... 15,345,804 15,345,804 7.71%
------------------------------------------------
EURO BONDS -1.36%
Republic of Italy Zero Coupon ............ 0.00% 01/10/01 3,500 2,714,275 2,714,275 1.36%
------------------------------------------------
COMMERICAL PAPER DISCOUNT-1.24%
Delmarva Power & Light ................... 6.57% 01/02/97 2,470 2,470,000 2,470,000 1.24%
------------------------------------------------
0.00%
------
CORPORATE BONDS - 0.50%
Lehman Brothers .......................... 5.75% 11/15/98 1,000 988,750 988,750 0.50%
------------------------------------------------
0.00%
------
MEDIUM TERM NOTES - 15.69%
Morgan Stanley Group MTN ................. 5.63% 03/01/99 1,500 1,479,375 1,479,375 0.74%
Province of Quebec MTN ................... 7.98% 04/01/99 3,000 3,101,250 3,101,250 1.56%
General Motors Accept Corp. .............. 7.38% 04/25/00 2,000 2,047,500 2,047,500 1.03%
Bank of Nova Scotia ...................... 9.00% 10/01/99 1,400 1,492,750 1,492,750 0.75%
GMAC ..................................... 6.88% 07/15/01 2,000 2,015,000 2,015,000 1.01%
Ford Motor Credit ........................ 9.50% 01/15/00 2,750 2,983,750 2,983,750 1.50%
International Lease Finance .............. 5.71% 02/01/00 1,600 1,564,000 1,564,000 0.79%
Chrysler Financial Corp. ................ 5.63% 02/16/01 2,500 2,400,000 2,400,000 1.21%
NationsBank Credit Card Master ........... 6.45% 04/15/03 3,500 3,529,999 3,529,999 1.77%
The Money Storetrust 1996-B .............. 7.38% 05/15/17 3,500 3,571,245 3,571,245 1.79%
Cook Co. IL GO ........................... 5.00% 11/15/23 800 714,000 714,000 0.36%
Comsat Corp .............................. 8.66% 11/30/6 2,500 2,759,375 2,759,375 1.39%
First Union Corp ......................... 6.55% 10/15/35 3,600 3,564,000 3,564,000 1.79%
-------------------------------------------------
31,222,244 31,222,244 15.69%
-------------------------------------------------
Total Corporate Obligations -------------------------------------------------
(Cost $81297711.18) ....................... 83,945,877 83,945,877 42.17%
-------------------------------------------------
TOTAL INVESTMENTS 103.76%.
(COST $184,216,089)........................ 199,041,891 199,041,891
Other Liabilities in Excess of Assets (-3.76%) (7,325,586) (7,325,586)
----------------------------------------
NET ASSETS - 100%.............................. $191,716,305 $191,716,305
----------------------------------------
</TABLE>
- -----------------------------------------------
* Mortgage - backed pass - through obligations
** Discount Security
PF-22
<PAGE> 102
MASTER INVESTMENT TRUST, SERIES 1 -
BLUE CHIP PORTFOLIO
- ---------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares (Note 2) Adjustment Combined
----------- ------ -------- ---------- --------
COMMON STOCKS
<S> <C> <C> <C> <C>
AEROSPACE/DEFENSE - 1.02%
Lockheed Martin Corp. ....... 47,700 $4,364,550 $4,364,550
------------------------------------------------
AIRLINES - 0.36%
AMR Corp ..................... 17,600 1,551,000 1,551,000
------------------------------------------------
APPAREL - 0.79%
Nike, Inc. ................... 56,600 3,381,850 3,381,850
------------------------------------------------
AUTOMOBILES -1.84%
Chrysler Corp ................. 128,100 4,227,300 4,227,300
General Motors Corp. .......... 64,700 3,607,025 3,607,025
------------------------------------------------
7,834,325 7,834,325
------------------------------------------------
BANKS - 8.70%
Bank of Boston Corp. .......... 99,100 6,367,175 6,367,175
Citicorp ...................... 96,900 9,980,700 9,980,700
Comerica ...................... 85,400 4,472,825 4,472,825
First Union Corp. ............. 80,900 5,986,600 5,986,600
Mellon Bank Corp. ............. 65,300 4,636,300 4,636,300
NationsBank. Corp ............. 57,700 5,640,175 5,640,175
------------------------------------------------
37,083,775 37,083,775
------------------------------------------------
BEVERAGES - SOFT DRINKS - 3.37%
Anheuser-Busch Companies, Inc.. 52,800 2,112,000 2,112,000
Coca-Cola Co .................. 200,400 10,546,050 10,546,050
Pepsico ....................... 58,000 1,696,500 1,696,500
------------------------------------------------
14,354,550 14,354,550
------------------------------------------------
CHEMICALS - 3.32%
E.I. Du Pont de Nemours ....... 77,700 7,332,938 7,332,938
Monsanto ...................... 137,200 5,333,650 5,333,650
Morton International .......... 36,400 1,483,300 1,483,300
------------------------------------------------
14,149,888 14,149,888
------------------------------------------------
COMPUTER HARDWARE - 2.02%
3COM Coro ..................... 33,700 2,472,738 2,472,738
Compaq Computer Corp .......... 82,900 6,155,325 6,155,325
------------------------------------------------
8,628,063 8,628,063
------------------------------------------------
COMPUTER SOFTWARE - 6.09%
Computer Associates ........... 67,650 3,365,588 3,365,588
Cisco Systems ................. 103,100 6,559,738 6,559,738
Dell Computer ................. 61,800 3,283,125 3,283,125
EMC Corp. Mass ................ 68,800 2,279,000 2,279,000
Microsoft Corp ................ 126,500 10,452,063 10,452,063
------------------------------------------------
25,939,513 25,939,513
------------------------------------------------
COSMETICS / TOILETRIES - 2.59%
Avon Products ................. 101,600 5,803,900 5,803,900
Gillette Co. .................. 26,300 2,044,825 2,044,825
Tyco Labs, Inc. ............... 60,500 3,198,938 3,198,938
------------------------------------------------
11,047,663 11,047,663
------------------------------------------------
ELECTRICAL EQUIPMENT -4.45%
General Electric Co. .......... 123,200 12,181,400 12,181,400
United Technologies Corp. ..... 102,800 6,784,800 6,784,800
------------------------------------------------
18,966,200 18,966,200
------------------------------------------------
FINANCIAL SERVICES - 2.17%
Merrill Lynch ................. 62,500 5,093,750 5,093,750
Morgan Stanley ................ 72,800 4,158,700 4,158,700
------------------------------------------------
9,252,450 9,252,450
------------------------------------------------
FOODS - 2.51%
Conagra, Inc .................. 79,400 3,950,150 3,950,150
Hershey Foods Corp. ........... 67,500 2,953,125 2,953,125
Sara Lee Corp. ................ 101,800 3,792,050 3,792,050
------------------------------------------------
10,695,325 10,695,325
------------------------------------------------
FOREST PRODUCTS AND PAPER - 1.55%
Bemis Co. ..................... 43,600 1,607,750 1,607,750
Kimberly-Clarke Corp. ......... 17,300 1,647,825 1,647,825
Mead, Inc. .................... 57,900 3,365,438 3,365,438
------------------------------------------------
6,621,013 6,621,013
------------------------------------------------
HOUSEHOLD PRODUCTS - GENERAL - 1.71%
Clorox ........................ 33,600 3,372,600 3,372,600
Proctor & Gamble .............. 36,500 3,923,750 3,923,750
------------------------------------------------
7,296,350 7,296,350
------------------------------------------------
INSURANCE - 3.57%
Aetna, Inc. ................... 14,722 1,177,760 1,177,760
Allstate ...................... 112,597 6,516,551 6,516,551
</TABLE>
PF-23
<PAGE> 103
MASTER INVESTMENT TRUST, SERIES 1 -
BLUE CHIP PORTFOLIO
- ---------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares (Note 2) Adjustment Combined
----------- ------ -------- ---------- --------
<S> <C> <C> <C> <C>
Cigna .......................... 34,900 4,768,213 4,768,213
General re Corp. ............... 17,400 2,744,850 2,744,850
------------------------------------------------
5,207,374 15,207,374
------------------------------------------------
LEISURE - 1.46%
Walt Disney Co. ................ 73,178 5,095,018 5,095,018
King World Productions, Inc. ... 30,500 1,124,688 1,124,688
------------------------------------------------
6,219,706 6,219,706
------------------------------------------------
MACHINERY & EQUIPMENT - 0.99%
Caterpillar, Inc. .............. 30,300 2,280,075 2,280,075
Ingersoll Rand Co. ............. 43,700 1,944,650 1,944,650
------------------------------------------------
4,224,725 4,224,725
------------------------------------------------
MANUFACTUING - 0.45%
Armstrong World Industries ..... 27,400 1,904,300 1,904,300
------------------------------------------------
MEDIA - PUBLISHING - 1.11%
New York Times Co. ............ 75,000 2,850,000 2,850,000
Times Mirror .................. 37,900 1,885,525 1,885,525
------------------------------------------------
4,735,525 4,735,525
------------------------------------------------
MEDICAL - HOSPITAL MANAGEMENT
SERVICES - 0.80%
Columbia Healthcare Corp. (HCA) 83,700 3,410,775 3,410,775
------------------------------------------------
METALS - 1.44%
Phelps Dodge ................... 50,700 3,422,250 3,422,250
USX - Steel .................... 86,700 2,720,213 2,720,213
------------------------------------------------
6,142,463 6,142,463
------------------------------------------------
MULTI - INDUSTRY - 2.59%
Honeywell, Inc. ................ 81,900 5,384,925 5,384,925
Johnson Controls, Inc. ......... 26,100 2,163,038 2,163,038
Textron ........................ 37,000 3,487,250 3,487,250
------------------------------------------------
11,035,213 11,035,213
------------------------------------------------
OIL / GAS - DOMESTIC - 2.06%
Atlantic Richfield Co. ......... 22,500 2,981,250 2,981,250
Phillips Petroleum Co. ......... 65,300 2,889,525 2,889,525
Unocal Corp. ................... 71,600 2,908,750 2,908,750
------------------------------------------------
8,779,525 8,779,525
------------------------------------------------
OIL / GAS - INTERNATIONAL - 6.75%
Exxon Corp. .................... 74,300 7,281,400 7,281,400
Mobil Corp. .................... 46,400 5,672,400 5,672,400
Royal Dutch Pete Co. ........... 26,300 4,490,725 4,490,725
Schlumberger Ltd. .............. 43,400 4,334,575 4,334,575
Texaco, Inc. ................... 71,600 7,025,750 7,025,750
------------------------------------------------
28,804,850 28,804,850
------------------------------------------------
PHARMACEUTICALS - 9.20%
Abbott Labs .................... 91,700 4,653,775 4,653,775
Bristol-Meyers ................. 54,400 5,916,000 5,916,000
Johnson & Johnson .............. 150,100 7,467,475 7,467,475
Merck & Co, Inc. ............... 139,100 11,023,675 11,023,675
Pfizer, Inc. ................... 74,400 6,165,900 6,165,900
Schering Plough Corp. .......... 61,300 3,969,175 3,969,175
------------------------------------------------
39,196,000 39,196,000
------------------------------------------------
RAILROAD - 1.05%
Norfolk Southern Corp. ......... 51,200 4,480,000 4,480,000
------------------------------------------------
RESTURANTS/LODGING - 1.18%
Hospitality Franchise .......... 35,100 2,097,225 2,097,225
Marriott International, Inc. ... 52,800 2,917,200 2,917,200
------------------------------------------------
5,014,425 5,014,425
------------------------------------------------
RETAIL - 4.36%
American Stores Co. ............ 104,600 4,275,525 4,275,525
Gap, Inc. ...................... 149,400 4,500,675 4,500,675
Home Depot, Inc. ............... 51,000 2,556,375 2,556,375
Sears Roebuck & Co. ........... 64,000 2,952,000 2,952,000
TJX Cos, Inc. .................. 90,900 4,306,388 4,306,388
------------------------------------------------
18,590,963 18,590,963
------------------------------------------------
SEMICONDUCTORS - 3.04%
Intel Corp. .................... 98,900 12,949,719 12,949,719
------------------------------------------------
TECHNOLOGY - 1.37%
International Business Machine 38,700 5,843,700 5,843,700
------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 0.73%
Harris Corp..................... 45,200 3,101,850 3,101,850
------------------------------------------------
TOBACCO - 2.03%
Philip Morris Cos, Inc. ........ 76,900 8,660,863 8,660,863
------------------------------------------------
</TABLE>
PF-24
<PAGE> 104
MASTER INVESTMENT TRUST, SERIES 1 -
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Pro Forma Portfolio of Investments
December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares (Note 2) Adjustment Combined
----------- ------ -------- ---------- --------
COMMON STOCKS
<S> <C> <C> <C> <C>
TOYS - 0.43%
Hasbro, Inc.. ................... 46,700 1,815,463 1,815,463
UTILITIES - ELECTRIC - 2.97%
Edison International ............. 256,800 5,103,900 5,103,900
FPL Group, Inc. .................. 56,800 2,612,800 2,612,800
General Public Utilities ......... 146,500 4,926,063 4,926,063
-------------------------------------------------
12,642,763 12,642,763
-------------------------------------------------
UTILITIES - GAS - 0.77%
Pacific Enterprises .............. 108,100 3,283,538 3,283,538
-------------------------------------------------
UTILITIES - TELECOMMUNICATIONS - 6.48%
Ameritech Corp. .................. 89,300 5,413,813 5,413,813
AT&T ............................. 148,800 6,472,800 6,472,800
Bellsouth Corp. .................. 138,500 5,591,938 5,591,938
GTE Corp. ........................ 88,100 4,008,550 4,008,550
Nynex Corp. ...................... 68,900 3,315,813 3,315,813
Sprint Corp. ..................... 70,800 2,823,150 2,823,150
-------------------------------------------------
27,626,063 27,626,063
-------------------------------------------------
TOTAL COMMON STOCKS - 97.34%
(COST $329,288,481) ................ 414,836,311 414,836,311
-------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE PRO FORMA PRO FORMA
RATE DATE (000) (NOTE 2) ADJUSTMENT COMBINED
---- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 2.44%
U.S. Treasury Bill ........................... 4.95% * 01/23/97 3,636 $ 3,623,666 3,623,666
U.S. Treasury Bill ........................... 4.78% * 02/06/97 134 133,315 133,315
U.S. Treasury Bill ........................... 4.92% * 02/06/97 120 119,410 119,410
U.S. Treasury Bill ........................... 5.05% * 02/06/97 1,055 1,049,678 1,049,678
U.S. Treasury Bill ........................... 4.76% * 02/06/97 211 209,857 209,857
U.S. Treasury Bill ........................... 4.70% * 02/06/97 573 569,933 569,933
U.S. Treasury Bill ........................... 4.73% * 02/06/97 505 502,280 502,280
U.S. Treasury Bill ........................... 4.84% * 02/06/97 715 711,059 711,059
U.S. Treasury Bill ........................... 4.89% * 03/06/97 705 698,674 698,674
U.S. Treasury Bill ........................... 4.94% * 03/06/97 57 56,489 56,489
U.S. Treasury Bill ........................... 4.99% * 01/06/97 42 41,912 41,912
U.S. Treasury Bill ........................... 4.99% * 01/23/97 351 349,906 349,906
U.S. Treasury Bill ........................... 4.99% * 01/23/97 1,083 1,079,623 1,079,623
U.S. Treasury Bill ........................... 5.00% * 01/23/97 459 457,569 457,569
U.S. Treasury Bill ........................... 5.00% * 01/23/97 521 519,375 519,375
U.S. Treasury Bill ........................... 5.07% * 01/30/97 270 268,895 268,895
---------------------------------------
Total U.S. Government Obligations (cost $18,293,401) ....................................... 10,391,638 10,391,638
---------------------------------------
TOTAL INVESTMENT
(COST $339,630,050 ) - 99.77% ......................................................... 425,227,949
Other assets in excess of liabilities - 0.23% ............................................. 959,593 959,593
---------------------------------------
NET ASSETS - 100.0% ........................................................................ $426,187,542 $426,187,542
=======================================
</TABLE>
- -----------------
* Effective Yield
PF-25
<PAGE> 105
MASTER INVESTMENT TRUST, SERIES 1 -
INVESTMENT GRADE BOND PORTFOLIO
- -------------------------------------------------------------------------------
Pro Forma Portfolio Of Investments
December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE PRO FORMA PRO FORMA
DESCRIPTION RATE DATE (000) (NOTE 2) ADJUSTMENT COMBINED
----------- ---- -------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSET BACKED SECURITIES - CREDIT CARDS - 4.19%
Standard Credit Card Master Trust ....................... 7.85% 02/07/02 $2,500 $2,609,036 $2,609,036
NationsBank Credit Card Master Trust .................... 6.45% 04/15/03 2,700 2,723,142 2,723,142
----------------------------------
5,332,178 5,332,178 4.19%
----------------------------------
ASSET BACKED SECURITIES - HOME EQUITY LOANS - 3.94%
Contimortgage Home Equity ............................... 6.60% 10/15/11 2,000 1,981,875 1,981,875
The Money Store Trust 1996 - B .......................... 7.38% 05/15/17 1,000 1,020,356 1,020,356
The Money Store Trust 1996 - B .......................... 7.07% 03/15/17 2,000 2,021,728 2,021,728
----------------------------------
5,023,959 5,023,959 3.94%
----------------------------------
COMMERCIAL PAPER - 2.85%
Delmarva Power & Light. ................................. 6.57% 01/02/97 3,630 3,630,000 3,630,000 2.85%
----------------------------------
CORPORATE OBLIGATIONS - 5.13%
General Motors Accept Corp. ............................. 6.88% 07/15/01 2,000 2,015,000 2,015,000
Household Finance Co. ................................... 6.45% 03/15/01 2,000 1,992,500 1,992,500
Texas Instruments, Inc. ................................. 6.88% 07/15/00 2,500 2,528,125 2,528,125
----------------------------------
6,535,625 6,535,625 5.13%
----------------------------------
EURO BONDS - 2.01%
Republic of Italy ....................................... 0.00% 10/01/01 3,300 2,559,173 2,559,173 2.01%
----------------------------------
MEDIUM TERM NOTES - 26.82%
Associates Corp. ........................................ 6.35% 06/29/00 3,000 2,988,750 2,988,750
Comsat Corp. ............................................ 8.66% 11/30/06 2,500 2,759,375 2,759,375
Eaton Off Shore Ltd. .................................... 9.00% 02/15/01 4,500 4,865,625 4,865,625
General Motors Accept Corp. ............................. 7.38% 04/25/00 3,000 3,071,250 3,071,250
Heller Financial ....................................... 0.69% 09/13/99 3,000 3,033,750 3,033,750
International Lease Finance ............................. 0.62% 06/01/00 4,500 4,449,375 4,449,375
John Deere .............................................. 5.76% 12/06/99 5,000 4,856,250 4,856,250
McDonnell Douglas Finance Corp .......................... 6.50% 12/06/99 2,000 1,970,000 1,970,000
Sears Roebuck Co. ....................................... 6.58% 06/15/00 2,000 2,000,000 2,000,000
USL Capital Corp. ....................................... 8.13% 02/15/00 4,000 4,165,000 4,165,000
----------------------------------
34,159,375 34,159,375 26.82%
----------------------------------
U.S. GOVERNMENT AGENCY NOTES - 3.11%
Federal Home Loan Mortage Corp. Pool #303528 ............ 6.00% 08/01/01 2,173 2,121,227 2,121,227
Federal Home Loan Mortage Corp. Pool #131579 ............ 6.50% 07/01/04 151 144,523 144,523
Federal Home Loan Mortage Corp. Pool #286087 ............ 8.00% 06/01/24 750 763,817 763,817
Government National Mortage Assoc. Pool #136688 ......... 10.00% 09/15/15 26 28,643 28,643
Government National Mortage Assoc. Pool #166744 ......... 10.00% 07/15/16 357 390,808 390,808
Government National Mortage Assoc. Pool #209480 ......... 10.00% 07/15/17 80 87,483 87,483
Government National Mortage Assoc. Pool #227082 ......... 10.00% 08/15/17 113 123,553 123,553
Federal Home Loan Mortage Corp. Pool #160034 ............ 8.50% 12/01/07 65 66,858 66,858
Federal Home Loan Mortage Corp. Pool #549837 ............ 8.00% 07/01/10 200 203,640 203,640
Federal Home Loan Mortage Corp. Pool #284343 ............ 8.00% 12/01/16 11 10,929 10,929
Federal Home Loan Mortage Corp. Pool #297505 ............ 8.00% 06/01/17 18 18,257 18,257
----------------------------------
3,959,737 3,959,737 3.11%
----------------------------------
</TABLE>
PF-26
<PAGE> 106
MASTER INVESTMENT TRUST, SERIES 1 -
INVESTMENT GRADE BOND PORTFOLIO
- ------------------------------------------------------------------------------
Pro Forma Portfolio Of Investments
December 31, 1996
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S TREASURY BONDS - 3.69%
U.S. Treasury Bonds ........................... 10.38% 11/15/09 $3,800 $4,698,320 $4,698,320 3.69%
--------------------------------
U.S. TREASURY NOTES - 46.58%
U.S. Treasury Notes ........................... 7.00% 07/15/06 3,000 3,116,310 3,116,310
U.S. Treasury Notes ........................... 7.75% 11/30/99 4,500 4,701,015 4,701,015
U.S. Treasury Notes ........................... 7.75% 01/31/00 18,500 19,354,513 19,354,513
U.S. Treasury Notes ........................... 7.88% 11/15/04 5,500 6,001,984 6,001,984
U.S. Treasury Notes ........................... 5.63% 11/30/00 22,500 22,093,423 22,093,423
U.S. Treasury Notes ........................... 6.63% 06/30/01 4,000 4,063,280 4,063,280
--------------------------------
59,330,525 59,330,525 46.58%
--------------------------------
TOTAL INVESTMENTS - 98.31%
(Cost $125,476,207 ) ......................................................... 125,228,892 125,228,892 98.31%
Other Assets in Excess of Liabilities - 1.69% ................................ 2,146,426 2,146,426 1.69%
--------------------------------
NET ASSETS - 100% ............................................................ $127,375,318 $127,375,318 100.00%
================================
</TABLE>
PF-27
<PAGE> 107
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
The unaudited Pro Forma Combining Financial Statements reflect the accounts of
the Seafirst Blue Chip Fund ("SRF Blue Chip Fund"), Seafirst Asset Allocation
Fund ("SRF Asset Allocation Fund") and the Seafirst Bond Fund ("SRF Bond
Fund") (each also referred to herein as a "Seafirst Fund" and collectively, the
"Seafirst Funds") and the Pacific Horizon Blue Chip Fund ("PH Blue Chip Fund"),
the Pacific Horizon Asset Allocation Fund ("PH Asset Allocation Fund"), and the
Pacific Horizon Intermediate Bond Fund ("PH Intermediate Bond Fund")(each also
referred to herein as a "Pacific Horizon Fund" and collectively, the "Pacific
Horizon Funds") as of and for the ten months ended December 31, 1996. These
statements have been derived from books and records utilized in calculating
daily net asset values at December 31, 1996.
The pro forma financial statements give effect to the proposed transfers of the
assets and stated liabilities of the SRF Blue Chip Fund, SRF Asset Allocation
Fund and SRF Bond Fund in exchange for SRF shares of the PH Blue Chip Fund, PH
Asset Allocation Fund and PH Intermediate Bond Fund, respectively. The Seafirst
Funds and the Pacific Horizon Funds seek to achieve their investment objectives
by investing substantially all of their investable assets in the corresponding
portfolios of Master Investment Trust, Series 1 (the "Master Trust"), an open
end management investment company advised by Bank of America National Trust and
Saving Association ("Bank of America"). The Blue Chip Master Portfolio, Asset
Allocation Master Portfolio and Investment Grade Bond Master Portfolio
(collectively, the "Master Portfolios") of the Master Trust have the same
investment objectives and policies as those of each corresponding Seafirst Fund
and Pacific Horizon Fund. The Pro Forma Financial statements have been prepared
on the assumption that the PH Blue Chip Fund and the PH Intermediate Bond Fund
will continue to invest in their corresponding Master Portfolios, while the PH
Asset Allocation Fund will withdraw its investment from the Asset Allocation
Master Portfolio and engage Bank of America to manage its investments directly.
Under the purchase method of accounting for business combinations, under
generally accepted accounting principles, the basis of portfolio securities or
investments in the corresponding Master Portfolio to be received by the
corresponding Pacific Horizon Fund at the time of the reorganization will be
the fair market value of such assets at the close of business of the day
immediately preceding the reorganizations. The Pro Forma Financial statements
reflect the combined results of operations of the Pacific Horizon and the
Seafirst Retirement Funds. However should such a reorganization be effected,
the Pacific Horizon statements of operations will not be restated for the
precombination results of operations of the funds. All ordinary and reasonable
expenses incurred in connection with the reorganization will be borne by Bank
of America and, therefore, the Pro Forma Financial statements do not reflect
the expenses of any fund in carrying out its obligations under the proposed
Agreement and Plan of Reorganization
The Pro Forma Combining Statements of Assets and Liabilities, Statements of
Operations, and Schedules of Portfolio Investments should be read in conjunction
with the historical financial statements of the Seafirst Funds and Pacific
Horizon Funds which have been incorporated by reference in the Statement of
Additional Information to Form N-14 Regestration statement.
PF-28
<PAGE> 108
Advisory, Administration, Shareholder Servicing Fees and Custodian fees.
The following fees were charged based on the average net assets of the relevant
Fund for the ten months ended December 31, 1996:
<TABLE>
<CAPTION>
Shareholder
Advisory* Admin Service Custody Fee
<S> <C> <C> <C> <C>
PH Blue Chip Fund 0.75% 0.20% 0.25% n/a
PH Asset Allocation Fund 0.55% 0.20% 0.25% n/a
PH Intermediate Bond Fund 0.45% 0.20% 0.25% n/a
SRF Blue Chip Fund 0.75% 0.29% 0.25% 0.03%
SRF Asset Allocation Fund 0.55% 0.29% 0.25% 0.03%
SRF Bond Fund 0.45% 0.29% 0.25% 0.03%
</TABLE>
*Charged at the Master Portfolio level based on the assets of the Master
Portfolio. Allocated to the Seafirst Funds nd Pacific Horizon Funds based on
relative net assets.
Advisory fees for the Pro Forma combined basis are calculated based on the
proposed new rates in effect for the Master Blue Chip Portfolio and the Master
Investment Grade Bond Portfolio. Advisory fees for the PH Asset Allocation Fund
are based on the combined average net assets of the SRF Asset Allocation Fund
and PH Asset Allocation Fund as detailed below;
<TABLE>
Advisory Fee
<S> <C>
PH Blue Chip Fund 0.50%*
PH Asset Allocation Fund 0.40%
PH Intermediate Bond Fund 0.30%*
</TABLE>
*Charged at the Master Portfolio level based on the assets of the Master
Portfolio.
PF-29
<PAGE> 109
2. PORTFOLIO VALUATION
Investments by the Blue Chip Master Portfolio, the PH Asset Allocation Fund and
the Investment Grade Bond Master Portfolio in equity securities, corporate
bonds, U.S. Government Securities and securities of U.S. Government agencies
are valued at their market values determined on the basis of the latest
available bid quotation in the pincipal market (Closing sales price if the
principal market is an exchange) in which securities are normally traded. The
market values of securities are obtained from independent pricing services
approved by the Board of Directors. Investments in investment companies are
valued at their net asset values.
3. CAPITAL SHARES
The pro forma net asset values per share assume the issuance of a new class of
shares (Class SRF) of the Pacific Horizon Funds on December 31, 1996 in
connection with the proposed reorganization. The pro forma number of shares
outstanding consists of the following:
<TABLE>
<CAPTION>
Pro Forma
Shares
Shares at Additional Shares Outstanding at
December 31, Assumed Issued in December 31,
1996 the Reorganization 1996
(000) (000) (000)
----- ----- -----
<S> <C> <C> <C>
PH Blue Chip Fund
Class A 5,542 5,542
Class K 25 25
Class SRF 10,484 10,484
PH Asset Allocation Fund
Class A 1,660 1,660
Class K 36 36
Class SRF 10,392 10,392
PH Intermediate Bond Fund
Class A 2,123 2,123
Class K 33 33
Class SRF 3,795 3,795
</TABLE>
PF-30
<PAGE> 110
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY" OR "PACIFIC HORIZON")
STATEMENT OF ADDITIONAL INFORMATION
FOR
SRF SHARES OF THE
INTERMEDIATE BOND FUND
BLUE CHIP FUND
ASSET ALLOCATION FUND
April 8, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE COMPANY..................................................................................................... 2
INVESTMENT OBJECTIVES AND POLICIES.............................................................................. 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................. 27
ADDITIONAL INFORMATION CONCERNING TAXES......................................................................... 32
MANAGEMENT...................................................................................................... 35
GENERAL INFORMATION............................................................................................. 66
Appendix A......................................................................................................A-1
Appendix B......................................................................................................B-1
</TABLE>
This Statement of Additional Information applies to the SRF Shares of
the Pacific Horizon Intermediate Bond Fund and Pacific Horizon Blue Chip Fund
(the "Feeder Funds") and to the SRF Shares of the Pacific Horizon Asset
Allocation Fund, (collectively with the Feeder Funds, the "Funds") of Pacific
Horizon Funds, Inc. The Master Portfolios corresponding to the Intermediate Bond
Fund and Blue Chip Fund are referred to individually as the "Intermediate Bond
Master Portfolio" and "Blue Chip Master Portfolio" respectively, collectively as
the "Master Portfolios," and collectively with the Asset Allocation Fund, as the
"Portfolios." The Company and Master Investment Trust, Series I ("Master Trust
I"), are collectively referred to herein as the "Companies." This Statement of
Additional Information is meant to be read in conjunction with the Prospectus
dated April 8, 1997, as it may from time to time be revised, which describes
the particular Fund of the Company in which the investor is interested. This
Statement of Additional Information is incorporated by reference in its entirety
into such Prospectus. Because this Statement of Additional Information is not
itself a prospectus, no investment in SRF Shares of any Fund should be made
solely upon the information contained herein. Copies of the Prospectus relating
to Pacific Horizon's Funds to which this Statement of Additional Information
relates may be obtained by calling Concord Financial Group, Inc. at
800-323-9919. Capitalized terms used but not defined herein have the same
meaning as in the Prospectus.
<PAGE> 111
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation. The Intermediate Bond Fund (formerly, Flexible Bond Fund), Blue
Chip Fund and Asset Allocation Fund commenced operations on January 24, 1994,
January 13, 1994 and January 18, 1994, respectively. The Feeder Funds seek to
achieve their respective investment objectives by investing substantially all of
their assets in diversified investment portfolios of an open-end, management
investment company having the same investment objective as these Funds. As of
the date of this Statement of Additional Information, the Asset Allocation Fund
also invests substantially all of its assets in a diversified investment
portfolio of an open-end management investment company, the Asset Allocation
Master Portfolio, which has the same investment objective as that of the Fund.
On the Reorganization Date, the Asset Allocation Fund will withdraw its assets
from the Asset Allocation Master Portfolio and invest its assets directly in
portfolio securities. Accordingly, because the SRF Share class will not be sold
until the Reorganization Date, the description of the Asset Allocation Fund in
this Statement of Additional Information reflects its operation as a Fund which
invests directly in portfolio securities.
The Company also offers other classes of shares in the Funds
as well as other investment portfolios which are described in separate
Prospectuses and Statements of Additional Information. For information
concerning these other classes or shares or portfolios 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 the Funds describes the investment
objective of each Fund. Because the investment characteristics of each Feeder
Fund will correspond with its respective Master Portfolio, the following is a
discussion of the various investments and techniques employed by each Master
Portfolio. The following information supplements and should be read in
conjunction with the descriptions of the investment objective and policies in
the Prospectus for the Funds.
PORTFOLIO TRANSACTIONS
- ----------------------
The portfolio turnover rate described in the Prospectus is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose maturities at the time of acquisition
were one year or less. Portfolio turnover may vary greatly from year to
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<PAGE> 112
year as well as within a particular year, and may also be affected by cash
requirements for redemptions of shares and by requirements which enable the
Company and Master Trust I to receive certain favorable tax treatment. Portfolio
turnover will not be a limiting factor in making portfolio decisions.
For the fiscal years or periods indicated, the portfolio
turnover rates for each Portfolio were as follows:
<TABLE>
<CAPTION>
==========================================================================================================================
Year Ended Year or Period Ended
February 29, 1996 February 28, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate Bond Master Portfolio 172% 240%
- --------------------------------------------------------------------------------------------------------------------------
Blue Chip Master Portfolio 108% 44%
- --------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund* 157% 142%
==========================================================================================================================
<FN>
- --------------------
* Until the Reorganization Date, the Asset Allocation Fund invested all
of its assets in the Asset Allocation Portfolio of Master Investment
Trust, Series I (the "Asset Allocation Master Portfolio"). Information
contained in the chart above relates to the Master Portfolio.
</TABLE>
Subject to the general control of the Company's Board of
Directors, and the Master Portfolios' Trustees, Bank of America National Trust
and Savings Association ("Bank of America" or the "investment adviser") is
responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for each Portfolio.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no stated commission in the
case of securities traded in the over-the-counter market, but the price includes
an undisclosed commission or mark-up. The cost of securities purchased from
underwriters 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. Purchases and sales of fixed income securities are
normally principal transactions without brokerage commissions.
For the fiscal years or periods indicated, each Portfolio paid
the following brokerage commissions:
<TABLE>
<CAPTION>
=========================================================================================================================
Year Ended Year Ended Year or Period* Ended
February 29, 1996 February 28, 1995 February 28, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Master $ 0 $ 0 $ 0
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Blue Chip Master Portfolio $428,667 $202,817 $270,323
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 113
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund+ $175,960 $152,778 $ 21,798
=========================================================================================================================
<FN>
- --------------------
+ Until the Reorganization Date, the Asset Allocation Fund invested all
of its assets in the Asset Allocation Master Portfolio. Information
contained in the chart above relates to the Asset Allocation Master
Portfolio.
* The Intermediate Bond, Blue Chip and Asset Allocation Master Portfolios
commenced operations on December 6, 1993.
</TABLE>
In executing portfolio transactions and selecting brokers or
dealers, it is the Portfolios' policy to seek the best overall terms available.
The Investment Advisory Agreements between the particular Company and Bank of
America provide 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 Agreements authorize Bank
of America, subject to the approval of the particular Board, to cause a
Portfolio 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 Company or Portfolio.
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.
It is possible that certain of the brokerage and research
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely, a
particular Company or any given Portfolio 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.
Brokerage and 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. Such services may be
useful to Bank of America in serving both the Companies, the Portfolios and
other clients and, conversely, services obtained by the placement of business
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<PAGE> 114
of other clients may be useful to Bank of America in carrying out its
obligations to the Companies and the Portfolios. In connection with its
investment management services with respect to the Portfolios, Bank of America
will not acquire certificates of deposit or other securities issued by it 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 affiliates of the Companies, the
Portfolios, Bank of America, the Distributor and their affiliates acting as
principal, underwriter, syndicate member, market-maker, dealer, broker or in any
similar capacity, provided such purchase, sale or dealing is permitted under the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder.
A Portfolio may participate, if and when practicable, in
bidding for the purchase of securities of the U.S. Government and its agencies
and instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Portfolio will
engage in this practice only when Bank of America, in its sole discretion
subject to guidelines adopted by the particular Board, believes such practice to
be in the interest of the Portfolio.
To the extent permitted by law, Bank of America may aggregate
the securities to be sold or purchased on behalf of the Portfolios 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 1940 Act or their
parents held by the Company as of the close of its most recent fiscal year. As
of February 29, 1996: (a) the Treasury Fund held the following securities,
Repurchase Agreement with Dean Witter, Reynolds, Inc. in the principal amount of
$130,000,000; Repurchase Agreement with Goldman Sachs & Co. in the principal
amount of $375,000,000; Repurchase Agreement with Merrill Lynch & Co., Inc. in
the principal amount of $130,000,000; and Repurchase Agreement with Morgan
Stanley Group, Inc. in the principal amount of $130,000,000; (b) the Government
Fund held the following securities, Repurchase Agreement with Morgan Stanley
Group in the principal amount of $20,000,000; (c) the Prime Fund held the
following securities, Merrill Lynch & Co., Inc. commercial paper in the
principal amount of $50,000,000; Bear Stearns Co., Inc. monthly variable rate
obligation in the principal amount of $100,000,000; Merrill Lynch & Co., Inc.
monthly variable rate obligation in the principal amount of $50,000,000; Merrill
Lynch & Co., Inc. quarterly variable rate obligation in the principal amount of
$50,000,000; Merrill Lynch & Co., Inc. quarterly variable rate obligation in the
principal amount of $50,000,000; Dean Witter Discover & Co.
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<PAGE> 115
quarterly variable rate obligation in the principal amount of $50,000,000;
Goldman Sachs Group L.P. master note in the principal amount of $220,000,000;
Morgan Stanley Group, Inc. master note in the principal amount of $200,000,000,
Repurchase Agreement with Dean Witter Reynolds, Inc. in the principal amount of
$105,000,000; Repurchase Agreement with Morgan Stanley Group, Inc. in the
principal amount of $105,000,000; Repurchase Agreement with Morgan Stanley
Group, Inc. in the principal amount of $105,000,000; (d) the U.S. Government
Securities Fund held the following securities, Merrill Lynch & Co., Inc.
commercial paper in the principal amount of $3,000,000; (e) the Corporate Bond
Master Portfolio held the following securities, Goldman Sachs Group LP corporate
obligation in the principal amount of $1,500,000; and Lehman Brothers corporate
obligation in the principal amount of $1,000,000; (f) the Intermediate Bond
Master Portfolio held the following securities, Morgan Stanley Group, Inc.
medium term note in the amount of $2,000,000 and Merrill Lynch Mtg. Inv. Inc.
collateral mortgage obligation in the amount of $16,000; (g) the Blue Chip
Master Portfolio held the following securities, Dean Witter common stock in the
principal amount of $2,821,875; and (h) the Asset Allocation Master Portfolio
held the following securities, Dean Witter common stock in the principal amount
of $1,085,750; Lehman Brothers corporate obligations in the principal amount of
$1,000,000; Morgan Stanley Group, Inc. medium term note in the principal amount
of $1,500,000; Merrill Lynch & Co., Inc. collateralized mortgage obligation in
the principal amount of $8,000; and Merrill Lynch & Co., Inc. commercial paper
in the principal amount of $3,500,000.
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.
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT INFORMATION
- ------------------------------------------------------------------------
The following discussion supplements the descriptions of such
investments in the Prospectus.
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME
DEPOSITS. Each Portfolio may acquire certificates of deposit, bankers'
acceptances and time deposits as described in the Prospectus. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' Acceptances are negotiable drafts 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 on maturity. Certificates of Deposit and Bankers
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<PAGE> 116
Acceptances may only be purchased from domestic or foreign banks and financial
institutions having total assets at the time of purchase in excess of $2.5
billion (including assets of both domestic and foreign branches). Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate. The Portfolios will not acquire
obligations issued by the International Bank for Reconstruction and Development,
the Asian Development Bank or the Inter-American Development Bank.
Instruments issued by foreign banks or financial institutions
may be subject to additional investment risks that are different in some
respects from those that would be incurred if it were to invest 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.
Domestic banks and foreign banks are subject to different
governmental regulations with respect to the amounts and types of loans which
may be made and interest rates which may be charged. In addition, the
profitability of the banking industry depends 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 foreign bank obligations.
COMMERCIAL PAPER AND SHORT-TERM NOTES. A Portfolio may invest
a portion of its assets in commercial paper and short-term notes. Commercial
paper consists of unsecured promissory notes issued by corporations. Except as
noted below with respect to variable and floating rate instruments, issues of
commercial paper and short-term notes will normally have maturities of less than
9 months and fixed rates of return, although such instruments may have
maturities of up to one year. Commercial paper and short-term notes will consist
of issues rated at the time of purchase A-2 or better by Standard & Poor's
Ratings Group, Division of McGraw Hill ("S&P"), Prime-2 or better by
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<PAGE> 117
Moody's Investors Service, Inc. ("Moody's"), or similarly rated by another
nationally recognized statistical rating organization ("NRSRO"); or if unrated,
will be determined by Bank of America to be of comparable quality under
procedures established by the particular Board.
MONEY MARKET FUNDS. In connection with the management of their
daily cash position, the Portfolios may each invest in the securities of a money
market mutual fund (including money market mutual funds advised by Bank of
America). Such Portfolios are permitted to invest up to 5% of the value of their
respective total assets in the securities of a money market mutual fund; except
that pursuant to the terms of an investment order granted by the Securities and
Exchange Commission ("SEC"), with respect to the investment in a money market
mutual fund advised by Bank of America, such Portfolios are permitted to invest
the greater of 5% of their respective net assets or $2.5 million. However, no
more than 10% of such Portfolio's total assets may be invested in the securities
of money market mutual funds in the aggregate. Except for investments in money
market mutual funds advised by Bank of America described above, securities of
other investment companies will be acquired by the Portfolios within the limits
prescribed by the Investment Company Act of 1940 and each Portfolio's applicable
fundamental investment limitations. As a shareholder of another investment
company, a Portfolio would bear along with other shareholders, its pro-rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the advisory and other expenses that the
Portfolio bears directly in connection with its own operations.
The 1940 Act generally prohibits each Portfolio from investing
more than 5% of the value of its total assets in any one investment company, or
more than 10% of the value of its total assets in investment companies as a
group, and also restricts its investment in any investment company to 3% of the
voting securities of such investment company. In addition, no more than 10% of
the outstanding voting stock of any one investment company may be owned in the
aggregate by the Portfolios and any other investment company advised by the
investment adviser.
REPURCHASE AGREEMENTS. Each Portfolio is permitted to enter
into repurchase agreements with respect to its portfolio securities. Pursuant to
such agreements, a Portfolio acquires securities from financial institutions
such as banks and broker-dealers which are deemed to be creditworthy subject to
the seller's agreement to repurchase and the agreement of the Portfolio to
resell such securities at a mutually agreed upon date and price. Repurchase
agreements maturing in more than seven days are considered illiquid investments
and investments in such repurchase agreements along with any other illiquid
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<PAGE> 118
securities will not exceed 10% of the value of the net assets of the Portfolios.
The Portfolios are not permitted to enter into repurchase agreements with Bank
of America or its affiliates, and will give no preference to repurchase
agreements with Service Organizations. The repurchase price generally equals the
price paid by a Portfolio 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
a custodian or sub-custodian of the Portfolio or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
deliver instruments the value of which is 102% of the repurchase price
(excluding accrued interest), provided that notwithstanding such requirement,
the adviser shall require that the value of the collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, shall be equal to or greater than the resale price (including interest)
provided in the agreement. If the seller defaulted on its repurchase obligation,
a Portfolio would suffer a loss because of adverse market action or 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 Portfolio's rights with respect to
such securities to be delayed or limited. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may make
investments in U.S. Government obligations. Such obligations include Treasury
bills, certificates of indebtedness, notes and bonds, and issues of such
entities as the Government National Mortgage Association, Export-Import Bank of
the United States, Tennessee Valley Authority, Resolution Funding Corporation,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, and the Student Loan Marketing Association. Treasury bills
have maturities of one year or less, Treasury notes have maturities of one to
ten years and Treasury bonds generally have maturities of more than ten years.
Some of these obligations, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury.
Others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury. Others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations. Still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide
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<PAGE> 119
financial support to U.S. Government sponsored instrumentalities if it is not
obligated to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may
acquire variable and floating rate instruments, including master demand notes.
The actual yield on variable and floating rate instruments varies not only as a
result of variations in the lives of the underlying securities, but also as a
result of changes in prevailing interest rates. Such instruments are frequently
not rated by credit rating agencies. However, in determining the
creditworthiness of unrated variable and floating rate instruments and their
eligibility for purchase by a Portfolio, Bank of America will consider the
earning power, cash flow and other liquidity ratios of the issuers of such
instruments (which include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. An active
secondary market may not exist with respect to particular variable or floating
rate instruments purchased by a Portfolio. The absence of such an active
secondary market could make it difficult to dispose of a variable or floating
rate instrument in the event the issuer of the instrument defaulted on its
payment obligation or during periods that the Portfolio is not entitled to
exercise its demand rights, and the Portfolio could, for these or other reasons,
suffer a loss to the extent of the default. Investments in illiquid variable and
floating rate instruments (instruments which are not payable upon seven days'
notice and do not have active trading markets) are subject to a Portfolio's 10%
limitation on illiquid securities. Variable and floating rate instruments may be
secured by bank letters of credit.
MUNICIPAL SECURITIES. The Asset Allocation Fund and
Intermediate Bond Master Portfolio may invest in Municipal Securities. Municipal
Securities are debt obligations issued 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 (including industrial development bonds
under prior law) are issued by or on behalf of public authorities to finance
various privately-operated facilities. Such obligations are included within the
term Municipal Securities if the interest paid thereon is exempt from regular
federal income tax. The two principal classifications of Municipal Securities
which may be held by the Portfolios are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
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<PAGE> 120
user of the facility being financed. Private activity bonds held by the
Portfolios are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of such
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The Asset Allocation Fund and Intermediate Bond Portfolio may
also invest in "moral obligation" securities, which are normally issued by
special purpose public authorities. If the issuer of moral obligation securities
is unable to meet its debt service obligations from current revenues, it may
draw on a reserve fund, the restoration of which is a moral commitment but not a
legal obligation of the state or municipality which created the issuer.
The Asset Allocation Fund and the Intermediate Bond Master
Portfolio may purchase short-term Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes and other forms of short-term tax-exempt
loans. 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. Those
Portfolios may also purchase tax-exempt commercial paper.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
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 ratings of Moody's, S&P, Fitch Investor's Service, L.P. ("Fitch") and Duff &
Phelps Credit Rating Co. ("D&P") represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Municipal Securities with the
same maturity, interest rate and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Portfolio, an
issue of Municipal Securities may cease to be rated or its rating may be
reduced. The investment adviser will consider such an event in determining
whether a Portfolio should continue to hold the obligation.
An issuer's obligations under its Municipal 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,
if any, 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. The power or ability of an
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<PAGE> 121
issuer to meet its obligations for the payment of interest on, and principal of,
its Municipal Securities may be materially adversely affected by litigation or
other conditions. Further, 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), 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.
Information about the financial condition of issuers of
Municipal Securities may be less available than about corporations, a class of
whose securities is registered under the Securities Exchange Act of 1934.
MORTGAGE-RELATED SECURITIES. To the extent described in the
Prospectus, the Asset Allocation Fund and Intermediate Bond Master Portfolio may
purchase mortgage-backed securities that are secured by entities such as the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, trusts, financial companies, finance subsidiaries of
industrial companies, savings and loan associations, mortgage banks and
investment banks. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate, net of certain fees. The average
life of a mortgage-backed security varies with the underlying mortgage
instruments, which have maximum maturities of 40 years. The average life is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by factors including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. Such prepayments are
passed through to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future payments.
There are a number of important differences among the agencies
and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities
guaranteed by GNMA include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the
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<PAGE> 122
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by FNMA include FNMA
guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of FNMA, are not backed by or entitled to the
full faith and credit of the United States and are supported by the right of the
issuer to borrow from the Treasury. FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
ASSET-BACKED SECURITIES. The Asset Allocation Fund and
Intermediate Bond Master Portfolio may invest in asset-backed securities,
including interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities may also
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; however, the payment of principal and interest on such
obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities.
The purchase of non-mortgage backed securities raises
considerations peculiar to the financing of the instruments underlying such
securities. For example, most organizations that issue asset-backed securities
relating to motor vehicle installment purchase obligations perfect their
interests in the respective obligations only by filing a financing statement and
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by having the servicer of the obligations, which is usually the originator, take
custody thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most of the
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the cardholder.
The development of non-mortgage backed securities is at an
early stage compared to mortgage backed securities. While the market for
asset-backed securities is becoming increasingly liquid, the market for mortgage
backed securities issued by certain private organizations and non-mortgage
backed securities is not as well developed as that for mortgage backed
securities guaranteed by government agencies or instrumentalities. Bank of
America intends to limit its purchase of mortgage-backed securities to those
issued by certain private organizations and to limit its purchase of
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
Non-mortgage, asset-backed securities involve certain risks
that are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
underlying collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which have given debtors the right to set off certain
amounts owed on the credit cards, thereby reducing
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the balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there is
a possibility that recoveries on repossessed collateral may not, in some cases,
be able to support payments on these securities.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio is permitted to
borrow funds for temporary purposes by entering into reverse repurchase
agreements with such financial institutions as banks and broker-dealers.
Whenever a Portfolio 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 or other liquid high grade debt securities
having a value equal to the repurchase price (including accrued interest), and
Bank of America will subsequently continuously monitor the account for
maintenance of such equivalent value. Each Portfolio intends to enter into
reverse repurchase agreements to avoid otherwise having to sell securities
during unfavorable market conditions in order to meet redemptions. Reverse
repurchase agreements are considered to be borrowings by a Portfolio under the
1940 Act.
SECURITIES LENDING. A Portfolio may lend securities as
described in the Prospectus. Such loans will be secured by cash or securities of
the U.S. Government and its agencies and instrumentalities. The collateral must
be at all times equal to at least the market value of the securities loaned and
is "marked to market" daily. A Portfolio will continue to receive interest or
dividends on the securities it loans, and will also earn interest on the
investment of any cash collateral. Cash collateral may be invested in short-term
U.S. Government securities, certificates of deposit, other high-grade,
short-term obligations or interest-bearing cash equivalents. Although voting
rights, or rights to consent, attendant to securities loaned pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by a Portfolio if a material event affecting the
investment is to occur.
OPTIONS TRADING. A Portfolio may, under certain
circumstances and in accordance with investment limitations described in the
Prospectus, engage in options trading. Such options may relate to U.S. and
foreign securities or to various stock indices. Such options may be
traded on U.S. exchanges and
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on foreign exchanges to the extent permitted by law. Each Portfolio presently
intends that the aggregate value of its assets subject to options written by
such Portfolio will not exceed 5% of the value of its net assets. The investment
policies of each Portfolio provide that the aggregate value of its assets
subject to options written by such Portfolio may not exceed 25% of the value of
its net assets.
Options trading is a highly specialized activity which entails
greater than ordinary risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original premium paid for the purchase of the
option. However, options may be more volatile than the underlying instruments,
and therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying instruments themselves.
A listed call option for a particular security gives the purchaser of the option
the right to buy from a clearing corporation, and obligates a writer to sell to
the clearing corporation, the underlying security at the stated exercise price
at any time prior to the expiration of the option, regardless of the market
price of the security. The premium paid to the writer is in consideration for
undertaking the obligations under the option contract. A listed put option gives
the purchaser the right to sell to a clearing corporation the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. In contrast to an
option on a particular security, an option on a stock index provides the holder
with the right to make or receive a cash settlement upon exercise of the option.
The amount of this settlement will be equal to the difference between the
closing price of the index at the time of exercise and the exercise price of the
option expressed in dollars, times a specified multiple.
A Portfolio will continue to receive interest or dividend
income on the securities underlying such puts until they are exercised by the
Portfolio. Any losses realized by a Portfolio in connection with its purchase of
put options will be limited to the premiums paid by the Portfolio for the
options plus any transaction costs. A gain or loss may be wholly or partially
offset by a change in the value of the underlying security which the Portfolio
owns.
A Portfolio may write call options only if they are "covered."
In the case of a call option on a security, the option is "covered" if a
Portfolio owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount held in a segregated account by its custodian) upon
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conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if the Portfolio maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if a Portfolio holds a call on the same security or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written provided the difference is maintained by the Portfolio in cash
or cash equivalents in a segregated account with its custodian.
The principal reason for writing call options on a securities
portfolio is the attempt to realize, through the receipt of premiums, a greater
current return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
its obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
If a Portfolio desires to sell a particular security it owns
on which it has written an option, the Portfolio will seek to effect a closing
purchase transaction prior to, or concurrently with, the sale of the security.
In order to close out a covered call option position, a Portfolio will enter
into a "closing purchase transaction" - the purchase of a call option on a
security or stock index with the same exercise price and expiration date as the
call option which it previously wrote on the same security or index.
When a Portfolio purchases a put or call option, the premium
paid by it is recorded as an asset of the Portfolio. When a Portfolio writes an
option, an amount equal to the net premium (the premium less the commission)
received by such Portfolio is included in the liability section of such
Portfolio's statement of assets and liabilities as a deferred credit. The amount
of this asset or deferred credit is subsequently marked-to-market to reflect the
current value of the option purchased or written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option purchased by a Portfolio
expires unexercised, the Portfolio realizes a loss equal to the premium paid. If
a Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by such Portfolio on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. Moreover,
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because increases in the market price of an option will generally reflect
(although not necessarily in direct proportion) increases in the market price of
the underlying security, any loss resulting from a closing purchase transaction
is likely to be offset in whole or in part by appreciation of the underlying
security if such security is owned by a Portfolio. If an option written by a
Portfolio expires on the stipulated expiration date or if a Portfolio enters
into a closing purchase transaction, it realizes a gain (or loss if the cost of
a closing purchase transaction exceeds the net premium received when the option
is sold) and the deferred credit related to such option is eliminated. If an
option written by a Portfolio is exercised, the proceeds of the sale are
increased by the net premium originally received and the Portfolio realizes a
gain or loss.
There are several risks associated with transactions in
options on securities and indices. For example, there are significant
differences between the securities, currencies and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options on a national securities exchange (an "Exchange")
may be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading volume; or one or more Exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
FUTURES CONTRACTS. As stated in the Prospectus, the Portfolios
may engage in futures contracts and related options for hedging purposes. A
futures contract is a bilateral agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the value of a specified obligation
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or stock index (which assigns relative values to the common stocks included in
the index) at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
underlying securities is normally made. A Portfolio may not purchase or sell
futures contracts and purchase related options unless immediately after any such
transaction the aggregate initial margin that is required to be posted by that
Portfolio under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Portfolio on its open
futures options positions, does not exceed 5% of the Portfolio's total assets,
after taking into account any unrealized profits and losses on the Portfolio's
open contracts and excluding the amount that a futures option is "in-the-money"
at the time of purchase. An option to buy a futures contract is "in-the-money"
if the then current purchase price of the contract that is subject to the option
is less than the exercise or strike price; an option to sell a futures contract
is "in-the-money" if the exercise or strike price exceeds the then current
purchase price of the contract that is the subject of the option.
Successful use of futures contracts by a Portfolio is subject
to Bank of America's ability to predict correctly movements in the direction of
the stock market or interest rates. There are several risks in connection with
the use of futures contracts by a Portfolio as a hedging devise. One risk arises
because of the imperfect correlation between movements in the price of the
futures contract and movements in the price of the securities which are the
subject of the hedge. The price of the futures contract may move more than or
less than the price of the securities being hedged. If the price of the futures
contract moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, a Portfolio would
be in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures contract. If the price of the
futures contract moves more than the price of the hedged securities, a Portfolio
involved will experience either a loss or gain on the futures contract which
will not be completely offset by movements in the price of the securities which
are the subject of the hedge.
It is also possible that, where a Portfolio has sold futures
contracts to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in a Portfolio may decline. If this
occurred, a Portfolio would lose money on the futures contract and also
experience a decline in value in its portfolio securities.
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In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movement in the cash market
and movements in the price of futures contracts, a correct forecast of general
market trends or interest rate movements by Bank of America may still not result
in a successful hedging transaction over a short time frame.
Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures
contracts. Although the Portfolios intend to purchase or sell futures contracts
only on exchanges or boards of trade where there appear to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any particular time.
In such event, it may not be possible to close a futures investment position,
and in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin. The liquidity of a
secondary market in a futures contract may in addition be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures contract price during a single trading
day. Once the daily limit has been reached in the contract, no trades may be
entered into at a price beyond the limit, thus preventing the liquidation of
open futures positions.
For additional information concerning futures and options
thereon, please see Appendix C to this Statement of Additional Information.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call
options on a futures contract will give a Portfolio the right (but not the
obligation), for a specified price, to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Portfolio obtains the benefit
of the futures position if prices move in a favorable direction but limits its
risk of loss in the event of an unfavorable price movement to the loss of the
premium and transaction costs.
The writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of a Portfolio's
assets. By writing a call option, a Portfolio becomes obligated, in exchange for
the premium, to sell a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, which may partially offset
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an increase in the price of securities that the Portfolio intends to purchase.
However, the Portfolio becomes obligated to purchase a futures contract, which
may have a value lower than the exercise price. Thus, the loss incurred by the
Portfolio in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. The Portfolio will incur transaction costs
in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting option on the same
series. There is no guarantee that such closing transactions can be effected. A
Portfolio's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
FOREIGN INVESTMENTS. A Portfolio may invest in securities of
foreign issuers that are not publicly traded in the United States. Investments
in foreign securities involve certain inherent risks, such as political or
economic instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of domestic corporations. In addition, there may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries.
In considering whether to invest in the securities of a
foreign company, Bank of America considers such factors as the characteristics
of the particular company, differences between economic trends and the
performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental and
social conditions of the country or countries where the company is located.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. When a
Portfolio agrees to purchase securities on a "when-issued" or "forward
commitment" basis, its custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, its custodian will set aside portfolio securities to satisfy a
purchase commitment. In such a case, a Portfolio may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Portfolio's commitment.
A Portfolio's net assets will fluctuate
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to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. The Portfolios do not intend
to engage in these transactions for speculative purposes but primarily in order
to hedge against anticipated changes in interest rates. Because each Portfolio
will set aside cash or liquid portfolio securities to satisfy the purchase
commitments in the manner described, a Portfolio's liquidity and the ability of
Bank of America to manage it may be affected in the event the forward
commitments and commitments to purchase when-issued securities ever exceeded 25%
of the value of its assets.
A Portfolio will purchase securities on a when-issued or
forward commitment basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, a Portfolio 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
a Portfolio on the settlement date. In these cases a Portfolio may realize a
taxable capital gain or loss.
When a Portfolio engages in when-issued or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio'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 or forward commitment transaction and any subsequent fluctuations in
their market value is taken into account when determining the market value of a
Portfolio starting on the day the Portfolio agrees to purchase the securities.
The Portfolios do not earn interest on the securities they have committed to
purchase until they are paid for and delivered on the settlement date.
ADDITIONAL INFORMATION - ALL FUNDS
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The investment adviser's own investment portfolios may include
bank certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments any of which may also be purchased by a
Portfolio. The Portfolios may also invest in securities, interests or
obligations of companies or entities which have a deposit, loan, commercial
banking or other business relationship with Bank of America or any of its
affiliates (including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities purchased by a Portfolio).
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OTHER INVESTMENT LIMITATIONS
- ----------------------------
A Fund's or Master Portfolio's investment objectives are
fundamental and may not be changed with respect to such Fund or Master Portfolio
without the affirmative vote of the holders of the majority of the Fund's or
Master Portfolio's outstanding shares (as defined below under "Additional
Information Miscellaneous"). Similarly, the following enumerated fundamental
policies may not be changed with respect to each Fund or Master Portfolio
without such a vote of shareholders.
NEITHER THE ASSET ALLOCATION FUND, NOR THE INTERMEDIATE
BOND OR BLUE CHIP FUNDS OR THEIR CORRESPONDING MASTER PORTFOLIOS, MAY:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result, more than 5% of
the value of its total assets will be invested in the securities of any one
issuer or it would own more than 10% of the voting securities of such issuer,
except that up to 25% of its total assets may be invested without regard to
these limitations; and provided that all of its assets may be invested in a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objectives, policies and restrictions without
regard to the limitations set forth in this paragraph;
2. Pledge, mortgage or hypothecate the assets of any Fund to
any extent greater than 10% of the value of the total assets of that Fund;
3. Make loans to other persons, except that a Fund may make
time or demand deposits with banks, provided that time deposits shall not have
an aggregate value in excess of 10% of a Fund's net assets, and may purchase
bonds, debentures or similar obligations that are publicly distributed, may loan
portfolio securities not in excess of 10% of the value of the total assets of
such Fund, and may enter into repurchase agreements as long as repurchase
agreements maturing in more than seven days do not exceed 10% of the value of
the total assets of a Fund;
4. Purchase or sell commodities contracts, except that any
Fund may purchase or sell futures contracts on financial instruments, such as
bank certificates of deposit and U.S. Government securities, foreign currencies
and stock indexes and options on any such futures if such options are written by
other persons and if (i) the futures or options are listed on a national
securities or commodities exchange, (ii) the aggregate premiums paid on all such
options that are held at any time do not exceed 20% of the total net assets of
that Fund, and (iii) the aggregate margin deposits required on all such futures
or
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options thereon held at any time do not exceed 5% of the total assets of the
Fund;
5. Purchase any securities for any Fund that would cause more
than 25% of the value of the Fund's total assets at the time of such purchase to
be invested in the securities of one or more issuers conducting their principal
activities in the same industry; provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the United States
Government, its agencies and instrumentalities; and provided further that a Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objectives,
policies and restrictions as the Fund without regard to the limitations set
forth in this paragraph (5).
6. Invest the assets of any Fund in nonmarketable securities
that are not readily marketable (including repurchase agreements maturing in
more than seven days, securities described in restriction (2) with respect to
such Fund in the Prospectus, restricted securities, certain OTC options and
securities used as cover for such options and stripped mortgage-backed
securities) to any extent greater than 10% of the value of the total assets of
that Fund; provided, however, that a Fund may invest all its assets in a
diversified, open-end management investment company, or a series thereof with
substantially the same investment objectives, policies and restrictions as the
Fund, without regard to the limitations set forth in this paragraph (6).
7. Borrow money for any Fund except for temporary emergency
purposes and then only in an amount not exceeding 5% of the value of the total
assets of that Fund. Borrowings shall, for purposes of this paragraph, include
reverse repurchase agreements. Any borrowings, other than reverse repurchase
agreements, will be from banks. Pacific Horizon will repay all borrowings in any
Fund before making additional investments for that Fund and interest paid on
such borrowings will reduce income.
8. Issue senior securities.
9. Underwrite any issue of securities, provided, however, that
a Fund may invest all of its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objectives, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (9).
10. Purchase or sell real estate or real estate mortgage loans,
but this shall not prevent investments in instruments secured by real estate or
interests therein or in
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marketable securities of issuers that engage in real estate operations.
11. Purchase on margin or sell short.
12. Purchase or retain securities of an issuer if those members
of the Board of Pacific Horizon or the Master Portfolio, each of whom own more
than 1/2 of 1% of such securities, together own more than 5% of the securities
of such issuer, provided, however, that a Fund may invest all of its assets in a
diversified, open-end management investment company, or a series thereof, having
substantially the same investment objectives, policies and restrictions as such
Fund without regard to the limitations set forth in this paragraph (12).
13. Purchase securities of any other investment company (except
in connection with a merger, consolidation, acquisition or reorganization) if,
immediately after such purchase, Pacific Horizon (and any companies controlled
by it) would own in the aggregate (i) more than 3% of the total outstanding
voting stock of such investment company, (ii) securities issued by such
investment company would have an aggregate value in excess of 5% of the value of
the total assets of Pacific Horizon, or (iii) securities issued by such
investment company and all other investment companies would have an aggregate
value in excess of 10% of the value of the total assets of Pacific Horizon
provided, however, that a Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, having
substantially the same investment objectives, policies and restrictions as such
Fund, without regard to the limitations set forth in this paragraph (13).
14. Invest in or sell put, call, straddle or spread options or
interests in oil, gas or other mineral exploration or development programs.
* * *
With respect to the Intermediate Bond, Blue Chip and Asset
Allocation Funds, 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 the purposes of investment limitation number 5 in this
Statement of Additional Information with respect to the Asset Allocation Fund
and the Intermediate Bond and Blue Chip Funds and their respective Master
Portfolios the Funds treat, 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
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industry and each foreign government (and all of its agencies) as a separate
industry.
In order to permit the sale of a Portfolio's shares in certain
states, Pacific Horizon and Master Trust I may make commitments more restrictive
than the investment policies and limitations described above. Pacific Horizon
and Master Trust I are reviewing the continuing applicability of these
commitments in light of recent legislation that preempts state regulation of
investment company securities. As of the date of this Statement of Additional
Information, the following such commitments have been made:
1. The Portfolios will not invest more than 5% of the
value of their respective net assets in warrants, of
which no more than 2% may be warrants which are not
listed on the New York or American Stock Exchanges.
2. The Portfolios will not invest in oil, gas or
other mineral leases.
3. The Portfolios will not purchase or sell real
property, including limited partnership interests,
but excluding readily marketable interests in Real
Estate Investment Trusts ("REITs") or readily
marketable securities of companies that invest in
real estate or real estate limited partnerships.
4. The Portfolios have agreed to exclude any assets of a
Portfolio which are invested in the shares of any
money market mutual fund for the purposes of
calculating that Portfolio's investment advisory fee.
5. The Portfolios will not purchase or retain the
securities of any issuer if the Officers or Directors
or Trustees of the Master Portfolio or its investment
adviser, owning beneficially more than one half of
one percent of the securities of an issuer together
own beneficially more than 5% of the securities of
that issuer.
6. The Portfolios will not invest more than 5% of their
respective total assets in the securities of issuers
which together with any predecessors have a record of
less than three years continuous operation.
7. The Portfolios will not invest more than 15% of
their respective total assets in the securities of
issuers which together with any predecessors have
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<PAGE> 136
a record of less than three years continuous
operation or securities of issuers which are
restricted as to disposition.
8. The Portfolios will not invest more than 10% of their
respective total assets in illiquid securities
including securities of foreign issuers which are not
listed on a recognized domestic or foreign securities
exchange.
In the event that Pacific Horizon or Master Trust I determine
that any such commitment is no longer in the best interests of a Portfolio, it
may revoke its commitment. In such event, the Portfolio may no longer be able to
sell its securities in such state.
* * *
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem SRF Shares, and how
such shares are priced, is included in the Prospectus. Additional information is
contained below. The net asset values of the Master Portfolios corresponding to
each of the Feeder Funds are determined at the same time and on the same days as
the net asset values per share of the respective Feeder Funds are determined.
The net asset value of each of the Feeder Funds is equal to such Fund's pro rata
share of the total investments and other assets of its corresponding Master
Portfolio, less any liabilities with respect to such Feeder Fund, including each
Feeder Fund's pro rata share of the Master Portfolio's liabilities.
VALUATION OF THE PORTFOLIOS
- ---------------------------
Except for debt securities held by the Portfolios with
remaining maturities of 60 days or less, assets for which market quotations are
available are valued as follows: (a) each listed security is valued at its
closing price obtained from the primary exchange on which the security is
listed, or, if there were no sales on that day, at its last reported current
closing price; (b) each unlisted security is valued at the last current bid
price (or last current sale price, as applicable) obtained from NASDAQ; (c)
United States Government and agency obligations are valued based upon bid
quotations from the Federal Reserve Bank for identical or similar obligations;
and (d) short-term money market instruments (such as certificates of deposit,
bankers' acceptances and commercial paper) are most often valued by bid
quotations or by reference to bid quotations of available yields for similar
instruments of issuers with similar credit ratings. The Board of Directors of
Pacific Horizon and Board of Trustees of Master Trust I have determined that the
values obtained using
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<PAGE> 137
the procedures described in (c) and (d) represent the fair values of the
securities valued by such procedures. Most of these prices are obtained by PFPC,
Inc. ("PFPC") from a service that collects and disseminates such market prices.
Bid quotations for short-term money market instruments reported by such service
are the bid quotations reported to it by major dealers in such instruments.
Valuation of options is described above under "Investment
Objectives and Policies--Options Trading."
Debt securities held by the Portfolios with remaining
maturities of 60 days or less are valued on the basis of amortized cost, which
provides stability of net asset value. Under this method of valuation, the
security is initially valued at cost on the date of purchase or, in the case of
securities purchased with more than 60 days remaining to maturity and to be
valued on the amortized cost basis only during the final 60 days of its
maturity, the market value on the 61st day prior to maturity. Thereafter a
constant proportionate amortization in value until maturity of any discount or
premium is assumed, regardless of the impact of fluctuating interest rates on
the market value of the security, unless the Board of Directors of Pacific
Horizon or the Board of Trustees of Master Trust I determines that amortized
cost no longer represents fair value. Pacific Horizon and Master Trust I will
monitor the market value of these investments for the purpose of ascertaining
whether any such circumstances exist.
When approved by the Board of Directors of Pacific Horizon or
the Board of Trustees of Master Trust I, certain securities may be valued on the
basis of valuations provided by an independent pricing service when such prices
are believed to reflect the fair market value of such securities. These
securities may include those that have no available recent market value, have
few outstanding shares and therefore infrequent trades, or for which there is a
lack of consensus on the value, with quoted prices covering a wide range. The
lack of consensus might result from relatively unusual circumstances such as no
trading in the security for long periods of time, or a company's involvement in
merger or acquisition activity, with widely varying valuations placed on the
company's assets or stock. Prices provided by an independent pricing service may
be determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data.
In the absence of an ascertainable market value, assets are
valued at their fair value as determined using methods and
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<PAGE> 138
procedures reviewed and approved by the Board of Directors of Pacific Horizon
and the Board of Trustees of Master Trust I.
SUPPLEMENTARY PURCHASE AND REDEMPTION INFORMATION
- -------------------------------------------------
IN GENERAL. SRF Shares of the Funds are available for
the investment of retirement funds held in Eligible Retirement
Accounts as described in the Prospectus.
SRF Shares in each Fund are sold without a sales load. SRF
Shares are subject to shareholder servicing fees. Service Organizations may be
paid by the Distributor at the Company's expense for shareholder services.
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 customer who must
authorize the purchase of Fund shares prior to such purchase.
All or a portion of the SRF Shares held in a Fund can be
redeemed (sold) at any time. The redemption price will be the net asset value
per share next determined following receipt by the Company of a shareholder's
satisfactorily completed instructions. The value of an SRF Share upon redemption
may be more or less than the value when purchased, depending upon the net asset
value of an SRF Share of the Fund at the time of the redemption. Redemptions are
subject to determination by the Company that the investment instruction form or
the redemption request and other distribution documents, if any, are complete.
Payment for SRF Shares redeemed will normally be made to the
custodian of the shareholder within one business day of receipt by the Company
of redemption instructions, but in no event will payment be made more than seven
days after receipt of redemption instructions except in the circumstances
described below.
EXCHANGE PRIVILEGES FOR ELIGIBLE RETIREMENT ACCOUNTS. SRF
Shares held in any Fund may be exchanged for SRF Shares of any other Fund. SRF
Shares held in any Fund may also be exchanged for A Shares in any other taxable,
non-money market Fund offered by the Company or a Time Horizon Fund without
incurring the front-end sales charge otherwise applicable on sales of A Shares
("Eligible Exchange Shares"). SRF Shares or Eligible Exchange Shares may be
exchanged for Pacific Horizon Shares of the Pacific Horizon Prime Fund. Eligible
Exchange Shares may be further exchanged for A Shares in any taxable, non-money
market fund offered by the Company or a Time Horizon Fund
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<PAGE> 139
without incurring the front-end sales charges otherwise applicable, or for SRF
Shares offered by a Fund. SRF Shares or Eligible Exchange Shares held in an IRA
account for which a Participant's surviving spouse is the beneficiary may
continue to be exchanged for SRF Shares or A Shares as described above. 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 or herself 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.
The following transactions are examples of transactions that
will interrupt the maintenance of Eligible Retirement Account status for a
Participant's account and will terminate the account's ability to engage in the
exchange privileges described above:
1. SRF Shares or Eligible Exchange Shares held in an Eligible
Pension or Profit Sharing Trust or a SEP IRA, which are
transferred by the Participant into a personal rollover IRA,
will no longer be eligible to exchange such shares for A
Shares without incurring the front-end sales load applicable
to A Shares;
2. SRF Shares or Eligible Exchange Shares held in an IRA account
for which a Participant's surviving beneficiary upon transfer
out of the decedent's account is other than the Participant's
spouse will no longer be eligible to exchange such shares for
A Shares without incurring the front-end sales load applicable
to A Shares; and
3. SRF Shares or Eligible Exchange Shares which are liquidated in
their entirety by the Participant into a Certificate of
Deposit will no longer be eligible to exchange such shares for
A Shares without incurring the front-end sales load applicable
to A Shares.
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
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<PAGE> 140
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.
Depending on the terms of the customer account at Bank of
America or a Service Organization, certain purchasers may arrange with the
Company's custodian for sub-accounting services paid by the Company without
direct charge to the purchaser.
A "business day" for purposes of processing share purchases
and redemptions received by the Transfer Agent at its Columbus office is a day
on which the New York Stock Exchange is open for trading. In 1997, the holidays
on which the New York Stock Exchange is closed are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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
SEC; (b) the New York Stock Exchange is closed for other than customary weekend
and holiday closings; (c) the SEC has by order permitted such suspension; or (d)
an emergency exists as determined by the SEC. (The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
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 securities or
other property. Additionally, the Company has made an undertaking to the State
of Texas that it may only make payment of such proceeds wholly or in part in
"readily marketable" securities or other property. (If the Company determines
that such undertaking is no longer in its best interests, it will revoke such
commitment. In such an event, the Funds will no longer be able to sell their
shares in the State of Texas. The Company is reviewing the continuing
applicability of this commitment in light of recent legislation which preempts
state regulation of investment company securities). 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.
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<PAGE> 141
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL - 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 does not qualify for the
special federal tax treatment afforded regulated investment companies, all of
the Fund's taxable income will 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 will be taxable as ordinary income
to the extent of the current and accumulated earnings and profits of the
particular Fund and will 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, including dividends and interest, and
the excess of net short-term capital gain over net long-term capital loss, if
any, subject to certain adjustments and excluding the excess of net long-term
capital gain for the taxable year over the net short-term capital loss for such
year, if any. Each Fund will be taxed on its undistributed investment company
taxable income, if any. As stated, each Fund of the Company intends to
distribute at least 90% of its investment company taxable income, if any, for
each taxable year. To the extent the Funds distribute such income (whether in
cash or additional shares), it will be taxable to shareholders as ordinary
income.
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 the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the 1940 Act); (2) options, futures and forward
contracts other than those on foreign currencies; and (3) foreign currencies
(and options, futures and forward contracts on foreign currencies) that are not
directly related to a Fund's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities) (the
"Short-Short test"). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition
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<PAGE> 142
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. With respect to covered call
options, if the call is exercised by the holder, the premium and the price
received on exercise constitute the proceeds of sale, and the difference between
the proceeds and the cost of the securities subject to the call is capital gain
or loss. Premiums from expired call options written by a Fund and net gains from
closing purchase transactions are treated as short-term capital gains for
federal income tax purposes, and losses on closing purchase transactions are
short-term capital losses. See Appendix C -- "Accounting and Tax Treatment" --
for a general discussion of the federal tax treatment of futures contracts,
related options thereon and other financial instruments, including their
treatment under the Short-Short test.
Any distribution of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term capital
gain, regardless of how long the shareholder has held Fund shares and whether
such gain is 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. It should be noted
that, upon the sale or exchange of Fund shares, if the shareholder has not held
such shares for more than six months, any loss on the sale or exchange of those
shares will be treated as long-term capital loss to the extent of the capital
gain dividends received with respect to those shares.
Ordinary income of individuals is taxable at a maximum
marginal 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 gain is 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%.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute specific percentages of
their ordinary taxable income and capital gain net income (excess of net capital
gain over net capital loss). 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.
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<PAGE> 143
The Company will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 31% of gross
sale proceeds paid to shareholders (i) who have failed to provide a correct tax
identification number in the manner required, (ii) 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 (iii) who have failed
to certify to the Company that they are not subject to backup withholding or
that they are "exempt recipients."
TAXATION OF THE MASTER PORTFOLIOS
- ---------------------------------
Management of the Master Portfolios corresponding to each of
the Feeder Funds intends for each Master Portfolio to be treated as a
partnership (or, in the event that a Feeder Fund is the sole investor in a
Master Portfolio, as an agent or nominee) rather than as a regulated investment
company or a corporation under the Code. Under the rules applicable to a
partnership (or an agent of nominee) under the Code, any interest, dividends,
gains and losses of the Master Portfolios will be deemed to have been reported
as income/loss (i.e., "passed through") to their investors, regardless of
whether any amounts are actually distributed by the Master Portfolios.
Each investor in a Master Portfolio will be taxed on its share
(as determined in accordance with the governing instruments of the particular
Master Portfolio) of the Master Portfolio's ordinary income and capital gains in
determining its income tax liability. The determination of such share will be
made in accordance with the Code and regulations promulgated thereunder. It is
intended that each Master Portfolio's assets, income and distributions will be
managed in such a way that an investor in a Master Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Master Portfolio.
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 Funds may be subject to the tax laws of such states or
localities.
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. This discussion is only a summary of some of the important tax
considerations generally affecting purchasers of Fund shares. No attempt is made
to present a detailed explanation of the federal income tax treatment of the
Funds or their shareholders, and this discussion
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<PAGE> 144
is not intended as a substitute for careful tax planning. Accordingly, potential
purchasers of Fund shares should consult their tax advisers with specific
reference to their own tax situation.
MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY
- -------------------------------------
The directors and officers of the Company, their addresses,
ages, and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Thomas M. Collins 62 Director Of counsel, law firm of McDermott & Trayner; Partner
McDermott & Trayner of the law firm of Musick, Peeler, Garrett (until April,
225 S. Lake Avenue 1993); Chairman of the Board and Trustee, Master Investment
Suite 410 Trust, Series I (registered investment company) (since
Pasadena, CA 91101-3005 1993); President and Chairman of the Board of Pacific
Horizon Funds, Inc. (1982 to August 31, 1995); former
Trustee, Master Investment Trust, Series II (registered
investment company) 1993 to February 1997; former Director,
Bunker Hill Income Securities, Inc. (registered investment
company) through 1991.
Douglas B. Fletcher 70 Vice Chairman Chairman of the Board and Chief Executive Officer, Fletcher
Fletcher Capital of the Board Capital Advisors, Incorporated, (registered investment
Advisors Incorporated adviser) 1991 to date; Partner, Newport Partners
4 Upper Newport Plaza (private venture capital firm), 1981 to date; Chairman of
Suite 100 the Board and Chief Executive Officer, First Pacific
Newport Beach, CA 92660-2629 Advisors, Inc. (registered investment adviser) and seven
</TABLE>
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<PAGE> 145
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
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 64 Director Chairman, Page Mill Asset Management (a private investment
Page Mill Asset company) since 1991; Manager, Corporate Investments, Hewlett
Management Packard Company from 1979 to 1991; Trustee, Master
433 California Street Investment Trust, Series I (since 1993); Director, Morgan
Suite 900 Grenfell Small Cap Fund (since 1986); former Director,
San Francisco, CA 94104 Bunker Hill Income Securities, Inc. (since 1989) (registered
investment companies); former Trustee, SunAmerica Fund Group
(previously Equitec Siebel Fund Group) from 1984 to 1992;
former Trustee, Master Investment Trust, Series II from 1993
to February 1997 (registered investment companies).
</TABLE>
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<PAGE> 146
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Kermit O. Hanson 79 Director Vice Chairman of the Advisory Board, 1988 to date, Executive
17760 14th Ave., N.W. Director, 1977 to 1988, Pacific Rim Bankers Program (a
Shoreline, WA 98177 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 (since 1993) (registered
investment company).
Cornelius J. Pings* 66 Chairman of President, Association of American Universities, February
Association of American the Board and 1993 to date; Provost, 1982 to January 1993, Senior Vice
Universities President President for Academic Affairs, 1981 to January 1993,
1200 New York Avenue, NW University of Southern California; Trustee, Master
Suite 550 Investment Trust, Series I; former Trustee, Master
Washington, DC 20005 Investment Trust, Series II (October 1995 to February 1997).
J. David Huber 49 Vice President Employee of BISYS Fund Services, Inc., June 1987 to present;
BISYS Fund Services President of Master Investment Trust, Series I, Master Investment
3435 Stelzer Road Trust Series II and Seafirst Retirement Funds (since 1996).
Columbus, OH 43219
Irimga McKay 35 Vice Senior Vice President, July 1993 to date, prior thereto
BISYS Fund Services President First Vice President of Concord and the Distributor,
1230 Columbia Street November 1988 to July 1993; Vice President,
5th Floor Seafirst Retirement Funds (since 1993); Vice
La Jolla, CA 92037
</TABLE>
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<PAGE> 147
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
President of Master Investment Trust, Series II (1993 to
February 1997); 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.
Michael Brascetta 37 Assistant Vice Senior Vice President of Shareholder Services, BISYS
BISYS Fund Services President Fund Services, Inc., April 1996 to present; employee, The
3435 Stelzer Road Vanguard Group, 1981 to April 1996.
Columbus, OH 43219
Stephanie L. Blaha 37 Assistant Vice Director of Client Services of Concord, March 1995 to
BISYS Fund Services President date, prior thereto Assistant Vice President of
3435 Stelzer Road Concord and the Distributor, October 1991 to March 1995;
Columbus, OH 43219 Vice President, Seafirst Retirement Funds and Master
Investment Trust, Series I (since 1996); Vice President of
Master Investment Trust, Series II (1996 to February 1997);
Account Manager, AT&T American Transtech, Mutual Fund
Division, July 1989 to October 1991.
Kevin L. Martin 35 Treasurer Vice President, Fund Accounting BISYS Fund Services, Inc.
BISYS Fund Services February 1996 to Present; Treasurer, Seafirst Retirement
3435 Stelzer Road Funds (since 1996); Treasurer of Master Investment Trust,
Columbus, OH 43219 Series II (1996 to February 1997); Senior Audit Manager,
Ernst & Young LLP (1984 to February 1996).
</TABLE>
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<PAGE> 148
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------- ---------------------
<S> <C> <C> <C>
Lisa Ling 36 Assistant Employee, BISYS Fund Services, Inc., November 1995 to
BISYS Fund Services Treasurer present; Assistant Treasurer, Seafirst Retirement Funds
3435 Stelzer Road (since 1996); Assistant Treasurer of Master Investment
Columbus, OH 43219 Trust, Series II (1996 to February 1997); employee,
Federated Investors, October 1982 to November 1995.
W. Bruce McConnel, III 53 Secretary Partner of the law firm of Drinker Biddle & Reath.
1345 Chestnut Street
Philadelphia National Bank
Building, Suite 1100
Philadelphia, PA 19107
George O. Martinez 36 Assistant Senior Vice President and Director of Administrative and
BISYS Fund Services Secretary Regulatory Services, of Concord, since April 1995; Assistant
3435 Stelzer Road Secretary, Seafirst Retirement Funds (since 1995); Assistant
Columbus, OH 43219 Secretary of Master Investment Trust, Series II (1995 to
February 1997); prior thereto, Vice President and Associate
General Counsel, Alliance Capital Management, L.P.
Alaina V. Metz 28 Assistant Chief Administrator, Administrative and Regulatory Services,
BISYS Fund Services Secretary BISYS Fund Services, Inc., June 1995 to present; Assistant
3435 Stelzer Road Secretary of Seafirst Retirement Funds (since 1996);
Columbus, OH 43219 Supervisor, Mutual Fund Legal Department, Alliance Capital
Management, May 1989 to June 1995.
<FN>
- ------------------------
* Dr. Pings is an "interested director" of the Company as defined in the
1940 Act.
</TABLE>
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<PAGE> 149
The Audit Committee of the Board is comprised of all directors
and is chaired by Dr. Hanson. 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; the President receives an additional $20,000 per annum for his
services as President; Mr. Collins, in recognition of his years of service as
President and Chairman of the Board, receives an additional $40,000 per annum
until February 28, 1997; 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 investment
portfolio of the Company, pays its proportionate share of these amounts based on
relative net asset values.
For the fiscal year ended February 29, 1996, the Company paid
or accrued for the account of its directors as a group for services in all
capacities a total of $388,155. Of that amount, $6,935, $6,354 and $1,165 of
directors' compensation were allocated to the Intermediate Bond, Blue Chip and
Asset Allocation Funds, respectively. 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, owned less than 1% of the outstanding shares of each
of the Company's investment portfolios.
Under a retirement plan approved by the Board, 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 served as Chairman of the Board.
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<PAGE> 150
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). On August 31, 1996, Dr. Kenneth L.
Trefftzs retired from the Board of Directors. In honor of his years of service
to the Company, the Board of Directors designated Dr. Trefftzs as a "director
emeritus" of the Company. Additionally, in recognition of Dr. Trefftzs' years of
service to the Company prior to March 1, 1994 as director and Chairman of the
Company's Audit Committee, the Board of Directors, including a majority of the
directors who are not "interested persons" of the Company, authorized a single
sum cash payment retirement benefit of $60,000 payable January 1, 1997.
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
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<PAGE> 151
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.
TRUSTEES AND OFFICERS OF MASTER INVESTMENT TRUST, SERIES I
- ----------------------------------------------------------
The trustees and officers of Master Investment Trust, Series I
("Master Trust I"), their addresses, age, and principal occupations during the
past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Master Trust I Principal Occupation
- ---------------- --- -------------- --------------------
<S> <C> <C> <C>
Thomas M. Collins 62 Chairman of See "Directors and
McDermott & Trayner the Board Officers of the
225 S. Lake Avenue, Company."
Suite 410
Pasadena, CA 91101-3005
Michael Austin 59 Trustee of Master Chartered Accountant;
Victory House, Trust I Trustee, Master
Nelson Quay Investment Trust, Series
Governor's Harbour II (1993 to February 1997);
Grand Cayman Retired Partner, KPMG
Cayman Islands Peat Marwick LLP.
British West Indies
Robert E. Greeley 64 Trustee of Master See "Directors and
Page Mill Asset Trust I Officers of the Company."
Management
433 California Street
Suite 900
San Francisco, CA 94104
Robert A. Nathane* 70 Trustee of Master Retired President, Laird
1200 Shenandoah Drive East Trust I Norton Trust Company,
Seattle, WA 98112 Chairman of the Board of
Advisors, Phoenix Venture
Funds; Trustee, Seafirst
Retirement Funds; Trustee,
Master Investment Trust,
Series II (1993 to February
1997); former Supervisor,
Collective Investment
Trust for Seafirst Retirement
Accounts; former Trustee,
First Funds of America
(registered investment
companies).
Cornelius J. Pings 66 Trustee of Master See "Directors and Officers of
Association of American Trust I the Company."
Universities
1200 New York Avenue, NW
Suite 550
Washington, DC 20005
J. David Huber 49 President of See "Directors and Officers
BISYS Fund Services Master Trust I of the Company."
</TABLE>
-42-
<PAGE> 152
<TABLE>
<CAPTION>
Position with
Name and Address Age Master Trust I Principal Occupation
- ---------------- --- -------------- --------------------
<S> <C> <C> <C>
3435 Stelzer Road
Columbus, OH 43219
Adrian J. Waters 32 Executive Vice Managing Director,
BISYS Fund Services President, Concord Management
Floor 2, Block 2 Treasurer and (Ireland) Ltd. since May
Harcourt Centre Assistant 1993; Manager in the
Dublin 2, Ireland Secretary of Investment Company Industry
Master Trust I Services Group, Price
Waterhouse 1989 to May 1993;
Member of Oliver Freaney and
Co./Spicer and Openheim
Chartered Accountants 1986-
1989.
Stephanie L. Blaha 37 Vice President of See "Directors and Officers of
BISYS Fund Services Master Trust I the Company."
3435 Stelzer Road
Columbus, OH 43219
W. Bruce McConnel, III 53 Secretary of See "Directors and
1345 Chestnut Street Master Trust I Officers of the Company."
Philadelphia, PA 19107
<FN>
- -----------------------------
* Mr. Nathane is an "interested trustee" of Master Trust I as defined in
the 1940 Act.
</TABLE>
Each trustee receives an aggregate annual fee of $3,000 ($5,000 in the
case of any trustee who is not also a Director or Trustee of a feeder fund of
one of the portfolios of Master Trust I) plus $500 per day for each travel day
and each day of a Board or committee meeting attended, for his services as
trustee of each of Master Trust I. Each trustee is also reimbursed for
out-of-pocket expenses incurred as a trustee. For its fiscal year ended February
29, 1996, Master Trust I paid or accrued for the account of its trustees as a
group for services in all capacities a total of $14,525; of that amount, $3,499,
$3,500 and $3,500 were allocated to the Master Portfolios corresponding to the
Intermediate Bond, Blue Chip and Asset Allocation Funds, respectively (prior to
the Reorganization Date, the Asset Allocation Fund operated as part of a master
feeder structure and invested all of its assets in the Asset Allocation Master
Portfolio). The trustee's fees and reimbursements are allocated among all of
Master Trust I's portfolios based on their relative net asset values. Drinker
Biddle & Reath, of which Mr. McConnel is a partner, receives legal fees as
counsel to Master Trust I.
The following chart provides certain information for the
fiscal year ended February 29, 1996 about the fees received by directors of the
Company as directors and/or officers of the Company and as directors and/or
trustees of the Fund Complex:
-43-
<PAGE> 153
<TABLE>
<CAPTION>
=================================================================================================================================
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED REGISTRANT
AGGREGATE ACCRUED AS ANNUAL AND FUND
COMPENSATION PART OF BENEFITS COMPLEX**
NAME OF PERSON/ FROM THE FUND UPON PAID TO
POSITION COMPANY EXPENSES* RETIREMENT DIRECTORS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $76,215 $ 0 $ 0 $85,000
Director+
- ---------------------------------------------------------------------------------------------------------------------------------
Douglas B. Fletcher $28,555 $ 0 $ 0 $29,055
Vice Chairman of
the Board
- ---------------------------------------------------------------------------------------------------------------------------------
Robert E. Greeley $31,395 $ 0 $ 0 $44,055
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $27,485 $ 0 $ 0 $32,055
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Cornelius J. Pings $29,555 $ 0 $ 0 $30,055
President and
Chairman of the
Board++
- ---------------------------------------------------------------------------------------------------------------------------------
Kenneth L. Trefftzs $28,555 $ 0 $ 0 $29,055
Director+++
=================================================================================================================================
<FN>
- ------------------------------
* For the fiscal year ended February 29, 1996, the Company accrued on the
part of all of the directors an aggregate of $65,739 in retirement
benefits.
** The "Fund Complex" consists of the Company, Seafirst Retirement Funds
(expected to be reorganized into the Company on or about June 23, 1997),
Master Trust I, Master Trust II, Time Horizon Funds and World Horizon Funds.
+ Mr. Collins was President and Chairman of the Board of the Company until
August 31, 1995.
++ Dr. Pings became President and Chairman of the Board of the Company
effective September 1, 1995. At February 29, 1996, $10,000, $3,500 and
$3,500 in deferred compensation was payable to Dr. Pings for services
as President of the Company, trustee of Master Trust I and trustee of
Master Trust II, respectively.
+++ Dr. Trefftzs retired from the Board of the Company on August 31, 1996.
</TABLE>
INVESTMENT ADVISER
- ------------------
Bank of America is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which previously served as investment
adviser to the Company since the commencement of its operations. As described in
the Prospectuses, the Feeder Funds have not retained the services of an
investment adviser because they seek to achieve their investment objectives by
investing all their assets in their corresponding Master Portfolios. In the
Investment Advisory Agreements with the Companies, Bank of America has agreed to
-44-
<PAGE> 154
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 agreements other than the cost of securities, including
brokerage commissions, if any, purchased for the Portfolios. 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 and other affiliates of Bank of America
or its parent corporation. In addition, the Investment Advisory Agreements with
respect to the Intermediate Bond and Blue Chip Master Portfolios provide that
Bank of America may, in its discretion, provide advisory services through its
own employees or employees of one or more of its affiliates that are under the
common control of Bank of America's parent, BankAmerica Corporation; provided
such employees are under the management of Bank of America.
Effective upon the Reorganization Date, the Companies have
agreed to pay Bank of America fees, accrued daily and payable monthly, at the
annual rates of .30% of the net assets of the Intermediate Bond Master
Portfolio; .50% of the net assets of the Blue Chip Master Portfolio and .40% of
the net assets of the Asset Allocation Fund for the services provided and
expenses assumed pursuant to the particular Investment Advisory Agreement. Prior
to the Reorganization Date, Bank of America was entitled to receive an
investment advisory fee at the annual rate of 0.45%, 0.75% and 0.55% of each of
the Intermediate Bond Master Portfolio's, Blue Chip Master Portfolio's and Asset
Allocation Master Portfolio's respective average daily net assets. The fees
payable to Bank of America are not subject to reduction as the value of the
Asset Allocation Fund's or Master Portfolio's net assets increase. From time to
time, Bank of America may waive fees or reimburse the Asset Allocation Fund or a
particular Master Portfolio for expenses voluntarily or as required by certain
state securities laws.
For the fiscal years and period indicated, the following
advisory fees were paid or payable to the Bank of America by the Intermediate
Bond Master Portfolio, Blue Chip Master Portfolio and Asset Allocation Master
Portfolio. Except as noted below, for the fiscal years and period indicated,
Bank of America waived its entire advisory fee with respect to the Intermediate
Bond Master Portfolio, Blue Chip Master Portfolio and Asset Allocation Master
Portfolio:
-45-
<PAGE> 155
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Period from
commencement
of
operations(1)
Year ended Year ended through
February 29, February 28, February 28,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 269,136 $ 293,222 $ 84,856
Master Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Blue Chip Master $1,574,388(2) $1,091,132 $225,019
Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 913,660(2) $ 849,188 $197,611
Master Portfolio(3)
==========================================================================================================================
<FN>
Additionally, for the fiscal years indicated and for the
period from commencement of operations through February 28, 1994, Bank of
America assumed certain operating expenses of the Intermediate Bond Fund, Blue
Chip Fund and Asset Allocation Fund as follows:
- --------
1 The Intermediate Bond Master Portfolio, Blue Chip Master Portfolio and
Asset Allocation Master Portfolio commenced operations on December 6, 1993.
2 For the fiscal year ended February 29, 1996, Bank of America waived
$1,164,328 and $720,259, respectively, in advisory fees with respect to the
Blue Chip Master Portfolio and Asset Allocation Master Portfolio.
3 Prior to the Reorganization Date, the Asset Allocation Fund invested all of
its assets in the Asset Allocation Master Portfolio. On the Reorganization
Date, the Asset Allocation Fund withdrew assets from the Asset Allocation
Master Portfolio and invested them directly in investment securities.
</TABLE>
-46-
<PAGE> 156
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Period from
commencement
of
operations
Year ended Year ended through
February 29, February 28, February 28,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $0 $207,033 $24,300
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $0 $245,776 $31,726
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $0 $245,718 $28,384
Fund
=============================================================================================================================
</TABLE>
For the period from December 6, 1993 (commencement of
operations) through April 11, 1994, Bank of America had a Sub-Advisory Agreement
with Seattle Capital Management Company ("Seattle Capital") with respect to
management of the assets of the Intermediate Bond Master Portfolio and that
portion of the assets of the Asset Allocation Master Portfolio which Bank of
America determined from time to time to be appropriate for investment in debt
securities (including money market instruments). The Sub-Advisory Agreement
provided that Bank of America would pay Seattle Capital a monthly advisory fee
based upon the net assets of such Master Portfolios, at the annual rate of .45%
of the net assets of the Intermediate Bond Master Portfolio, and .55% of that
portion of the net assets of the Asset Allocation Master Portfolio managed by
Seattle Capital. For the period from December 6, 1993 (commencement of
operations) through February 28, 1994, Bank of America paid Seattle Capital
sub-advisory fees of $0 for sub-advisory services to the Intermediate Bond
Master and Asset Allocation Master Portfolios.
The Investment Advisory Agreements between Bank of America and
each Company will be in effect until October 31, 1997, and will continue in
effect with respect to a particular Master Portfolio or Fund from year to year
thereafter only so long as such continuation is approved at least annually by
(i) the Board of Trustees/Directors of the particular Company or the vote of a
"majority," as defined in the 1940 Act, of the outstanding voting securities of
such particular Master Portfolio or Fund, and (ii) a majority of those
trustees/directors of the particular Company who are not "interested persons,"
as defined in the 1940 Act, of any party to the particular Investment Advisory
Agreement, acting in person at a meeting called for the purpose of voting on
such approval. Each Investment Advisory Agreement will terminate automatically
in the event of its "assignment," as defined in the 1940 Act. In addition, each
Investment Advisory Agreement is terminable with respect to a
-47-
<PAGE> 157
particular Master Portfolio or Fund at any time without penalty upon 60 days'
written notice by the Board of Trustees/Directors of the particular Company, by
vote of the holders of a majority of a particular Master Portfolio's or Fund's
outstanding voting securities, or by Bank of America.
See "Management - Administrator" for instances where the
investment adviser is required to make expense reimbursements to the Funds or
Master Portfolios.
The Investment Advisory Agreements provide that Bank of
America shall not be liable for any error of judgment or mistake of law or for
any loss suffered in connection with the performance of the Investment Advisory
Agreements, 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 of Governors") 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 of Governors 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 Portfolios contemplated by the
-48-
<PAGE> 158
particular 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 that 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 Portfolios or from continuing to
purchase Fund shares for the accounts of its customers. (For a discussion of the
Glass Steagall Act in connection with the Company's Shareholder Service Plans,
see "Plan Payments" in the Funds' Prospectuses.)
On the other hand, as described herein, the Funds are
currently distributed by Concord Financial Group, Inc. and The BISYS Group,
Inc., its parent, either directly or through its off-shore subsidiary with
respect to the Intermediate Bond Master Portfolio and Blue Chip Master Portfolio
provides the Funds and Master Portfolios 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 Companies expect that Bank of America would consider
the possibility of offering to perform some or all of the services now provided
by The BISYS Group, Inc. or Concord Financial Group, Inc. 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 Companies expect 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 BISYS Group, Inc. or Concord Financial Group, Inc. 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 a particular Company's
Board of Directors/Trustees.
ADMINISTRATOR
- -------------
The BISYS Group, Inc. ("BISYS" or the "Administrator"),
through its wholly-owned subsidiary BISYS Fund Services, L.P., with offices at
150 Clove Road, Little Falls, New Jersey 07424 and 3435 Stelzer Road, Columbus,
Ohio 43219-3035, respectively, serves as Administrator of the Funds and the
Master Portfolios. Prior to November 1, 1996, Concord Holding Corporation
-49-
<PAGE> 159
("Concord"), an indirect, wholly owned subsidiary of BISYS, served as
administrator of the Funds and the Master Portfolios.
BISYS (and/or BISYS' off-shore affiliate with respect to the
Intermediate Bond Master Portfolio and Blue Chip Master Portfolio) provides
administrative services to the Funds and the Master Portfolios as described in
the Funds' Prospectus pursuant to separate administration agreements for each
Company. Each Master Portfolio's administration agreement will continue in
effect until October 31, 1997 and thereafter for successive periods 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 Trustees of the particular
Master Trust who are not parties to the administration 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 Trustees of the particular
Master Trust or by vote of a "majority of the outstanding voting securities" of
such Master Portfolio. Each Master Portfolio's administration agreement is
terminable at any time with respect to such Master Portfolio, without penalty,
by its Board of Trustees or by vote of a majority of such Master Portfolio's
outstanding securities upon 60 days' notice to BISYS, or by BISYS, upon 90 days'
written notice to such Master Portfolio. The Company's administration agreement
will continue in effect until October 31, 1997 and thereafter will be extended
with respect to each Fund for successive periods of one year, provided that each
such extension is specifically approved by (a) 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 at any time without penalty by the Company's Board of Directors or
by vote of a majority of the outstanding securities of any Fund upon 60 days'
notice to BISYS, or by BISYS upon 90 days' notice to the Company.
For its services as administrator, BISYS is entitled to
receive administration fees, accrued daily and payable monthly, at the annual
rates of .05% of the average daily net assets of the Intermediate Bond Master
Portfolio and Blue Chip Master Portfolio. BISYS is entitled to receive
administration fees, accrued daily and payable monthly, at the annual rate of
.15% of the average daily net assets of the Intermediate Bond Fund, Blue Chip
Fund and Asset Allocation Fund. The fees payable to BISYS are not subject to
reduction as the value of each Fund's and Master Portfolio's net assets
increase. From time to time, BISYS may waive fees or reimburse a Fund or Master
Portfolio for expenses, either voluntarily or as required by certain state
securities laws.
-50-
<PAGE> 160
For the fiscal years and period indicated, Concord, as the
Funds' prior administrator, reimbursed operating expenses of the Blue Chip Fund,
Asset Allocation Fund and Intermediate Bond
Fund as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Year or
period1
Year ended Year ended ended
February 29, February 28, February 28,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $253,991 $ 0 $ 0
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $150,472 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $192,545 $ 0 $ 0
Fund
=============================================================================================================================
<FN>
For the fiscal years and period indicated, the following
administration fees were paid or payable to Concord, as the Funds' and the
Master Portfolios' prior administrator, by the Intermediate Bond Fund, the
Intermediate Bond Master Portfolio, the Blue Chip Fund, the Blue Chip Master
Portfolio, the Asset Allocation Fund and the Asset Allocation Master Portfolio.
Except as noted below, for the fiscal years and period indicated, Concord waived
its entire administration fee with respect to the Intermediate Bond Fund and the
Intermediate Bond Master Portfolio, the Blue Chip Fund and the Blue Chip Master
Portfolio and the Asset Allocation Fund and the Asset Allocation Master
Portfolio):
- --------
1 The Blue Chip Fund, Asset Allocation Fund and Intermediate Bond Fund
commenced operations on January 13, 1994, January 18, 1994 and January 24,
1994, respectively.
</TABLE>
-51-
<PAGE> 161
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Period from
commencement
of operations(1)
Year Ended Year ended through
February 29, February 28, February 28,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 9,952 $ 1,723 $ 22
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Intermediate Bond $ 30,769 $33,431 $ 9,429
Master Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $ 44,971 $ 5,833 $ 87
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Master $104,889(2) $72,742 $15,001
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 19,909 $ 4,703 $ 52
Fund(3)
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 83,060(2) $79,573 $17,965
Master Portfolio
=============================================================================================================================
<FN>
If total expenses borne (directly or indirectly) by any Fund
in any fiscal year exceed the expense limitations imposed by applicable state
securities regulations, a Company may deduct from the payments to be made with
respect to such Fund and/or Master Portfolio to Bank of America and BISYS or
Bank of America and BISYS each will bear the amount of such excess to the extent
required by such regulations in proportion to the fees otherwise payable to them
for such year. Such amount, if any, will be estimated, reconciled and effected
or paid, as the case may be, on a monthly basis. As of the date of this
Statement of
- --------
1 The Intermediate Bond Fund, Blue Chip Fund and Asset Allocation Fund
commenced operations on January 24, 1994, January 13, 1994 and January 18,
1994, respectively. The Intermediate Bond Master Portfolio, Blue Chip
Master Portfolio and Asset Allocation Master Portfolio commenced operations
on December 6, 1993.
2 For the fiscal year ended February 29, 1996, the Administrator waived
$77,922 and $65,491, respectively in administration fees with respect to
the Blue Chip Master Portfolio and Asset Allocation Master Portfolio.
3 Prior to the Reorganization Date, the Asset Allocation Fund invested all of
its investment in the Asset Allocation Master Portfolio. On the
Reorganization Date, the Asset Allocation Fund withdrew its assets from the
Asset Allocation Master Portfolio and invested directly in investment
securities.
</TABLE>
-52-
<PAGE> 162
Additional Information, the most restrictive expense limitation that may be
applicable to a Company limits aggregate annual expenses with respect to a Fund,
including management and advisory fees and the Funds' pro rata share of such
expenses of their corresponding Master Portfolio 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, BISYS and Bank of America may prospectively waive payment of fees
and/or assume certain expenses of one or more of the Funds or Master Portfolios,
as a result of competitive pressures and in order to preserve and protect the
business and reputation of BISYS and Bank of America. 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.
BISYS will bear all expenses in connection with the
performance of its services under the administration agreements with the
exception of the fees charged by PFPC for certain fund accounting services which
are borne by the Funds and Master Portfolios. See "General
Information--Custodian, Accounting Agent and Transfer Agent" below. Expenses
borne by the Funds and Master Portfolios include taxes, interest, brokerage fees
and commissions, if any, fees of Board members who are not officers, directors,
partners, employees or holders of 5% or more of the outstanding voting
securities of Bank of America or BISYS or any of their affiliates, SEC fees and
state securities qualification fees, advisory fees, administration 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
telephone and personnel expenses, costs of preparing and printing prospectuses
and Statements of Additional Information for regulatory purposes, cost of
shareholders' and interestholders' reports and corporate meetings and any
extraordinary expenses. Certain shareholder servicing (and/or distribution fees
with respect to the Funds' B Shares and K Shares) in connection with Pacific
Horizon's shares are also paid by Pacific Horizon. See "Distributor and Plan
Payments."
The administration agreements provide that BISYS shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Company, the Funds, Master Trust I, or the Master Portfolios in connection with
the performance of the administration agreements, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties or
from the reckless disregard by it of its obligations and duties thereunder.
-53-
<PAGE> 163
PFPC (and an off-shore affiliate of PFPC with respect to the
Intermediate Bond Fund and Blue Chip Fund and their corresponding Master
Portfolios) provides the Funds and the Master Portfolios with certain accounting
services pursuant to separate fund accounting services agreements with BISYS or
a subcontractor. Under the fund accounting services agreements, PFPC has agreed
to provide certain accounting, bookkeeping, pricing, dividend and distribution
calculation services with respect to the Funds and the Master Portfolios. The
monthly fees charged by PFPC under the fund accounting services agreements are
borne by the Funds and the Master Portfolios.
DISTRIBUTOR AND PLAN PAYMENTS
- -----------------------------
Concord Financial Group, Inc. (the "Distributor"), an
indirect, wholly owned subsidiary of BISYS, acts as distributor of the shares of
Pacific Horizon. Shares are sold on a continuous basis by the Distributor. The
Distributor has agreed to use its best efforts to solicit orders for the sale of
Pacific Horizon's shares although it is not obliged to sell any particular
amount of shares. The distribution agreement shall continue in effect with
respect to each Fund until October 31, 1997. 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 Pacific Horizon's Board of
Directors 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 Pacific Horizon's Board of Directors 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 Pacific Horizon at any time, without
the payment of any penalty, by vote of a majority of Pacific Horizon's entire
Board of Directors 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 Pacific Horizon. The agreement will automatically and
immediately terminate in the event of its "assignment."
For the fiscal years ended February 29, 1996, February 28,
1995 and the period from the commencement of operations through February 28,
1994, the Distributor received sales loads in connection with the purchase of
shares of the Intermediate Bond, Blue Chip and Asset Allocation Funds as
follows:
-54-
<PAGE> 164
<TABLE>
<CAPTION>
Fiscal Year Ended February 29, 1996
----------------------------------------------------------------------------------------
Amount of
Total Sales
Amount of Load
Total Sales Retained By
Total Sales Load Affiliates
Load Received Retained By of Bank of
By Distributor Distributor America
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 460,801(1) $ 51,076 $ 408,407
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $2,138,130(1) $255,167 $1,875,240
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 642,818(1) $ 69,818 $ 569,332
Fund
=============================================================================================================================
<CAPTION>
Fiscal Year Ended February 28, 1995
----------------------------------------------------------------------------------------
Amount of
Total Sales
Amount of Load
Total Sales Retained By
Total Sales Load Affiliates
Load Received Retained By of Bank of
By Distributor Distributor America
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $ 53,285 $ 5,470 $ 47,815
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $ 186,628 $121,377 $165,251
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 114,338 $ 30,504 $ 83,884
Fund(1)
=============================================================================================================================
<FN>
- --------
1 Balance was paid to selling dealers.
</TABLE>
-55-
<PAGE> 165
<TABLE>
<CAPTION>
Period from Commencement of Operations*
through February 28, 1994
----------------------------------------------------------------------------------------
Amount of
Total Sales
Amount of Load
Total Sales Retained By
Total Sales Load Affiliates
Load Received Retained By of Bank of
By Distributor Distributor America
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $14,623 $1,628 $12,995
Fund
- -----------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $22,924 $2,692 $20,232
- -----------------------------------------------------------------------------------------------------------------------------
Asset Allocation $11,896(1) $2,243 $ 9,653
Fund
=============================================================================================================================
<FN>
- --------
* The Intermediate Bond, Blue Chip and Asset Allocation Funds commenced
operations on January 24, 1994, January 13, 1994 and January 18, 1994,
respectively.
1 Balance was paid to selling dealers.
</TABLE>
-56-
<PAGE> 166
The following table shows all sales loads, commissions and
other compensation received by the Distributor directly or indirectly from each
of the Intermediate Bond Fund, Blue Chip Fund and Asset Allocation Fund during
each fund's fiscal year ended February 29, 1996.
<TABLE>
<CAPTION>
Brokerage
Commis-
Net Under- sions in
writing Dis- Compensation connection Other
counts and on Redemption with Fund Compen-
Commissions(1) and Repurchase(2) Transactions sation(3)
-------------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
Concord Financial
Group, Inc.
Intermediate Bond Fund $ 51,076 $0 $0 $0
Blue Chip Fund $255,167 $0 $0 $0
Asset Allocation Fund $ 69,818 $0 $0 $0
<FN>
(1) Represents amounts received from front-end sales charge on A Shares.
(2) Represents amounts received from contingent deferred sales charges on B
Shares and A Shares subject to the Large Purchase Exemption. The basis
on which such sales charges are paid is described in the Prospectuses.
No B Shares were offered or sold during the fiscal year covered by this
chart. A Shares were not subject to a contingent deferred sales charge
during the fiscal year covered by this chart.
(3) Represents the total of (i) amounts paid to Concord, as the Funds'
prior administrator, for administrative services provided to the Fund
(see "Management of the Company-Administrator" above) and (ii) payments
made under the Shareholder Service Plan, the Distribution and Services
Plan, Distribution Plan and Administrative and Shareholder Services
Plan (see discussion in next section) and retained by the Distributor.
</TABLE>
THE SHAREHOLDER SERVICES PLANS. Pacific Horizon has adopted
separate Shareholder Services Plans (the "Plans") for SRF Shares and A Shares,
under which SRF Shares and A Shares of each Fund reimburse the Distributor for
shareholder servicing fees the Distributor pays to Service Organizations. The
fees paid under the Shareholder Services Plan for A Shares are in addition to
the sales loads on A Shares described above and in the Prospectus.
Under the Plans, Pacific Horizon pays the Distributor, with
respect to the Funds for (a) non-distribution shareholder services provided by
the Distributor to Service Organizations and/or the beneficial owners of Fund
shares, including, but not limited to shareholder servicing provided by the
Distributor at facilities dedicated for use by Pacific Horizon, provided such
shareholder servicing is not duplicative of the servicing otherwise provided on
behalf of the Funds, and (b) fees paid to
-57-
<PAGE> 167
Service Organizations (which may include the Distributor itself) for the
provision of support services for shareholders for whom the Service Organization
is the dealer of record or holder of record or with whom the Service
Organization has a servicing relationship ("Clients").
Support services provided by Service Organizations may
include, among other things: (i) establishing and maintaining accounts and
records relating to Clients that invest in Fund shares; (ii) processing dividend
and distribution payments from the Funds on behalf of Clients; (iii) providing
information periodically to Clients regarding their positions in shares; (iv)
arranging for bank wires; (v) responding to Client inquiries concerning their
investments in Fund shares; (vi) providing the information to the Funds
necessary for accounting or subaccounting; (vii) if required by law, forwarding
shareholder communications from the Funds (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Clients; (viii) assisting in processing exchange and redemption
requests from Clients; (ix) assisting Clients in changing dividend options,
account designations and addresses; and (x) providing such other similar
services.
Each Plan provides that the Distributor is entitled to receive
payments for expenses on a monthly basis, at an annual rate not exceeding .25%
of the average daily net assets of the SRF Shares or A Shares of the Funds, as
the case may be, during such month for shareholder servicing expenses. The
calculation of a Fund's average daily net assets for these purposes does not
include assets held in accounts opened via a transfer of assets from trust and
agency accounts of Bank of America. Further, payments made out of or charged
against the assets of a particular Fund must be in payment for expenses incurred
on behalf of the Fund.
If in any month the Distributor expends or is due more monies
than can be immediately paid due to the percentage limitations described above,
the unpaid amount is carried forward from month to month while a Plan is in
effect until such time, if ever, when it can be paid in accordance with such
percentage limitations. Conversely, if in any month the Distributor does not
expend the entire amount then available under a Plan, and assuming that no
unpaid amounts have been carried forward and remain unpaid, then the amount not
expended will be a credit to be drawn upon by the Distributor to permit future
payment. However, any unpaid amounts or credits due under a Plan may not be
"carried forward" beyond the end of the fiscal year in which such amounts or
credits due are accrued.
For the fiscal years or period indicated, the Distributor
waived all fees payable under the Shareholder Service
-58-
<PAGE> 168
Plan with respect to A Shares of the Intermediate Bond, Blue Chip and Asset
Allocation Funds as follows (no SRF Shares were offered or sold during such
fiscal years or period):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Period from
Commencement
of
Operations*
Year ended Year Ended through
February 29, February 28, February 28,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond $16,582 $2,873 $36
Fund
- ---------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund $74,950 $9,721 $146
- ---------------------------------------------------------------------------------------------------------------------------
Asset Allocation $33,182 $7,754 $86
Fund
===========================================================================================================================
Payments for shareholder service expenses under the Plans are
not subject to Rule 12b-1 (the "Rule") under the 1940 Act. Pursuant to the
Plans, the Distributor provides that a report of the amounts expended under the
Plans, and the purposes for which such expenditures were incurred, will be made
to the Board of Directors for its review at least quarterly. In addition, the
Plans provide that the selection and nomination of the directors of Pacific
Horizon who are not "interested persons" thereof have been committed to the
discretion of the directors who are neither "interested persons" (as defined in
the 1940 Act) of Pacific Horizon nor have any direct or indirect financial
interest in the operation of the Plans (or related servicing agreements) (the
"Non-Interested Plan Directors").
Pacific Horizon understands that Bank of America and/or some
Service Organizations may charge their clients a direct fee for administrative
and shareholder services in connection with the holding of SRF Shares or A
Shares. These fees would be in addition to any amounts which might be received
under the Plans. Small, inactive long-term accounts involving such additional
charges may not be in the best interest of shareholders.
Pacific Horizon's Board of Directors has concluded that the
Plans will benefit the Funds and the holders of their SRF and A shares,
respectively. Each Plan is subject to annual reapproval by a majority of the
Non-Interested Plan Directors and is terminable at any time with respect to any
Fund by a vote of
- --------
* The Intermediate Bond, Blue Chip and Asset Allocation Funds commenced
operations on January 24, 1994, January 13, 1994 and January 18, 1994,
respectively.
</TABLE>
-59-
<PAGE> 169
majority of such Directors or by vote of the holders of a majority of the SRF or
A Shares, as the case may be, of the Fund involved. Any agreement entered into
pursuant to a Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of the holders of a majority of the
Non-Interested Plan Directors, by vote of the holders of a majority of the SRF
or A Shares, as the case may be, of such Fund, by the Distributor or by the
Service Organization. Each agreement will also terminate automatically in the
event of its assignment.
YIELD AND TOTAL RETURN
- ----------------------
From time to time, the yields and total returns 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 or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase 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, including but not limited to
stocks, bonds and Treasury bills. 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
and/or a Master Portfolio), 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, including but not
limited to stocks, bonds, Treasury bills and shares of a Fund. In addition,
advertisements or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund.
-60-
<PAGE> 170
Such advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. From time to time, the investment adviser may enter into alliances with
retirement plan sponsors, including The Legend Group, and the Fund may in its
advertisements or sales literature include a discussion of certain attributes or
benefits to be derived from its relationship with such retirement plan sponsors.
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)
346-2087.
YIELD CALCULATIONS. The yield for the respective share classes
of a Fund are calculated by dividing the net investment income per share (as
described below) earned by the Fund during a 30-day (or one month) period by the
maximum offering price per share (including the maximum front-end sales charge
of an A Share) on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. The
Fund's net investment income per share earned during the period with respect to
a particular class is based on the average daily number of shares outstanding in
the class during the period entitled to receive dividends and includes dividends
and interest earned during the period attributable to that class minus expenses
accrued for the period attributable to that class, net of reimbursements. This
calculation can be expressed as follows:
a-b
Yield = 2 [(----- + 1)6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities is recognized by accruing 1/360 of the stated dividend rate of the
security each day. Except as noted below, interest earned on debt obligations is
calculated by
-61-
<PAGE> 171
computing the yield to maturity of each obligation based on the market value of
the obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest), and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held. For purposes of this calculation, it is assumed that each
month contains 30 days. The maturity of an obligation with a call provision is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt obligations
purchased at a discount or premium, the formula generally calls for amortization
of the discount or premium. The amortization schedule will be adjusted monthly
to reflect changes in the market values of such debt obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market discount is calculated
by using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original issue discount but which have the discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on the
market value.
With respect to mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments of principal
and interest ("pay downs"), (a) gain or loss attributable to actual monthly pay
downs are accounted for as an increase or decrease to interest income during the
period; and (b) a Fund or Master Portfolio may elect either (i) to amortize the
discount and premium on the remaining security, based on the cost of the
security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if any, if the weighted
average maturity date is not available, or (ii) not to amortize discount or
premium on the remaining security.
Undeclared earned income will be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned income
is the net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a
-62-
<PAGE> 172
dividend shortly thereafter. A Fund's maximum offering price per share for
purposes of the formula includes the maximum sales load imposed by the Fund on A
Shares -- currently 4.50% of the per share offering price.
Based on the foregoing calculations, the 30-day yields of the
A Shares of the Intermediate Bond, Blue Chip and Asset Allocation Funds (after
fee waivers and expense reimbursements) for the 30-day period ended August 31,
1996 were as follows:
<TABLE>
<CAPTION>
Yield
-----
<S> <C>
Intermediate Bond Fund 5.53%
Blue Chip Fund 1.60%
Asset Allocation Fund 2.80%
</TABLE>
No SRF Shares were issued or outstanding during the 30 day
period ended August 31, 1996.
TOTAL RETURN CALCULATIONS. The Funds compute their average
annual total returns separately for their separate share classes by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested in a particular share class to the ending
redeemable value of such investment in such class. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation,
expressed in terms of years.
The Funds compute their aggregate total returns separately for
their separate share classes by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular share class to
-63-
<PAGE> 173
the ending redeemable value of such investment in the class. The
formula for calculating aggregate total return is as follows:
ERV
aggregate total return = [(----- - 1)]
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period. The ending redeemable
value (variable "ERV" in each formula) is determined by assuming complete
redemption of the hypothetical investment and the deduction of all nonrecurring
charges at the end of the period covered by the computations. In addition, the
Funds' average annual total return and aggregate total return quotations reflect
the deduction of the maximum front-end sales load charged in connection with the
purchase of A Shares.
Based on the foregoing calculations, the 1) average annual
total returns, and 2) the aggregate total returns for the SRF Shares of the
Intermediate Bond, Blue Chip and Asset Allocation Funds for the years or periods
indicated were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Average Annual Return
- ------------------------------------------------------------------------------------------------------------------
One-Year Period Five-Year Period Period From Commencement
Ended Ended of Operations* through
August 31, 1996 August 31, 1996 August 31, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Fund 3.27% 5.96% 7.49%
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Fund 18.24% 13.38% 14.24%
- ------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund 10.82% 10.24% 11.10%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Aggregate Total Return
- ------------------------------------------------------------------------------------------------------------------
One-Year Period Five-Year Period Period From Commencement
Ended Ended of Operations* through
August 31, 1996 August 31, 1996 August 31, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Fund 3.27% 33.60% 84.52%
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Fund 18.24% 87.47% 209.52%
- ------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund 10.82% 62.91% 142.64%
- ------------------------------------------------------------------------------------------------------------------
<FN>
- -------------------------
* Performance of the SRF Shares for the years or periods between December 6,
1993 and August 31, 1996 is represented by the performance of the shares
of the Bond, Blue Chip and Asset Allocation Funds ("SeaFirst Funds") of
SeaFirst Retirement Funds ("SeaFirst") which will be reorganized
into SRF Shares of the Company's Intermediate Bond, Blue Chip
and Asset Allocation Funds on the Reorganization Date. The Company's
Intermediate Bond, Blue Chip and Asset Allocation Funds and their
corresponding SeaFirst Funds invest their assets in Master Investment
Trust, Series I. Seafirst is the successor to Collective Investment Trust
for Seafirst Retirement Accounts ("CIT"), a registered open-end management
company, pursuant to a reorganization consummated on December 6, 1993.
Prior to December 6, 1993, CIT offered funds ("CIT Funds") which had
substantially similar investment objectives, policies and restrictions as
those of the Seafirst Funds. The CIT Funds commenced operations on
March 9, 1988. Performance of the SRF Shares for the period March 9, 1988
to December 6, 1993 is represented by the performance of the CIT Funds.
</TABLE>
-64-
<PAGE> 174
Based on the foregoing calculations, the 1) average annual
total returns, and 2) the aggregate total returns for the A Shares of the
Intermediate Bond, Blue Chip and Asset Allocation Funds for the years or periods
indicated were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Average Annual Returns
------------------------------------------------------------
Period from
Commencement
of
One-Year Operations*
Period Ended through
August 31, August 31,
1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate (1.00)% 2.48%
Bond Fund
- ---------------------------------------------------------------------------------------------
Blue Chip Fund 12.67% 13.86%
- ---------------------------------------------------------------------------------------------
Asset
Allocation Fund 5.68% 8.47%
- ---------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
Aggregate Total Returns
------------------------------------------------------------
Period from
Commencement
One-Year of Operations
Period Ended through
August 31, August 31,
1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate (1.00)% 6.59%
Bond Fund
- ---------------------------------------------------------------------------------------------
Blue Chip Fund 12.67% 40.73%
- ---------------------------------------------------------------------------------------------
Asset Allocation 5.68% 23.72%
Fund
=============================================================================================
No SRF Shares of any of the Funds were outstanding during the
year and period indicated.
<FN>
- --------
* The Intermediate Bond, Blue Chip and Asset Allocation Funds commenced
operations on January 24, 1994, January 13, 1994 and January 18, 1994,
respectively.
</TABLE>
-65-
<PAGE> 175
The Funds may also advertise total return data without
reflecting sales charges in accordance with the rules of the SEC. Quotations
which do not reflect such sales charges will, of course, be higher than
quotations which do reflect the sales charge.
GENERAL INFORMATION
DESCRIPTION OF SHARES
- ---------------------
Pacific Horizon is an open-end management investment company
organized as a Maryland corporation on October 27, 1982. Pacific Horizon's
Charter authorizes the Board of Directors to issue up to two hundred billion
full and fractional common shares. Pursuant to the authority granted in the
Charter, the Board of Directors has authorized the issuance of twenty-two
classes of stock - Classes A through W Common Stock, $.001 par value per share,
representing interests in twenty-two separate investment portfolios. As
described in the Prospectus, each Fund offers four classes of shares, each of
which is offered to different types of investors and bears different expenses.
Class M represents interests in the A Shares of the Intermediate Bond Fund,
Class M -- Special Series 3 represents interests in the B Shares of the
Intermediate Bond Fund, Class M -- Special Series 5 represents interests in the
K Shares of the Intermediate Bond Fund and Class M - Special Series 7 represents
interests in the SRF Shares of the Intermediate Bond Fund; Class N represents
interests in the A Shares of the Blue Chip Fund, Class N --Special Series 3
represents interests in the B Shares of the Blue Chip Fund, Class N -- Special
Series 5 represents interests in the K Shares of the Blue Chip Fund and Class N
- -- Special Series 7 represents interests in the SRF Shares of the Blue Chip
Fund; Class O represents interests in the A Shares of the Asset Allocation Fund,
Class O -- Special Series 3 represents interests in the B Shares of the Asset
Allocation Fund, Class O -- Special Series 5 represents interests in the K
Shares of the Asset Allocation Fund and Class O -- Special Series 7 represents
interests in the SRF Shares of the Asset Allocation Fund. Pacific Horizon's
charter also authorizes the Board of Directors to classify or reclassify any
particular class of Pacific Horizon's shares into one or more series.
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 Prospectuses, Pacific Horizon's shares will be fully
paid and non-assessable. For information concerning possible restrictions upon
the transferability of Pacific Horizon's shares and redemption provisions with
respect to such shares, see "Additional Purchase and Redemption Information."
-66-
<PAGE> 176
Shareholders are entitled to one vote for each full share
held, and fractional votes for fractional shares held, and will vote in the
aggregate and not by class or series except as otherwise required by the 1940
Act or other applicable law or when permitted by the Board of Directors. Shares
have cumulative voting rights to the extent they may be required by applicable
law.
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 Pacific Horizon 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 Rule 18f-2
the approval of an investment advisory agreement or 12b-1 distribution plan 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
Pacific Horizon voting without regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a
greater vote of Pacific Horizon'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
Pacific Horizon's Charter, Pacific Horizon may take or authorize such action
upon the favorable vote of the holders of more than 50% of the outstanding
common stock of Pacific Horizon voting without regard to class.
THE MASTER PORTFOLIOS
- ---------------------
The Intermediate Bond Master Portfolio and Blue Chip Master
Portfolio are separate series of Master Investment Trust, Series I. The Master
Trust's Declaration of Trust authorizes its Board of Trustees to issue an
unlimited number of interests of beneficial interest and to establish and
designate any unissued interests of one or more additional series of interests.
Investors in a Master Portfolio are entitled to distributions arising from the
net investment income and net realized gains, if any, earned on investments held
by the Master Portfolio. Investors are also entitled to participate in the net
distributable assets of the Master Portfolio in which they hold beneficial
interests on liquidation. Beneficial interests have no preemptive rights,
conversion or exchange rights.
-67-
<PAGE> 177
REPORTS
- -------
Shareholders will receive unaudited semi-annual reports
describing the Master Portfolio's and Fund's investment operations and annual
financial statements together with the reports of the independent accountants of
the Portfolios and the Funds.
CUSTODIAN, ACCOUNTING AGENT AND TRANSFER AGENT
- ----------------------------------------------
PNC Bank, National Association, 1600 Market Street, 28th
Floor, Philadelphia, PA 19103 has been appointed custodian for the Funds and the
Master Portfolios. PFPC provides the Funds and the Master Portfolios with
certain accounting services pursuant to Fund Accounting Services Agreements with
BISYS. Both PFPC, which is located at Bellevue Park Corporate Center, 400
Bellevue Parkway, Wilmington, DE 19809, and PNC Bank, National Association are
wholly owned subsidiaries of PNC Bancorp, Inc., a bank holding company. Under
the Fund Accounting Services Agreement, PFPC has agreed to provide certain
accounting, bookkeeping, pricing, dividend and distribution calculation services
with respect to the Funds and Master Portfolios. The monthly fees charged by
PFPC under the Fund Accounting Agreement are borne by the Funds and Master
Portfolios. As custodian, PNC Bank, N.A. (i) maintains separate account or
accounts in the name of the respective Funds and/or Master Portfolios, as
appropriate (ii) holds and disburses portfolio securities; (iii) makes receipts
and disbursements of money, (iv) collects and receives income and other payments
and distributions on account of portfolio securities, (v) responds to
correspondence from security brokers and others relating to their respective
duties and (vi) makes periodic reports concerning their duties.
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 serves as transfer and dividend disbursing agent for the Funds and Master
Portfolios.
COUNSEL
- -------
Drinker Biddle & Reath (of which W. Bruce McConnel, III,
Secretary of Pacific Horizon, is a partner), 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, serves as counsel to the Companies and will
pass upon the legality of the shares offered hereby.
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 and Master Portfolio for the fiscal year ended February 28, 1997.
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FINANCIAL STATEMENTS AND EXPERTS
- --------------------------------
The audited financial statements and notes thereto in the
Annual Reports for each Fund and for the Investment Grade Bond, Blue Chip and
Asset Allocation Master Portfolios for the fiscal year ended February 29, 1996
and the unaudited financial statements and notes thereto contained in the
Semi-Annual Reports for each Fund and for the Investment Grade Bond, Blue Chip
and Asset Allocation Master Portfolios for the six-month period ended August 31,
1996 are incorporated in this Statement of Additional Information by reference.
The financial statements and notes thereto in the Annual Reports have been
audited by Price Waterhouse LLP, whose report thereon also appears in each
Annual Report and is also incorporated herein by reference. No other parts of
the Annual Reports and the Semi-Annual Reports are incorporated by reference
herein. Such financial statements in the Annual Report 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.
MISCELLANEOUS
- -------------
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares or interests of a
Fund, a Master Portfolio or a particular series means the affirmative vote of
the lesser of (a) more than 50% of the outstanding shares or interests of such
Fund, Master Portfolio or series or (b) 67% of the shares or interests of such
Fund, Master Portfolio or series present at a meeting at which more than 50% of
the outstanding shares or interests of such Fund, Master Portfolio or series are
represented in person or by proxy.
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Only Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 126,915,035.89 shares (58.20%); BA
Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
68,598.778.77 shares (31.46%); and Hare & Co., Bank of New York and Short-Term
Investment Funds, Attn: Bimal Saha, One Wall Street, New York, NY 10286,
13,226,723.61 shares (6.07%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Only Fund were as follows: Omnibus Account 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, 41,122,167.83 shares (21.40%);
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Comcare, Inc., 4001 North Third Street, Suite 120, Phoenix, AZ 85012,
13,816.969.71 shares (7.20%); and Omnibus Account for the Shareholder Accounts
Maintained by Concord Financial Services, Inc., Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 43,115,349.41 shares (22.41%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Treasury Only Fund were as follows: Centinela Healthcare
Foundation, c/o Allan C. Shubin, City of Hope, 1500 East Duarte, Duarte, CA
91010, 1,912,695.64 shares (5.67%); Bank of America Illinois/Treas Slam, Attn:
Jewel James, 231 LaSalle Street, Chicago, IL 60697, 5,196,437.50 shares
(15.41%); Bank of America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329,
P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577, 13,973,087.38
shares (41.44%); Cable Design Technologies, Inc., Attn: Ken Hale, Foster Plaza
7, 661 Anderson Drive, Pittsburgh, PA 15220 3,686,462.62 shares (10.93%); and
City and County of San Francisco, Mayor's Office of Community Development
(MOCD), Attn: Priscilla Watts, 25 Van Ness Avenue, Suite 700, San Francisco, CA
94102, 8,029,482.67 shares (23.81%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Only Fund were as follows: Bank of
America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1577, 37,600,696.83 shares (19.54%); and
BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry Street, 3rd Floor,
Unit 7852, San Francisco, CA 94107, 32,306,705.83 shares (16.79%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Fund were as follows: Hare & Co., Bank of New
York and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street, New
York, NY 10286, 107,055,740.91 shares (21.56%); BA Investment Services, Inc.,
For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120, 202,977,365.10 shares (40.87%); Hellman & Friedman Capital
Partners III, Limited Partnership, 1 Maritime Plaza, 12th Floor, San Francisco,
CA 94111, 30,252,068.66 shares (6.09%) and VAR & Co., Attn: Linda Frintz, 180 E.
5th Street, 4th Floor, St. Paul, MN 55101, 93,131,870.00 shares (8.75%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Treasury Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep
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Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
178,639.074.83 shares (12.38%); and BISYS Fund Services, Inc. Pittsburgh, fbo
Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 483,752,664.42 shares (33.51%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Treasury Fund were as follows: Bank of America NT&SA, The
Private Bank, Attn: Common Trust Funds, Unit 38329, P.O. Box 513577, Terminal
Annex, Los Angeles, CA 90051-1577, 244,930,192.81 shares (38.82%); Central
Garden & Pet Company, Attn: Lewis R. Volls, 3697 Mt. Diablo Blvd. #310,
Lafayette, CA 94549, 54,646,103.60 shares (8.66%); Hare & co., c/o Bank of New
York, Attn: Frank Notaro Spec. Proc. Dep., One Wall Street, 5th Floor, New York,
NY 10286, 85,587,252.27 shares (13.57%); and Raymond Hickey as Trustee for
Raymond Hickey Revocable Trust as Amended, 703 Broadway, Suite 600, Vancouver,
WA 98660, 40,407,107.11 shares (6.40%).
At January 16, 1977, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Fund were as follows: BofA Nevada
Southern Comm. Bank, Attn: Cindy 2964, P.O. Box 98600, Las Vegas, NV 89193-8600,
151,223,491.86 shares (10.48%); Security Pacific Cash Management, c/o Bank of
America-GPO M/C 5533, Attn: Regina Olsen, 1850 Gateway Boulevard, Concord, CA
94520, 166,890,200.00 shares (11.56%); Bank of America FM&TS Operat CA, Attn:
Common Trust Funds Unit 38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA
90051-1577, 270,479,864.52 shares (18.74%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class X
Shares of the Treasury Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
3,532,607.80 shares (99.97%);
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Government Fund were as follows: BA Investment Services,
Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box
7042, San Francisco, CA 94120, 67,476,016.22 shares (40.33%); BA Securities,
Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107, 51,958,875.16 shares
(31.06%); Hare & Co., Bank of New York and Short Term Investment Funds, Attn:
Bimal Saha, One Wall Street, New York, NY 10286, 11,242,817.21 shares (6.72%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than
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5% of the outstanding Horizon Service Shares of the Government Fund were as
follows: Omnibus Account 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, 47,936.871.20 shares (16.12%);
Omnibus Account 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, 42,391,382.81 (14.25%); Viejas Bond of Kumeyaay
Indians, a Federally recognized Indian tribe, 5000 Willows Road, Alpine, CA
91901, 17,823,280.06 share (5.99%); Good Health Plan of WA, Attn: Linda Lam Ha,
1501 4th Avenue, Suite 500, Seattle, WA 98101 15,252,859.49 shares (5.13%); Lone
Star Northwest, Inc., Attn: Krisky Vasquez, P.O. Box 1730, Seattle, WA 98111,
15,730,448.71 shares (5.29%); and Providence Healthcare Attn: Linda Lam Ha, 1501
4th Avenue, Suite 500, Seattle, WA 98101-1621, 15,004,725.82 shares (5.05%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Government Fund were as follows: Sunquest Information
Systems, Inc., Attn: Trena Couch, 1407 Eisenhower Boulevard, Johnstown, PA
15904-3217, 28,582,372.49 shares (40.21%); First Trust, NA as Escrow Agent, fbo
Kaiser Aluminum & Chemical Corp. Dept. of Labor, AC# 98925410, P.O. Box 64010,
St. Paul, MN 55164-0010, 7,198,000.00 shares (10.13%); San Diego Regional
Transport Com, Attn: Andre Douzdjian, 401 B Street, San Diego, CA 92101,
8,524,973.33 shares (12.00%); Skinner Corporation, Attn: Debbie Sokvilne, 1326
Fifth Avenue, Ste. 711, Seattle, WA 98101, 5,081,286.67 shares (7.15%); and
Imperial Thrift and Loan Assoc., Attn: Steve Cooper, 700 N. Central Avenue,
Suite 600, Glendale, CA 91203, 8,304,781.65 shares (11.69%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows: Bank of America
NT&SA, Financial Management & Trust Services, Attn: Common Trust Funds Unit
38329, P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577,
42,932,778.28 shares (14.44%); and BofA Nevada Southern Comm. Bank, Attn: Cindy
2964, P.O. Box 98600, Las Vegas, NV 89193-8600, 39,962,243.73 shares (13.44%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the Prime Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 1,518,412,454.25 shares (51.12%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda
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Zerbe, 100 First Avenue, Suite 300, Pittsburgh, PA 15222, 345,369,548.92 shares
(11.63%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Prime Fund were as follows: Bank of America NT&SA, The
Private Bank, Attn: Common Trust Funds Unit 38329, Terminal Annex, Los Angeles,
CA 90051- 1577, 601,768,725.22 shares (34.13%); Hare & Co., c/o The Bank of New
York, Attn: Frank Notaro Spec. Prec. Dep., One Wall Street, 5th Floor, New York,
NY 10286, 112,025,304.13 shares (6.35%); and Williams-Sonoma, Inc., Attn: Anne
Willis, 100 North Point St., San Francisco, CA 94133, 95,846,682.04 shares
(5.44%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Prime Fund were as follows: Bank of America NT&SA
Financial Management & Trust Securities, Attn: Common Trust Funds Unit 38329,
P.O. Box 513577, Terminal Annex, Los Angeles, CA 90051-1577, 774,557,020.40
shares (26.08%); BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry
Street, 3rd Floor, Unit 7852, San Francisco, CA 94107, 215,048,397.20 shares
(7.24%); and Security Pacific Cash Management, c/o Bank of America-GPO M/C 5533,
Attn: Regina Olsen, 1850 Gateway Blvd., Concord, CA 94520, 623,555,100.00 shares
(20.99%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class X
Shares of the Prime Fund were as follows: BA Investment Services, Inc., fbo
Clients, Attn: Unit 7852- Dan Spillane, P.O. Box 7042, San Francisco, CA 94120,
182,122,939.79 shares (99.93%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners 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, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 70,078,022.430 shares (86.13%); BA
Securities, Inc., 185 Berry Street, San Francisco, CA 94107, 8,946,080.940
shares (11.00%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Tax-Exempt Money Fund were as follows: BISYS Fund Services, Inc.
Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 127,407,819.400 shares (75.58%); and BISYS Fund Services,
Inc. Pittsburgh, fbo Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 25,509,587,090 shares (15.13%).
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At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owenrs more than 5% of the outstanding
Horizon Shares of the Tax-Exempt Money Fund were as follows: Bank of America
NT&SA, The Private Bank, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1577, 277,671,104.36 shares (98.02%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Tax-Exempt Money Fund were as follows: BA
Investment Services, Inc., Attn: Bob Santilli, 185 Berry St., 3rd Floor, Unit
7852, San Francisco, CA 94107, 24,291,230.92 shares (14.41%); and Bank of
America FM&TS Oper. CA, Attn: Common Trust Funds Unit 38329, P.O. Box 513577,
Terminal Annex, Los Angeles, CA 90051-1571, 127,407,819.40 shares (75.58%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the California Tax-Exempt Money Market Fund were as follows:
BA Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA 94107,
199,716,452.460 shares (41.24%); BA Investment Services, Inc., For the Benefit
of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA
94120, 270,828,273.620 shares (55.93%).
At January 16, 1997, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the California Tax-Exempt Money Market Fund were as
follows: BA Investment Services, Inc., Attn: Bob Santilli, 185 Berry St., 3rd
Floor, Unit 7852, San Francisco, CA 94107, 109,455,388.64 shares (23.81%); and
Bank of America NT&SA TTEE/Cus, Attn: Common Trust Funds Unit 38329, P.O. Box
513577, Terminal Annex, Los Angeles, CA 90051-1577, 198,047,795.49 shares
(43.09%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class X
Shares of the California Tax-Exempt Money Market Fund were as follows: BA
Investment Services, Inc., For the Benefit of Clients, Attn: Unit #7852- Dan
Spillane, P.O. Box 7042, San Francisco, CA 94120, 23,643,642.410 shares (100%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding A
Shares of the Corporate Bond Fund were as follows: Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051 ,251,255.44 shares
(12.34%).
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At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Corporate Bond Fund were as follows: Corelink Financial Inc., P.O.
Box 4054, Concord, CA 94524, 11,694.177 shares (99.44%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the National Municipal Bond Fund were as follows: BA Investment
Services, Inc., fbo 421981352, 185 Berry Street, 3rd Floor 2640, San Francisco,
CA 94104, 79,473.387 shares (5.34%); and BA Investment Services, Inc., fbo
405084421, 555 California Street, 4th Floor 2640, San Francisco, CA 94104,
90,141.644 shares (6.06%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the National Municipal Bond Fund were as follows: BISYS Fund Services,
Inc., 3435 Stelzer Road, Suite 100, Columbus, Ohio 43219, 102.732 shares (100%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the International Equity Fund were as follows: PACO, Attn: Mutual
Funds, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 216,572,540 shares
(15.56%); and PACO, Attn: Mutual Funds, P.O. Box 3577, Terminal Annex, Los
Angeles, CA 90051, 406,657,130 shares (29.22%); and Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds, Unit
38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 417,172.137 shares
(29.98%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the International Equity Fund were as follows: Corelink Financial
Inc., P.O. Box 4054, Concord, CA 94524, 10,729.796 shares (99.06%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Aggressive Growth Fund were as follows: Charles Schwabb & Co.,
Inc., Reinvest Account, Attn: Mutual Fund Department, 101 Montgomery Street, San
Francisco, CA 94104, 664,279.549 shares (6.30%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Aggressive Growth Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 11,482.539 shares (99.53%).
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At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Intermediate Bond Fund were as follows: Bank of America National
Trust and Savings Association, The Private Bank, Attn: Common Trust Funds Unit
38329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 934,163.859 shares
(41.55%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Intermediate Bond Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 33,424.373 shares (99.68%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Blue Chip Fund were as follows: Bank of America National Trust and
Savings Association, The Private Bank, Attn: Common Trust Funds Unit 38329, P.O.
Box 3577, Terminal Annex, Los Angeles, CA 90051, 437,870.491 shares (7.65%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Blue Chip Fund were as follows: Corelink Financial Inc., P.O. Box
4054, Concord, CA 94524, 41,926.034 shares (99.88%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Capital Income Fund were as follows: Corelink Financial Inc., P.O.
Box 4054, Concord, CA 94524, 31,671.008 shares (94.91%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the California Tax-Exempt Bond Fund were as follows: BISYS Fund
Services, Inc., Attn: Regulation and Compliance Department, 3435 Stelzer Road,
Suite 1000, Columbus, Ohio 43219, 141.651 shares (100%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the Asset Allocation Fund were as follows: Corelink Financial Inc.,
P.O. Box 4054, Concord, CA 94524, 36,492.589 shares (99.83%).
At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class K
Shares of the U.S. Government Securities Fund were as follows: Corelink
Financial Inc., P.O. Box 4054, Concord, CA 94524, 21,757.224 shares (99.50%).
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At January 17, 1997, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the Short-Term Government Fund were as follows: Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds, Unit 38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
1,273,707.695 shares (96.07%).
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 Prospectus relating to the Funds and this Statement of
Additional Information omit certain information contained in the Company's
registration statement filed with the SEC. Copies of the registration statement,
including items omitted herein, may be obtained from the Commission by paying
the charges prescibed under its rules and regulations.
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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 in
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.
A-1
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"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
A-2
<PAGE> 189
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 generally 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 are issued by United
States commercial banks,
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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 which posses a particularly strong credit
feature are 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.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
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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.
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"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 that 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 absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
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
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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.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes
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occur in the legal documents or the underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Ba1 and B1.
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.
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"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.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "BBB" 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, such that 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.
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"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 other 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
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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.
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"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly regarded
as required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
----------
As stated in the Prospectus, the Portfolios, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Appendix B.
I. INTEREST RATE FUTURES CONTRACTS
-------------------------------
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Portfolio presently could accomplish a similar result to
that which it hopes to achieve through the use of futures contracts by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term bonds
and investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by a Fund, through using
futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest
rate futures contract sale would create an obligation by a Portfolio, as seller,
to deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by a Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most
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cases the contracts are closed out before the settlement date without the making
or taking of delivery of securities. Closing out a futures contract sale is
effected by the Portfolio's entering into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument and the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Portfolio is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Portfolio's entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Portfolio realizes
a gain, and if the purchase price exceeds the offsetting sale price, the
Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges-principally, the Chicago Board of
Trade and the Chicago Mercantile Exchange. A Portfolio would deal only in
standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury bonds
and notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. A Portfolio may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLES OF FUTURES CONTRACT SALE. A Portfolio would engage in
an interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in a
Portfolio tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury bonds"). The investment adviser wishes
to fix the current market value of this portfolio security until some point in
the future. Assume the portfolio security has a market value of 100, and the
investment adviser believes that, because of an anticipated rise in interest
rates, the value will decline to 95. Such Portfolio might enter into futures
contract sales of Treasury bonds for an equivalent of 98. If the market value of
the portfolio security does indeed decline from 100 to 95, the equivalent
futures market price for the Treasury bonds might also decline from 98 to 93.
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In that case, the five-point loss in the market value of the
portfolio security would be offset by the five-point gain realized by closing
out the futures contract sale. Of course, the futures market price of Treasury
bonds might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
The investment adviser could be wrong in its forecast of
interest rates and the equivalent futures market price could rise above 98. In
this case, the market value of the portfolio securities, including the portfolio
security being protected, would increase. The benefit of this increase would be
reduced by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Portfolio in the
above example might incur a loss of 2 points (which might be reduced by an
off-setting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
EXAMPLES OF FUTURES CONTRACT PURCHASE. A Portfolio would
engage in an interest rate futures contract purchase when it is not fully
invested in long-term bonds but wishes to defer for a time the purchase of
long-term bonds in light of the availability of advantageous interim
investments, e.g., shorter-term securities whose yields are greater than those
available on long-term bonds. The Portfolio's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Portfolio would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Portfolio may purchase.
For example, assume that the market price of a long-term bond
that a Portfolio may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The investment adviser wishes to
fix the current market price (and thus 10% yield) of the long-term bond until
the time (four months away in this example) when it may purchase the bond.
Assume the long-term bond has a market price of 100, and the investment adviser
believes that, because of an anticipated fall in interest rates, the price will
have risen to 105 (and the yield will have dropped to about 9 1/2%) in four
months. The Portfolio might enter into futures contracts purchases of Treasury
bonds for an equivalent price of 98. At the same time, the Portfolio would
assign a pool of investments in short-term securities that are either maturing
in four months or earmarked for sale in four months, for purchase of the
long-term bond at an assumed market price of 100. Assume these short-term
securities are yielding 15%. If the market price of the long-term bond does
indeed rise from 100 to 105, the equivalent futures market price for Treasury
bonds might also rise from 98 to 103. In that case,
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the 5-point increase in the price that the Portfolio pays for the long-term bond
would be offset by the 5-point gain realized by closing out the futures contract
purchase.
The investment adviser could be wrong in its forecast of
interest rates; long-term interest rates might rise to above 10%; and the
equivalent futures market price could fall below 98. If short-term rates at the
same time fall to 10% or below, it is possible that the Portfolio would continue
with its purchase program for long-term bonds. The market price of available
long-term bonds would have decreased. The benefit of this price decrease, and
thus yield increase, will be reduced by the loss realized on closing out the
futures contract purchase.
If, however, short-term rates remained above available
long-term rates, it is possible that the Portfolio would discontinue its
purchase program for long-term bonds. The yield on short-term securities in the
portfolio, including those originally in the pool assigned to the particular
long-term bond, would remain higher than yields on long-term bonds. The benefit
of this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase. In each transaction, expenses would
also be incurred.
II. STOCK INDEX FUTURES CONTRACTS
-----------------------------
A stock index assigns relative values to the stocks included
in the index and the index fluctuates with changes in the market values of the
stocks included. A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value (which assigns relative values to the common stocks included in the
index) at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100 or
indices based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through a
clearing corporation, which guarantees the performance of the parties to each
contract.
The Asset Allocation Fund and Blue Chip Master Portfolio will
sell stock index futures contracts in order to offset a decrease in market value
of their respective portfolio securities that might otherwise result from a
market decline. The Portfolios may do so either to hedge the value of their
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respective portfolios as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, the Portfolios will purchase stock index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolios will purchase such securities upon termination of
the long futures position, but a long futures position may be terminated without
a corresponding purchase of securities.
In addition, the Asset Allocation Fund and Blue Chip Master
Portfolio may utilize stock index futures contracts in anticipation of changes
in the composition of their respective portfolio holdings. For example, in the
event that a Portfolio expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. The
Portfolios may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of their respective portfolios will decline
prior to the time of sale.
The following are examples of transactions in stock index
futures (net of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Blue Chip Master Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Blue Chip Master Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Master Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Master Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that
is, market value decreased and a Portfolio had entered into an anticipatory
purchase hedge, or market value increased and a Portfolio had hedged its stock
portfolio, the results of the Portfolio's transactions in stock index futures
would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Blue Chip Master Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Blue Chip Master Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <S>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Master Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Master Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss of Futures = $40,000
</TABLE>
III. MARGIN PAYMENTS
---------------
Unlike when a Portfolio purchases or sells a security, no
price is paid or received by the Portfolio upon the purchase or sale of a
futures contract. Initially, the Portfolio will be required to deposit with the
broker or in a segregated account with the Portfolio's custodian an amount of
cash or cash equivalents, the value of which may vary but is generally equal to
10% or less of the value of the contract. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Portfolio upon termination of
the futures contract assuming all
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contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-market. For example, when a Portfolio has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the
Portfolio will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Portfolio has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Portfolio would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the investment
adviser may elect to close the position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
Portfolio's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Portfolio, and the Portfolio realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
------------------------------------------
There are several risks in connection with the use of futures
in the Portfolios as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, the
Portfolio would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, the Portfolio
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, a Portfolio may buy or sell futures contracts in a greater dollar
amount than the dollar amount of securities being hedged if the volatility over
a particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to be
appropriate by the investment adviser. Conversely, a Portfolio may buy or sell
fewer futures
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<PAGE> 207
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
investment adviser. It is also possible that, where the Portfolio has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Portfolio may decline. If this
occurred, the Portfolio would lose money on the future and also experience a
decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities before a Portfolio is able to invest its
cash (or cash equivalents) in securities (or options) in an orderly fashion, it
is possible that the market may decline instead; if the Portfolio then concludes
not to invest in securities or options at that time because of concern as to
possible further market decline or for other reasons, the Portfolio will realize
a loss on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the
Portfolio's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest
B-9
<PAGE> 208
rate movements by the investment adviser may still not result in a successful
hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions.
Successful use of futures by a Portfolio is also subject to
the investment adviser's ability to predict correctly movements in the direction
of the market. For example, if a Portfolio has hedged against the possibility of
a decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part of all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. A
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
V. OPTIONS ON FUTURES CONTRACTS
----------------------------
Each Portfolio may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell
B-10
<PAGE> 209
(put) to the writer of the option a futures contract at a specified price at any
time during the period of the option. Upon exercise, the writer of the option is
obligated to pay the difference between the cash value of the futures contract
and the exercise price. Like the buyer or seller of a futures contract, the
holder, or writer, of an option has the right to terminate its position prior to
the scheduled expiration of the option by selling, or purchasing, an option of
the same series, at which time the person entering into the closing transaction
will realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Portfolios because the maximum
amount at risk is the premium paid for the options (plus transaction costs).
VI. OTHER HEDGING TRANSACTIONS
--------------------------
The Asset Allocation Fund and Intermediate Bond Master
Portfolio presently intend to use interest rate futures contracts, and the Asset
Allocation Fund and the Blue Chip Master Portfolio presently intend to use stock
index futures contracts, in connection with their hedging activities.
Nevertheless, each of these Portfolios is authorized to enter into hedging
transactions in any other futures or options contracts which are currently
traded or which may subsequently become available for trading. Such instruments
may be employed in connection with the Portfolios' hedging strategies if, in the
judgment of the investment adviser, transactions therein are necessary or
advisable.
VII. ACCOUNTING AND TAX TREATMENT
----------------------------
Accounting for futures contracts and related options will be
in accordance with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts
held by a Portfolio at the close of the Portfolio's
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<PAGE> 210
taxable year will be treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"marking-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the length of time the Portfolio holds the futures contract or option
("the 40%-60% rule"). The amount of any capital gain or loss actually realized
by a Portfolio in a subsequent sale or other disposition of those futures
contracts or options will be adjusted to reflect any capital gain or loss taken
into account by a Portfolio in a prior year as a result of the constructive sale
of the contracts or options. With respect to futures contracts to sell, which
will be regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by a Portfolio, losses as to
such contracts to sell will be subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle (if they have not been held for the
long-term holding period) will be deemed not to begin prior to termination of
the straddle. With respect to certain futures contracts and related options,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Portfolio may make an election
which will exempt (in whole or in part) those identified futures contracts from
being treated for federal income tax purposes as sold on the last business day
of the Portfolio's taxable year, but gains and losses will be subject to such
short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a
Portfolio would be allowed (in lieu of the foregoing) to elect either (1) to
offset gains or losses from portions which are part of a mixed straddle by
separately identifying each mixed straddle to which such treatment applies, or
(2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts, but in the case of a mixed straddle account election, not
more than 50 percent of any net gain may be treated as long-term and no more
than 40 percent of any net loss may be treated as short-term.
With respect to the Asset Allocation Fund and the Intermediate
Bond Master Portfolio, some investments may be subject to special rules which
govern the federal income tax treatment of certain transactions denominated in
terms of a
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<PAGE> 211
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option or similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
marking-to-market rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated that
some of the non-U.S. dollar denominated investments and foreign currency
contracts that such Funds may make or may enter into will be subject to the
special currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by a Fund which are not subject to
special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
Qualification as a regulated investment company under the Code
requires that each Fund satisfy certain requirements with respect to the source
of its income during a taxable year. At least 90% of the gross income of each
Fund must be derived from dividends, interests, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of
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<PAGE> 212
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.
An additional requirement for qualification as a regulated
investment company under the Code is that less than 30% of a Fund's gross income
must be derived from gains realized on the sale or other disposition of the
following investments held for less than three months: (1) stock and securities
(as defined in section 2(a)(36) of the 1940 Act); (2) options, futures and
forward contracts other than those on foreign currencies; and (3) foreign
currencies (and options, futures and forward contracts on foreign currencies)
that are not directly related to a Fund's principal business of investing in
stock and securities (and options and futures with respect to stocks and
securities). With respect to futures contracts and other financial instruments
subject to the marking-to-market rules, the Internal Revenue Service has ruled
in private letter rulings that a gain realized from such a futures contract or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of each Fund's futures contracts and other investments that qualify as
part of a "designated hedge," as defined in the Code, may be netted.
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<PAGE> 213
STATEMENT OF ADDITIONAL INFORMATION
SEAFIRST RETIREMENT FUNDS
701 FIFTH AVENUE
SEATTLE, WASHINGTON 98104
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus dated July 1, 1996 for
Seafirst Retirement Funds (the "Trust"). This Statement of Additional
Information contains certain additional and supplemental information to that
presented in the Prospectus and it does not repeat all of the information with
respect to the Trust contained in the Prospectus. A copy of the Prospectus may
be obtained by writing to Seafirst Retirement Funds, Seafirst Bank, P.O. Box
84248, Seattle, Washington 98124 or by calling 1-800-323-9919.
Please read and retain this Statement of Additional Information for
future reference.
July 1, 1996
<PAGE> 214
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Board of Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Expenses of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Former Investment Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Shareholder Service Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
MANAGEMENT OF THE MASTER TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Board of Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Master Trust Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
GLASS-STEAGALL ACT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
<PAGE> 215
GENERAL INFORMATION
Seafirst Retirement Funds ("the Trust") is an open-end management
investment company that currently offers three Funds, the Bond, Blue Chip and
Asset Allocation Funds (collectively, the "Funds"), for investment by Eligible
Retirement Accounts. The Trust may offer at any time one or more additional
funds having investment objectives and policies different from the three Funds
currently offered.
The Funds seek to achieve their investment objectives by investing all
of their assets in corresponding Portfolios of Master Investment Trust, Series
I (the "Master Trust"), a diversified, open-end management investment company
organized as a Delaware business trust. The Master Trust offers shares of
three Portfolios to the Trust and other investment companies and institutional
investors: the Blue Chip Portfolio, in which the Blue Chip Fund invests; the
Asset Allocation Portfolio, in which the Asset Allocation Fund invests; and the
Investment Grade Bond Portfolio (the "Bond Portfolio"), in which the Bond Fund
invests.
The Trust is the successor to Collective Investment Trust for Seafirst
Retirement Accounts, a registered open-end management company ("CIT"), pursuant
to a reorganization (the "Reorganization") consummated on December 6, 1993.
Prior to the Reorganization, CIT offered funds (the "CIT Funds") which had
substantially similar investment objectives, policies and restrictions as those
of the Funds.
Capitalized terms used herein have the same meaning as in the
Prospectus.
INVESTMENT POLICIES
SHORT-TERM INVESTMENTS
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
Each Portfolio may acquire certificates of deposit, bankers' acceptances and
time deposits as described in the Prospectus. Certificates of deposit are
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return. Bankers' acceptances
are negotiable drafts 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 on maturity. Certificates of deposit and bankers acceptances
may only be purchased from domestic or foreign banks and financial institutions
having total assets at the time of purchase in excess of $2.5 billion
(including assets of both domestic and foreign branches). Time deposits are
non-negotiable deposits
<PAGE> 216
maintained at a banking institution for a specified period of time at a
specified interest rate. The Portfolios will not acquire obligations issued by
the International Bank for Reconstruction and Development, the Asian
Development Bank or the Inter-American Development Bank.
Instruments issued by foreign banks or financial institutions may be
subject to additional investment risks that are different in some respects from
those that would be incurred if it were to invest 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.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amounts and types of loans which may be made
and interest rates which may be charged. In addition, the profitability of the
banking industry depends 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 foreign bank obligations.
COMMERCIAL PAPER AND SHORT-TERM NOTES. A Portfolio may invest a
portion of its assets in commercial paper and short-term notes. Commercial
paper consists of unsecured promissory notes issued by corporations. Except as
noted below with respect to variable and floating rate instruments, issues of
commercial paper and short-term notes will normally have maturities of less
than 9 months and fixed rates of return, although such instruments may have
maturities of up to one year. Commercial paper and short-term notes will
consist of issues rated at the time of purchase A-2 or better by Standard &
Poor's Rating Group, Division of McGraw Hill ("S&P"), Prime-2 or better by
Moody's Investor Service, Inc. ("Moody's"), or similarly rated by another
nationally recognized statistical rating organization ("NRSRO").
-2-
<PAGE> 217
MONEY MARKET FUNDS. In connection with the management of their daily
cash position, the Portfolios may each invest in the securities of a money
market mutual fund (including money market mutual funds advised by Bank of
America). Such Portfolios are permitted to invest up to 5% of the value of
their respective total assets in the securities of a money market mutual fund;
except that, with respect to the investment in a money market mutual fund
advised by Bank of America, such Portfolios are permitted to invest the greater
of 5% of their respective net assets or $2.5 million. However, no more than
10% of such Portfolio's total assets may be invested in the securities of money
market mutual funds in the aggregate. Securities of other investment companies
will be acquired by the Portfolios within the limits prescribed by the
Investment Company Act of 1940 (the "1940 Act"). As a shareholder of another
investment company, a Portfolio would bear along with other shareholders, its
pro-rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Portfolio bears directly in connection with its own operations.
The 1940 Act generally prohibits each Portfolio from investing more
than 5% of the value of its total assets in any one investment company, or more
than 10% of the value of its total assets in investment companies as a group,
and also restricts its investment in any investment company to 3% of the voting
securities of such investment company. In addition, no more than 10% of the
outstanding voting stock of any one investment company may be owned in the
aggregate by the Portfolios and any other investment company advised by the
investment adviser.
REPURCHASE AGREEMENTS. Each Portfolio is permitted to enter into
repurchase agreements with respect to its portfolio securities. Pursuant to
such agreements, a Portfolio acquires securities from financial institutions
such as banks and broker-dealers which are deemed to be creditworthy, subject
to the seller's agreement to repurchase and the Portfolio's agreement to resell
such securities at a mutually agreed upon date and price. A Portfolio will not
enter into repurchase agreements with Bank of America, Seafirst or their
affiliates. The repurchase price generally equals the price paid by the
Portfolio 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 Master Trust's
custodian or sub-custodian or in the Federal Reserve/Treasury Book-Entry
System. The seller under a repurchase agreement will be required to deliver
instruments the value of which is 102% of the repurchase price (excluding
accrued interest) provided that notwithstanding such requirement, the
investment adviser shall require that the value of the collateral, after
transaction costs (including loss of interest)
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reasonably expected to be incurred on a default, shall be equal to or greater
than the resale price (including interest) provided in the agreement. If the
seller defaulted on its repurchase obligation, a Portfolio would suffer a loss
because of adverse market action or 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 Portfolio's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans by a Portfolio under
the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may make investments in
U.S. government obligations. Such obligations include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of such entities as
the Government National Mortgage Association, Export-Import Bank of the United
States, Tennessee Valley Authority, Resolution Funding Corporation, Farmers
Home Administration, Federal Home Loan Banks, Federal Intermediate Credit
Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation and the Student Loan Marketing Association. Treasury
bills have maturities of one year or less, Treasury notes have maturities of
one to ten years and Treasury bonds generally have maturities of more than ten
years. Some of these obligations, such as those of the Government National
Mortgage Association, are supported by the full faith and credit of the U.S.
Treasury. Others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the Treasury.
Others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. government to purchase the
agency's obligations. Still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. government would provide financial
support to U.S. government sponsored instrumentalities if it is not obligated
to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may acquire
variable and floating rate instruments, including master demand notes. The
actual yield on variable and floating rate instruments varies not only as a
result of variations in the lives of the underlying securities, but also as a
result of changes in prevailing interest rates. Such instruments are
frequently not rated by credit rating agencies. However, in determining the
creditworthiness of unrated variable and floating rate instruments and their
eligibility for purchase by a Portfolio, Bank of America will consider the
earning power, cash flow and other liquidity ratios of the issuers of such
instruments (which include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial
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condition. An active secondary market may not exist with respect to a
particular variable or floating rate instrument purchased by a Portfolio. The
absence of such an active secondary market could make it difficult to dispose
of a variable or floating rate instrument in the event the issuer of the
instrument defaulted on its payment obligation or during periods that the
Portfolio is not entitled to exercise its demand rights, and the Portfolio
could, for these or other reasons, suffer a loss to the extent of the default.
Investments in illiquid variable and floating rate instruments (instruments
which are not payable upon seven days' notice and do not have active trading
markets) are subject to a Portfolio's 10% limitation on illiquid securities.
Variable and floating rate instruments may be secured by bank letters of
credit.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may borrow funds for
temporary purposes by entering into reverse repurchase agreements with such
financial institutions as banks and broker-dealers. Whenever a Portfolio
enters into a reverse repurchase agreement, it will place in a segregated
account maintained with the Portfolio's custodian, liquid assets such as cash,
U.S. government securities or other liquid high grade debt securities having a
value equal to the repurchase price (including accrued interest) and Bank of
America will subsequently continuously monitor the account for maintenance of
such equivalent value. The Portfolios intend to enter into reverse repurchase
agreements to avoid otherwise having to sell securities during unfavorable
market conditions in order to meet redemptions. Reverse repurchase agreements
are considered to be borrowings by a Portfolio under the 1940 Act.
SECURITIES LENDING. A Portfolio may lend securities as described in
the Prospectus. Such loans will be secured by cash or securities of the U.S.
Government and its agencies and instrumentalities. The collateral must be at
all times equal to at least the market value of the securities loaned and is
"marked to market" daily. A Portfolio will continue to receive interest or
dividends on the securities it loans, and will also earn interest on the
investment of any cash collateral. Cash collateral may be invested in
short-term U.S. Government securities, certificates of deposit, other
high-grade, short-term obligations or interest-bearing cash equivalents.
Although voting rights, or rights to consent, attendant to securities loaned
pass to the borrower, such loans may be called at any time and will be called
so that the securities may be voted by a Portfolio if a material event
affecting the investment is to occur.
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MORTGAGE-RELATED SECURITIES
To the extent described in the Prospectus, the Asset Allocation and
Bond Portfolios may purchase mortgage-backed securities that are secured by
entities such as the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), commercial banks, trusts, financial companies, finance subsidiaries
of industrial companies, savings and loan associations, mortgage banks and
investment banks. These certificates are in most cases pass-through
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate, net of
certain fees. The average life of a mortgage-backed security varies with the
underlying mortgage instruments, which have maximum maturities of 40 years.
The average life is likely to be substantially less than the original maturity
of the mortgage pools underlying the securities as the result of prepayments,
mortgage refinancings or foreclosure. Mortgage prepayment rates are affected
by factors including the level of interest rates, general economic conditions,
the location and age of the mortgage and other social and demographic
conditions. Such prepayments are passed through to the registered holder with
the regular monthly payments of principal and interest and have the effect of
reducing future payments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities
guaranteed by GNMA include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal
and interest by GNMA and such guarantee is backed by the full faith and credit
of the United States. GNMA is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. GNMA certificates also
are supported by the authority of GNMA to borrow funds from the U.S. Treasury
to make payments under its guarantee. Mortgage-related securities issued by
FNMA include FNMA guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are solely the obligations of FNMA, are not backed by or
entitled to the full faith and credit of the United States and are supported by
the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders.
Fannie Maes are guaranteed as to timely payment of principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Banks
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and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
ASSET-BACKED SECURITIES
The Asset Allocation and Bond Portfolios may invest in asset-backed
securities, including interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities may also be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to
motor vehicle installment purchase obligations perfect their interests in the
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most of
such obligations grant a security interest in the motor vehicle being financed,
in most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of
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the seller's security interest for the benefit of the holders of the
asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike
most other asset-backed securities, credit card receivables are unsecured
obligations of the cardholder.
The development of non-mortgage backed securities is at an early stage
compared to mortgage backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage backed
securities issued by certain private organizations and non-mortgage backed
securities is not as well developed as that for mortgage backed securities
guaranteed by government agencies or instrumentalities. Bank of America
intends to limit its purchases of mortgage backed securities to those issued by
certain private organizations and to limit its purchase of non-mortgage backed
securities to securities to those that are readily marketable at the time of
purchase.
Non-mortgage, asset-backed securities involve certain risks that are
not presented by mortgage-backed securities. Primarily, these securities do
not have the benefit of the same security interest in the underlying
collateral. Credit card receivables are generally unsecured and the debtors
are entitled to the protection of a number of state and federal consumer credit
laws, many of which have given debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance due. Most issuers of
automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there
is a possibility that recoveries on repossessed collateral may not, in some
cases, be able to support payments on these securities.
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MUNICIPAL SECURITIES. The Bond and Asset Allocation Portfolios may
invest in Municipal Securities. Municipal Securities are debt obligations
issued 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 (including industrial development bonds under prior law) are issued by or
on behalf of public authorities to finance various privately-operated
facilities. Such obligations are included within the term Municipal Securities
if the interest paid thereon is exempt from regular federal income tax. The
two principal classifications of Municipal Securities which may be held by the
Portfolios are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Portfolios are in
most cases revenue securities and are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of such private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The Bond and Asset Allocation Portfolios may also invest in "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
The Bond and Asset Allocation Portfolios may purchase short-term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short-term tax-exempt loans. 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. Those Portfolios may also purchase
tax-exempt commercial paper.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between
classifications, 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 ratings of Moody's, S&P, Fitch and Duff & Phelps
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represent their opinions as to the quality of Municipal Securities. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality, and Municipal Securities with the same maturity, interest rate and
rating may have different yields while Municipal Securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Portfolio, an issue of Municipal Securities may
cease to be rated or its rating may be reduced. The investment adviser will
consider such an event in determining whether a Portfolio should continue to
hold the obligation.
An issuer's obligations under its Municipal 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, if
any, 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. The power or ability of an issuer to
meet its obligations for the payment of interest on, and principal of, its
Municipal Securities may be materially adversely affected by litigation or
other conditions. Further, 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), 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.
Information about the financial condition of issuers of Municipal
Securities may be less available than about corporations, a class of whose
securities is registered under the Securities Exchange Act of 1934.
OPTIONS TRADING
Each Portfolio presently intends that the aggregate value of its
assets subject to options written by such Portfolio will not exceed 5% of the
value of its net assets. The investment policies of each Portfolio provide
that the aggregate value of its assets subject to options written by such
Portfolio may not exceed 25% of the value of its net assets.
Options trading is a highly specialized activity which entails greater
than ordinary risks. Regardless of how much the market price of the underlying
security or index increases or decreases, the option buyer's risk is limited to
the amount of the original premium paid for the purchase of the option.
However, options may be more volatile than the underlying instruments, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an
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investment in the underlying instruments themselves. A listed call option for
a particular security gives the purchaser of the option the right to buy from a
clearing corporation, and obligates a writer to sell to the clearing
corporation, the underlying security or currency amount at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security or amount of currency at the stated
exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security or currency. In contrast to an
option on a particular security, an option on a stock index provides the holder
with the right to make or receive a cash settlement upon exercise of the
option. The amount of this settlement will be equal to the difference between
the closing price of the index at the time of exercise and the exercise price
of the option expressed in dollars, times a specified multiple.
A Portfolio will continue to receive interest or dividend income on
the securities underlying such puts until they are exercised by the Portfolio.
Any losses realized by a Portfolio in connection with its purchase of put
options will be limited to the premiums paid by the Portfolio for the options
plus any transaction costs. A gain or loss may be wholly or partially offset
by a change in the value of the underlying security which the Portfolio owns.
A Portfolio may write call options only if they are "covered." In the
case of a call option on a security, the option is "covered" if the Portfolio
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, for cash or cash equivalents in such amount
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if the Portfolio maintains with its custodian cash or cash equivalents
equal to the contract value. A call option is also covered if the Portfolio
holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call
written provided the difference is maintained by the Portfolio in cash or cash
equivalents in a segregated account with its custodian.
The principal reason for writing call options on a securities
portfolio is the attempt to realize, through the receipt of premiums, a greater
current return than would be realized on the securities alone. In return for
the premium, the
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covered option writer gives up the opportunity for profit from a price increase
in the underlying security above the exercise price so long as its obligation
as a writer continues, but retains the risk of loss should the price of the
security decline. Unlike one who owns securities not subject to an option, the
covered option writer has no control over when it may be required to sell its
securities, since it may be assigned an exercise notice at any time prior to
the expiration of its obligation as a writer.
If a Portfolio desires to sell a particular security it owns on which
it has written an option, the Portfolio will seek to effect a closing purchase
transaction prior to, or concurrently with, the sale of the security. In order
to close out a covered call option position, a Portfolio will enter into a
"closing purchase transaction" - the purchase of a call option on a security or
stock index with the same exercise price and expiration date as the call option
which it previously wrote on the same security or index.
When a Portfolio purchases a put or call option, the premium paid by
it is recorded as an asset of the Portfolio. When a Portfolio writes an
option, an amount equal to the net premium (the premium less the commission)
received by such Portfolio is included in the liability section of such
Portfolio's statement of assets and liabilities as a deferred credit. The
amount of this asset or deferred credit is subsequently marked-to-market to
reflect the current value of the option purchased or written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option purchased by a
Portfolio expires unexercised, the Portfolio realizes a loss equal to the
premium paid. If a Portfolio enters into a closing sale transaction on an
option purchased by it, the Portfolio realizes a gain if the premium received
by such Portfolio on the closing transaction is more than the premium paid to
purchase the option, or a loss if it is less. Moreover, because increases in
the market price of an option will generally reflect (although not necessarily
in direct proportion) increases in the market price of the underlying security,
any loss resulting from a closing purchase transaction is likely to be offset
in whole or in part by appreciation of the underlying security if such security
is owned by a Portfolio. If an option written by a Portfolio expires on the
stipulated expiration date or if a Portfolio enters into a closing purchase
transaction, it realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option is eliminated. If an option written by
a Portfolio is exercised, the proceeds of the sale are increased by the net
premium originally received and the Portfolio realizes a gain or loss.
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There are several risks associated with transactions in options on
securities and indices. For example, there are significant differences between
the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. In addition, a liquid secondary market for particular options
on a national securities exchange (an "Exchange") may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an Exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an Exchange; the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or one or more Exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
FOREIGN INVESTMENTS
A Portfolio may invest in securities of foreign issuers that are not
publicly traded in the United States. Investments in foreign securities
involve certain inherent risks, such as political or economic instability of
the issuer or the country of issue, the difficulty of predicting international
trade patterns and the possibility of imposition of exchange controls. Such
securities may also be subject to greater fluctuations in price than securities
of domestic corporations. In addition, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. With respect to certain foreign countries, there is a possibility
of expropriation or confiscatory taxation, or diplomatic developments which
could affect investment in those countries.
In considering whether to invest in the securities of a foreign
company, Bank of America considers such factors as the
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characteristics of the particular company, differences between economic trends
and the performance of securities markets within the U.S. and those within
other countries, and also factors relating to the general economic,
governmental and social conditions of the country or countries where the
company is located.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
When a Portfolio agrees to purchase securities on a "when-issued" or
forward commitment basis, its custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, its custodian will set aside portfolio securities to satisfy a
purchase commitment. In such a case, a Portfolio may be required subsequently
to place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Portfolio's commitment.
A Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. The Portfolios do not intend to engage in these transactions for
speculative purposes but primarily in order to hedge against anticipated
changes in interest rates. Because each Portfolio will set aside cash or
liquid portfolio securities to satisfy the purchase commitments in the manner
described, a Portfolio's liquidity and the ability of Bank of America to manage
it may be affected in the event the Portfolio's forward commitments,
commitments to purchase when-issued securities ever exceeded 25% of the value
of its assets.
A Portfolio may purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Portfolio 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 a Portfolio on the settlement date. In these cases a Portfolio may realize
a taxable capital gain or loss.
When a Portfolio engages in when-issued or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio'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 or forward
commitment transaction and any subsequent fluctuations in their market value is
taken into account when determining the market value of a Portfolio starting on
the day the Portfolio agrees to purchase the securities. The Portfolios do not
earn interest on the securities they have committed to purchase until the
securities are paid for and delivered on the settlement date.
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FUTURES CONTRACTS
As stated in the Prospectus, the Portfolios may enter into certain
futures contracts and options for hedging purposes. A futures contract is a
bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the value of a specified obligation or stock index (which
assigns relative values to the common stocks included in the index) at the
close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
securities is normally made. A Portfolio may not purchase or sell futures
contracts and purchase related options unless immediately after any such
transaction the aggregate initial margin that is required to be posted by that
Portfolio under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Portfolio on its open
futures options positions, does not exceed 5% of the Portfolio's total assets,
after taking into account any unrealized profits and losses on the Portfolio's
open contracts and excluding the amount that a futures option is "in-the-money"
at the time of purchase. An option to buy a futures contract is "in-the-money"
if the then current purchase price of the contract that is subject to the
option is less than the exercise or strike price; an option to sell a futures
contract is "in-the-money" if the exercise or strike price exceeds the then
current purchase price of the contract that is the subject of the option.
Successful use of futures contracts by a Portfolio is subject to Bank
of America's ability to predict correctly movements in the direction of the
stock market or interest rates. There are several risks in connection with the
use of futures contracts by a Portfolio as a hedging devise. One risk arises
because of the imperfect correlation between movements in the price of the
futures contract and movements in the price of the securities which are the
subject of the hedge. The price of the futures contract may move more than or
less than the price of the securities being hedged. If the price of the
futures contract moves less than the price of the securities which are the
subject of the hedge, the hedge will not be fully effective but, if the price
of the securities being hedged has moved in an unfavorable direction, a
Portfolio would be in a better position than if it had not hedged at all. If
the price of the securities being hedged has moved in a favorable direction,
this advantage will be partially offset by the loss on the futures contract.
If the price of the futures contract moves more than the price of the hedged
securities, a Portfolio involved will experience either a loss or gain on the
futures contract which will not be completely offset by movements in the price
of the securities which are the subject of the hedge.
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<PAGE> 230
It is also possible that, where a Portfolio has sold futures contracts
to hedge its portfolio against a decline in the market, the market may advance
and the value of securities held in a Portfolio may decline. If this occurred,
a Portfolio would lose money on the futures contract and also experience a
decline in value in its portfolio securities.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures
contract and the securities being hedged, the price of futures contracts may
not correlate perfectly with movement in the cash market due to certain market
distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movement in the cash
market and movements in the price of futures contracts, a correct forecast of
general market trends or interest rate movements by Bank of America may still
not result in a successful hedging transaction over a short time frame.
Positions in futures contracts may be closed out only on an exchange
or board of trade which provides a secondary market for such futures contracts.
Although the Portfolios intend to purchase or sell futures contracts only on
exchanges or boards of trade where there appear to be active secondary markets,
there is no assurance that a liquid secondary market on any exchange or board
of trade will exist for any particular contract or at any particular time. In
such event, it may not be possible to close a futures investment position, and
in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin. The liquidity of a
secondary market in a futures contract may in addition be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures contract price during a single trading
day. Once the daily limit has been reached in the contract, no trades may be
entered into at a price beyond the limit, thus preventing the liquidation of
open futures positions.
For additional information concerning Futures and options thereon,
please see Appendix B to this Statement of Additional Information.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options
on a futures contract will give a Portfolio the right (but not the obligation),
for a specified price, to sell or to purchase, respectively, the underlying
futures contract at any time during the option period. As the purchaser of an
option on a futures contract, the Portfolio obtains the benefit of the futures
position if prices move in a favorable direction but limits its risk of loss in
the event of an unfavorable price movement to the loss of the premium and
transaction costs.
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<PAGE> 231
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Portfolio's assets. By
writing a call option, a Portfolio becomes obligated, in exchange for the
premium, to sell a futures contact, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, which may partially offset an increase in the price of
securities that the Portfolio intends to purchase. However, the Portfolio
becomes obligated to purchase a futures contact, which may have a value lower
than the exercise price. Thus, the loss incurred by the Portfolio in writing
options on futures is potentially unlimited and may exceed the amount of the
premium received. The Portfolio will incur transaction costs in connection
with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. A
Portfolio's ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid market.
ADDITIONAL INFORMATION - ALL FUNDS
The investment adviser's own investment portfolios may include bank
certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments, any of which may also be purchased by
a Portfolio of the Master Trust. The Portfolios may also invest in securities,
interests or obligations of companies or entities which have a deposit, loan,
commercial banking or other business relationship with Bank of America or any
of its affiliates (including outstanding loans to such issuers which may be
repaid in whole or in part with the proceeds of securities purchased by a
Portfolio of the Master Trust).
INVESTMENT RESTRICTIONS
The following restrictions and fundamental policies cannot be changed
for any Fund without the approval of shareholders holding a majority of the
outstanding shares of that Fund. Absent such approval, the Trust may not:
(a) Borrow money for any Fund except for temporary emergency
purposes and then only in an amount not exceeding 5% of the value of the total
assets of that Fund. Borrowing shall, for purposes of this paragraph (a),
include reverse repurchase agreements. Any borrowings, other than reverse
repurchase agreements, will be from banks. The Trust will repay all borrowings
in any Fund before making additional investments for
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that Fund and interest paid on such borrowings will reduce income;
(b) Issue senior securities;
(c) Make loans to other persons, except that a Fund may make time
or demand deposits with banks, provided that time deposits shall not have an
aggregate value in excess of 10% of a Fund's net assets, and may purchase
bonds, debentures or similar obligations that are publicly distributed, may
loan portfolio securities not in excess of 10% of the value of the total assets
of such Fund, and may enter into repurchase agreements as long as repurchase
agreements maturing in more than seven days do not exceed 10% of the value of
the total assets of a Fund;
(d) Purchase on margin or sell short;
(e) Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result more than 5% of
the value of the total assets of any Fund would be invested in the securities
of any one issuer or it would own more than 10% of the voting securities of
such issuer, except that up to 25% of a Fund's total assets may be invested
without regard to these limitations; and provided that a Fund may invest all
its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objectives, policies and
restrictions without regard to the limitations set forth in this paragraph (e);
(f) Pledge, mortgage or hypothecate the assets of any Fund to any
extent greater than 10% of the value of the total assets of that Fund;
(g) Underwrite any issue of securities; provided, however, that
the purchase by a Fund of securities issued by a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objectives, policies and restrictions as such Fund shall not
constitute an underwriting for purposes of this paragraph (g);
(h) Purchase or sell real estate or real estate mortgage loans,
but this shall not prevent investments in instruments secured by real estate or
interests therein or in marketable securities of issuers that engage in real
estate operations;
(i) Purchase or retain securities of an issuer if those members of
the Board of Trustees, each of whom own more than 1/2 of 1% of such securities,
together own more than 5% of the securities of such issuer;
(j) Purchase securities of any other investment company (except in
connection with a merger, consolidation, acquisition
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or reorganization) if, immediately after such purchase, the Trust (and any
companies controlled by it) would own in the aggregate (i) more than 3% of the
total outstanding voting stock of such investment company, (ii) securities
issued by such investment company would have an aggregate value in excess of 5%
of the value of the total assets of the Trust, or (iii) securities issued by
such investment company and all other investment companies would have an
aggregate value in excess of 10% of the value of the total assets of the Trust;
provided, however, that a Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, having
substantially the same investment objectives, policies and restrictions as such
Fund, without regard to the limitations set forth in this paragraph (j);
(k) Invest in or sell put, call, straddle or spread options or
interests in oil, gas or other mineral exploration or development programs;
(l) Purchase or sell commodities contracts, except that any Fund
may purchase or sell futures contracts on financial instruments, such as bank
certificates of deposit and U.S. Government securities, foreign currencies and
stock indexes and options on any such futures if such options are written by
other persons and if (i) the futures or options are listed on a national
securities or commodities exchange, (ii) the aggregate premiums paid on all
such options that are held at any time do not exceed 20% of the total net
assets of that Fund, and (iii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the total
assets of that Fund;
(m) Purchase any securities for any Fund that would cause more
than 25% of the value of the Fund's total assets at the time of such purchase
to be invested in the securities of one or more issuers conducting their
principal activities in the same industry; provided that there is no limitation
with respect to investments in obligations issued or guaranteed by the United
States Government, its agencies and instrumentalities; and provided further
that a Fund may invest all its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objectives, policies and restrictions as the Fund without regard to the
limitations set forth in this paragraph (m); or
(n) Invest the assets of any Fund in nonmarketable securities that
are not readily marketable (including repurchase agreements maturing in more
than seven days, securities described in paragraph (c) above, restricted
securities, certain OTC options and securities used as cover for such options
and stripped mortgage-backed securities) to any extent greater than 10% of the
value of the total assets of that Fund; provided,
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<PAGE> 234
however, that a Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objectives, policies and restrictions as the Fund, without regard to
the limitations set forth in this paragraph (n).
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
assets will not constitute a violation of that restriction. The Portfolios are
subject to the same investment restrictions as the Funds, except that the
Portfolios are not permitted to invest all of their assets in other investment
companies.
For the purposes of investment limitation (m) above, the Master Trust
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 investors, all supranational organizations as a
single industry and each foreign government (and all of its agencies) as a
separate industry.
STATE RESTRICTIONS. In order to permit the sale of a Fund's shares in
certain states, the Trust and the Master Trust may make commitments more
restrictive than the investment policies and limitations described above. As
of the date of this Statement of Additional Information, the Trust has made the
following commitments:
1. The Portfolios will not invest more than 5% of the
value of their net assets in warrants, of which no
more than 2% may be warrants which are not listed on
the New York or American Stock Exchanges.
2. The Portfolios will not invest in oil, gas or other
mineral leases.
3. The Portfolios will not purchase or sell real
property, including limited partnership interests,
but excluding readily marketable interests in Real
Estate Investment Trusts ("REITs") or readily
marketable securities of companies that invest in
real estate or real estate limited partnerships.
4. The Portfolios have agreed to exclude any assets of a
Portfolio which are invested in the shares of any
money market mutual fund for the purposes of
calculating that Portfolio's investment advisory fee.
5. The Portfolios will not purchase or retain the
securities of any issuer if the Officers or
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<PAGE> 235
Trustees of the Master Trust or its investment
adviser, owning beneficially more than one half of
one percent of the securities of an issuer together
own beneficially more than 5% of the securities of
that issuer.
6. The Portfolios will not invest more than 5% of their
total assets in the securities of issuers which
together with any predecessors have a record of less
than three years continuous operation.
7. The Portfolios will not invest more than 15% of its
total assets in the securities of issuers which
together with any predecessors have a record of less
than three years continuous operation or securities
of issuers which are restricted as to disposition.
8. The Portfolios will not invest more than 10% of their
respective total assets in illiquid securities
including securities of foreign issuers which are not
listed on a recognized domestic or foreign securities
exchange.
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.
In the event that the Master Trust makes a determination that any such
commitment is no longer in the best interests of a Portfolio, it may revoke its
commitment. In such event, the corresponding Fund may no longer be able to
sell its securities in such state.
VALUATION OF SHARES
Net asset value per share of each Fund is determined by dividing the
total value of the Fund's assets less any liabilities, including each Fund's
proportionate share of the assets and liabilities of the Master Trust, by the
number of outstanding shares of each Fund. Each Fund will be charged with the
liabilities in respect to such Fund, and will also be charged with a share of
the general liabilities of the Trust proportionate to the net asset value of
such Fund. The value of the assets held in each Fund is determined at 1:00
p.m. Seattle, Washington time on each valuation date. A "valuation date" is
each such date when both the New York Stock Exchange and Seafirst are open for
business; for 1996, the holidays on which either one or both are closed are:
Martin Luther King Jr. Day, Presidents
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<PAGE> 236
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Veterans Day, Thanksgiving Day and Christmas Day.
As the assets of each Fund are comprised of interests of the
corresponding Portfolio of the Master Trust, the value of a Fund's assets
depends on the net asset value per share of such Portfolio. PFPC, Inc.
("PFPC") determines the net asset value per share of each Portfolio in the same
manner as described above. Except for debt securities held by the Portfolios
with remaining maturities of 60 days or less, assets for which market
quotations are available are valued as follows: (a) each listed security is
valued at its closing price obtained from the primary exchange on which the
security is listed, or, if there were no sales on that day, at its last
reported current closing price; (b) each unlisted security is valued at the
last current bid price (or last current sale price, as applicable) obtained
from the NASDAQ; (c) United States Government and agency obligations are valued
based upon bid quotations from the Federal Reserve Bank for identical or
similar obligations; (d) short-term money market instruments (such as
certificates of deposit, bankers' acceptances and commercial paper) are most
often valued by bid quotations or by reference to bid quotations of available
yields for similar instruments of issuers with similar credit ratings. The
Board of Trustees of the Master Trust has determined that the values obtained
using the procedures described in (c) and (d) represent the fair values of the
securities valued by such procedures. Most of these prices are obtained by
PFPC from a service that collects and disseminates such market prices. Bid
quotations for short-term money market instruments reported by such service are
the bid quotations reported to it by major dealers in such instruments.
Debt securities held by the Portfolios with remaining maturities of 60
days or less are valued on the basis of amortized cost, which provides
stability of net asset value. Under this method of valuation, the security is
initially valued at cost on the date of purchase or, in the case of securities
purchased with more than 60 days remaining to maturity and to be valued on the
amortized cost basis only during the final 60 days of its maturity, the market
value on the 61st day prior to maturity. Thereafter the Master Trust assumes a
constant proportionate amortization in value until maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the security, unless the Board of Trustees determines that amortized
cost no longer represents fair value. The Master Trust will monitor the market
value of these investments for the purpose of ascertaining whether any such
circumstances exist.
When approved by the Board of Trustees of the Master Trust, certain
securities may be valued on the basis of valuations provided by an independent
pricing service when such prices are
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<PAGE> 237
believed to reflect the fair market value of such securities. These securities
may include those that have no available recent market value, have few
outstanding shares and therefore infrequent trades, or for which there is a
lack of consensus on the value, with quoted prices covering a wide range. The
lack of consensus might result from relatively unusual circumstances such as no
trading in the security for long periods of time, or a company's involvement in
merger or acquisition activity, with widely varying valuations placed on the
company's assets or stock. Prices provided by an independent pricing service
may be determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data.
In the absence of an ascertainable market value, assets are valued at
their fair value as determined using methods and procedures reviewed and
approved by the Board of Trustees of the Master Trust.
The Trust may or may not declare dividends with respect to a Fund. If
no dividend is declared, income earned by the Fund will continue to be included
in the total value of the assets of that Fund. Each Fund records its allocable
portion of the net investment income and realized and unrealized gains of the
corresponding Portfolio on a daily basis as an adjustment to the value of its
investment in such Portfolio. Net investment income includes interest income,
dividend income, and expenses. Dividend income is recorded by the Portfolio on
the ex dividend date.
The computation of the hypothetical offering price per share of each
Fund based on the value of each Fund's net assets on February 29, 1996 and each
Fund's outstanding securities on such date is as follows:
<TABLE>
<CAPTION>
BOND BLUE CHIP ASSET ALLOCATION
FUND FUND FUND
------------- ------------ ----------------
<S> <C> <C> <C>
Net Assets $47,061,651 $206,220,407 $158,484,635
Outstanding Shares 4,330,357 9,778,995 10,592,206
Net Asset Value, Offering Price and $ 10.87 $ 21.09 $ 14.96
Redemption Price
Per Share
</TABLE>
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES AND OFFICERS. The business and affairs of the Trust
are managed under the direction of the Board of
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<PAGE> 238
Trustees of the Trust. The members of the Board of Trustees and the officers
of the Trust, their addresses, ages and principal occupations for the last five
years are as follows:
<TABLE>
<CAPTION>
Position With
Name and Address Age the Trust Principal Occupation
---------------- --- ---------- --------------------
<S> <C> <C> <C>
Robert A. Nathane* 77 Chairman and Retired President Laird Norton Trust
1200 Shenandoah Dr. East Trustee Company. Chairman of Board of Advisors,
Seattle, WA 98112 Phoenix Venture Fund; Trustee, Master
Investment Trust, Series I; Trustee, Master
Investment Trust, Series II; former
Supervisor Collective Investment Trust for
Seafirst Retirement Accounts; former
Trustee, First Funds of America (registered
investment companies).
Kermit O. Hanson 80 Trustee Vice-Chairman of the Advisory Board 1988 to
17760 14th Ave., N.W. date; Executive Director 1977 to 1988,
Seattle, WA 98177 Pacific Rim Bankers Program (a non-profit
educational institution); Dean Emeritus 1981
to date; Dean 1964 - 1981, Graduate School
of Business Administration, University of
Washington; Director, Washington Federal
Savings & Loan Association; Director,
Pacific Horizon Funds, Inc.
John P. Privat 61 Trustee Retired. Former Vice-President, Seattle-
8852 N.E. 24th St. First National Bank; Chairman, Whitman
Bellevue, WA 98004 College Investment Committee.
Duane H. Thompson 71 Trustee Investment Consultant. Former President,
10939 West Kingston Road Unigard Insurance Company; Trustee, First
P.O. Box 384 Cash Funds of America. Director, Washington
Kingston, WA 98346 Hospital Insurance Fund and Washington
Casualty Insurance Co.; former member of
Board of Supervisors, CIT.
Richard E. Stierwalt 40 President President, April 1996 to date, prior thereto
125 W. 55th Street Chairman of the Board and Chief Executive
New York, NY 10019 Officer, July 1993 to April 1996, prior
thereto Senior Director, Managing Director
and Chief Executive Officer of Concord and
Distributor, February 1987 to July 1993;
President, Master Investment Trust,
Series I, and Master Investment Trust,
Series II (since 1993); Executive Vice
President, Pacific Horizon Funds, Inc.;
First Vice President, Trust Operation
Administration, Security Pacific National
Bank, 1983-1987.
</TABLE>
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<PAGE> 239
<TABLE>
<CAPTION>
Position With
Name and Address Age the Trust Principal Occupation
---------------- --- ---------- --------------------
<S> <C> <C> <C>
William B. Blundin 57 Executive Vice Chairman, July 1993 to date, prior
125 W. 55th Street Vice thereto Director and President of Concord
New York, NY 10019 President and Distributor, February 1987 to July 1993;
Executive Vice President, Pacific Horizon
Funds, Inc. and Master Investment Trust,
Series II; Senior Vice President, Shearson
Lehman Brothers, 1978-1987.
Irimga McKay 35 Vice Senior Vice President, July 1993 to date,
1230 Columbia Street President prior thereto First Vice President of
5th Floor Concord and Distributor, November 1988 to
La Jolla, CA 92037 July 1993; Vice President, Pacific Horizon
Funds, Inc. and Master Investment Trust,
Series II; 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.
Stephanie L. Blaha 36 Assistant Manager of Client Services of Concord, March
BISYS Fund Services Vice 1995 to date, prior thereto Assistant Vice
3435 Stelzer Road President President of Concord and Distributor,
Columbus, OH 43219 October 1991 to March 1995; Vice President,
Pacific Horizon Funds, Inc., Master
Investment Trust, Series I and Master
Investment Trust, Series II; Account
Manager, AT&T American Transtech, Mutual
Fund Division, July 1989 to October 1991.
Mark E. Nagle 36 Treasurer Senior Vice President, Fund Accounting
BISYS Fund Services Services The BISYS Group, Inc., September
3435 Stelzer Road 1995 to Present; Treasurer, Pacific Horizon
Columbus, OH 43219 Funds, Inc. and Master Investment Trust,
Series II; Senior Vice President, Fidelity
Institutional Retirement Services (1993 to
September 1995); Fidelity Accounting &
Custody Services (1981 to 1993).
Martin R. Dean 31 Assistant Senior Compliance and Registration Analyst,
3435 Stelzer Road Treasurer June 1995 to present, prior thereto Manager
Columbus, OH 43219 of Fund Accounting of BISYS Fund Services,
May 1994 to June 1995; Assistant Treasurer,
Pacific Horizon Funds, Inc. and Master
Investment Trust, Series II; Senior Manager
at KPMG Peat Marwick previously 1990-1994.
</TABLE>
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<PAGE> 240
<TABLE>
<CAPTION>
Position With
Name and Address Age the Trust Principal Occupation
---------------- --- ---------- --------------------
<S> <C> <C> <C>
W. Bruce McConnel, III 52 Secretary Partner of the law firm of Drinker Biddle &
Suite 1100 Reath; Secretary, Master Investment Trust,
1345 Chestnut Street Series I and Master Investment Trust,
Philadelphia, PA 19107 Series II.
George Martinez 35 Assistant Senior Vice President and Director of Legal
3435 Stelzer Road Secretary and Compliance Services, BISYS Fund
Columbus, OH 43219 Services, since April 1995; prior thereto,
Vice President and Associate General
Counsel, Alliance Capital Management L.P.
</TABLE>
- --------------------------
*/ Mr. Nathane is an "interested trustee" of the Trust as defined in the 1940
Act.
Each trustee receives an aggregate annual fee of $4,000 plus $500 per
diem for each travel day and $500 per diem for each Board meeting attended for
his services as trustee of the Trust. Each trustee is also reimbursed for out-
of-pocket expenses incurred as a trustee. During the fiscal year ended
February 29, 1996, the Trust paid or accrued for the account of its trustees as
a group for services in all capacities a total of $17,000, of which $5,666,
$5,666 and $5,668 was allocated to the Bond Fund, Blue Chip Fund and Asset
Allocation Fund, respectively.
As of the date of this Statement of Additional Information, the
Members of the Board of Trustees and the officers of the Trust, as a group, own
less than 1% of the outstanding shares of the Trust.
ADMINISTRATION AGREEMENT. The Administration and Transfer Agency
Agreement dated December 6, 1993 between Seafirst and the Trust (the
"Administration Agreement") will remain in effect until October 31, 1996 and
from year to year thereafter with respect to each Fund if its continuance is
approved annually by the Board of Trustees, and by the vote of a majority of
the members of the Board of Trustees who are not parties to the Agreement or
"interested persons" of a party within the meaning of the Investment Company
Act of 1940. The Administration Agreement can be terminated as to any Fund by
the Trust on sixty days' notice to Seafirst, or by Seafirst on ninety days'
notice to the Trust, and will terminate automatically if it is assigned.
Services for which Seafirst is responsible include providing the Trust with
facilities and equipment, statistical and research data, data processing
services, and clerical, accounting and bookkeeping services, internal auditing
and legal services; coordinating the preparation of reports to shareholders of
the
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<PAGE> 241
Funds and reports to the SEC; preparing tax returns; maintaining books and
records of the Funds; preparing and distributing all documents and materials in
connection with meetings of the Trust's Board of Trustees; performing customary
services of a transfer and dividend disbursing agent; and generally assisting
in all aspects of the operation of the business and affairs of the Funds.
Seafirst has entered into a Sub-Administration Agreement with Concord
whereby Concord has agreed to provide officers and certain administrative and
compliance monitoring services to the Funds. For its services, Concord is
entitled to a fee from Seafirst, and not the Funds, at the annual rate of 0.06%
of each Fund's average daily net assets.
The Administration Agreement provides that Seafirst shall not be
liable for any error of judgment or mistake of law, or for any loss suffered by
any Fund, except losses resulting from Seafirst's willful misfeasance, bad
faith or negligence in the performance of its duties or from its reckless
disregard of its obligations and duties under the Agreement.
For its services, Seafirst is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.29% of each Fund's average daily net
assets.
For the fiscal years indicated and for the period from December 6,
1993 (date of the Reorganization) through February 28, 1994, Seafirst received
administration fees, net of waivers, as follows:
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<PAGE> 242
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Period From December 6, 1993
February 29, February 28, (date of the Reorganization)
Fund 1996 1995 Through February 28, 1994
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond $150,228 $135,914 $ 0
--------------------------------------------------------------------------------------------------------------------------
Blue Chip $520,689 $407,174 $46,558
--------------------------------------------------------------------------------------------------------------------------
Asset Allocation $442,743 $433,190 $73,308
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Seafirst has agreed to waive fees payable to it to the extent any
Fund's expenses exceed an annual rate of 0.95% of average daily net assets.
For the fiscal years indicated and for the period from December 6,
1993 (date of the Reorganization) through February 28, 1994, Seafirst waived
administration fees with respect to the Funds as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Period From
December 6, 1993
Year Ended Year Ended (date of the Reorganization)
February 29, February 28, Through February 28, 1994
Fund 1996 1995
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond $61,604 $48,798 $64,570
----------------------------------------------------------------------------------------------------------------
Blue Chip $ 0 $ 3,796 $40,442
----------------------------------------------------------------------------------------------------------------
Asset Allocation $ 0 $ 3,380 $30,692
----------------------------------------------------------------------------------------------------------------
</TABLE>
EXPENSES OF THE TRUST. Except for the expenses described in the
Prospectus that have been assumed by Seafirst, all expenses incurred in the
administration of the Trust are charged to the Trust, including: (i) expenses
of the Master Trust (discussed below); (ii) fees and expenses of members of the
Board of Trustees who are not affiliated with Seafirst; (iii) interest charges;
(iv) taxes; (v) expenses of continuing registration and qualification of the
Trust and the shares under federal and state law; (vi) expenses of the issue
and redemption of shares; (vii) fees and disbursements of independent
accountants and legal counsel; (viii) expenses of preparing, printing and
mailing prospectuses (except the cost of printing and mailing of prospectuses
to potential IRA and pension trust customers of Seafirst, which is paid by
Seafirst), reports, proxies, notices and statements sent to shareholders; (ix)
expenses of meetings of shareholders; (x) association membership dues; (xi)
insurance premiums; and (xii) nonrecurring expenses including any expenses
relating to litigation to which the Trust is a party. Expenses incurred for
the operation of a particular Fund, including the
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<PAGE> 243
expenses of communications to shareholders, are paid by that Fund. Expenses
that are general liabilities of the Trust are allocated among the Funds in
proportion to the net asset value of each Fund at the time of allocation.
FORMER INVESTMENT MANAGEMENT AGREEMENT. Prior to the Reorganization,
Seafirst performed all administrative services on behalf of CIT, as well as
managing the investment of the assets of the CIT Funds in conformity with the
stated objectives and policies of the CIT Funds, pursuant to an investment
management agreement dated April 22, 1992 with CIT. For its services under the
investment management agreement, Seafirst was paid a monthly management fee at
the annual rate of .95 of 1% of the first $250,000,000 of the average daily net
assets of each of the CIT Funds, .85 of 1% of the next $250,000,000 of such
assets, and .75 of 1% of such assets in excess of $500,000,000.
The total dollar amount paid to Seafirst under the investment
management agreement for the period January 1, 1993 through December 5, 1993
(date of the Reorganization) was $2,364,123 (including fees with respect to a
money market series of the Trust that was terminated on October 25, 1993 of
$167,514).
SHAREHOLDER SERVICE PLAN. The Trust has adopted a Shareholder Service
Plan (the "Plan") under which the Trust pays for non-distribution shareholder
servicing expense incurred in connection with shares of the Fund. The Plan
will continue until October 31, 1996, and thereafter will continue
automatically for successive annual periods provided such continuance is
specifically approved at least annually. Under the Plan, payments may not
exceed an annual rate of .25% of each Fund's average daily net assets. Said
fee will be computed daily and payable monthly. The fee rate stated above may
be prospectively increased or decreased by mutual consent, with the approval of
each Fund affected thereby.
For the fiscal years ended February 29, 1996, February 28, 1995 and
for the period from December 6, 1993 (date of the Reorganization) through
February 28, 1994, the Funds paid the following amounts to Seafirst in
connection with the Plan:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Bond Fund $129,465 $159,515 $47,053
Blue Chip Fund $448,869 $353,599 $74,829
Asset Allocation Fund $381,675 $373,298 $89,686
</TABLE>
Payments for shareholder service expenses are not subject to Rule
12b-1 (the "Rule") under the 1940 Act. (Although such
-29-
<PAGE> 244
provisions are not required by the Rule, the Plan contains similar provisions
to the Rule, including quarterly review by the trustees of the Trust of amounts
expended and the purposes for such expenditures, except that shareholder
approval is not required to increase materially the shareholder service
expenses paid by the Fund.
The Plan is subject to annual re-approval by a majority of the
trustees who are neither "interested persons" (as that term is defined in the
1940 Act) of the Trust nor have any direct or indirect financial interest in
the operation of the Plan adopted by the Funds regarding the provision of
support services in connection with the shares or in any agreement related
thereto cast in person at a meeting called for the purpose of voting on such
approval ("Disinterested Trustees").
MANAGEMENT OF THE MASTER TRUST
BOARD OF TRUSTEES AND OFFICERS. The business and affairs of the
Master Trust are managed under the direction of the Board of Trustees of the
Master Trust. The members of the Board of Trustees and the officers of the
Master Trust, and their addresses, ages and principal occupations for the past
five years are as follows:
<TABLE>
<CAPTION>
Name and Address Age Position with the Master Trust Principal Occupation
---------------- --- ------------------------------ --------------------
<S> <C> <C> <C>
Thomas M. Collins 61 Chairman of the Board Of Counsel to the law firm of McDermott &
McDermott & Trayner Trayner; Partner of the law firm of
225 South Lake Avenue, Musick, Peeler & Garrett until April 1993;
Suite 410 Director, Pacific Horizon Funds, Inc.
Pasadena, CA 91101 (since 1982), former director, Bunker Hill
Income Securities, Inc. (1986-1991)
(registered investment companies).
Michael Austin 59 Trustee Chartered Accountant; Trustee, Master
Victory House Investment Trust, Series II; Retired
Nelson Quay Partner, KMPG Peat Marwick LLP.
Governour's Harbour
Grand Cayman
Cayman Islands
British West Indies
Robert E. Greeley 62 Trustee Chairman, Page Mill Asset Management (a
Page Mill Asset Management private investment company) since 1991;
433 California Street Manager, Corporate Investments, Hewlett
Suite 900 Packard Company from 1979 to 1991;
San Francisco, CA 94104 Trustee, Master Investment Trust, Series
II; Director, Morgan Grenfell Small-Cap
Fund (since 1986), former Director, Bunker
Hill Income Securities, Inc. (since 1989)
(registered investment companies); former
Trustee, SunAmerica Fund Group (previously
Equitec Siebel Fund Group) from 1984 to
1992.
</TABLE>
-30-
<PAGE> 245
<TABLE>
<CAPTION>
Name and Address Age Position with the Master Trust Principal Occupation
---------------- --- ------------------------------ --------------------
<S> <C> <C> <C>
Robert A. Nathane* 70 Trustee See "Management of the Trust."
1200 Shenandoah Drive East
Seattle, WA 98112
Cornelius J. Pings* 66 Trustee President, Association of American
Association of American Universities, February 1993 to date;
Universities Provost, 1982 to January 1993, Senior Vice
One DuPont Circle President for Academic Affairs, 1981 to
Suite 730 January 1993, University of Southern
Washington, DC 20036 California; Chairman of the Board of
Directors of Pacific Horizon Funds, Inc.
Richard E. Stierwalt 40 President See "Management of the Trust."
125 West 55th Street
New York, NY 10019
W. Bruce McConnel, III Secretary See "Management of the Trust."
1345 Chestnut Street
Philadelphia, PA 19107
Adrian Waters 32 Executive Vice President, Managing Director of Concord Management
Floor 2, Block 2 Treasurer, and (Ireland) Limited since May 1993;
The Harcourt Centre Assistant Chartered Accountant in the Investment
Dublin 2, Ireland Secretary Company Industry Services Group, Price
Waterhouse New York, 1989 to 1993; Member
of Oliver Freaney & Co./ Spicer &
Oppenheim Chartered Accountants, 1986 to
1989.
Stephanie L. Blaha 36 Vice President See "Management of the Trust."
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
_____________________
* Mr. Nathane is an "interested trustee" of the Master Trust as defined in the
Investment Company Act of 1940.
Each trustee receives an aggregate annual fee of $3,000 ($5,000 in the
case of any trustee who is not also a trustee of a feeder fund of one of the
Portfolios), plus $500 per meeting attended and $500 per day in connection with
each full day spent in travelling to or from meetings, for his services as
trustee of the Master Trust. Each trustee is also reimbursed for out-of-pocket
expenses incurred as a trustee. For the fiscal year ended February 29, 1996,
the Master Trust paid or accrued for the account of its trustees as a group for
services in all capacities a total of $14,256; of that amount $3,500, $3,500
and $3,500 was allocated to the Bond, Blue Chip and Asset Allocation
Portfolios, respectively.
-31-
<PAGE> 246
As of the date of this Statement of Additional Information, the
trustees and officers of the Master Trust, as a group, own less than 1% of the
outstanding shares of the Master Trust.
The following chart provides certain information as of February 29,
1996 about the fees received by trustees of the Trust and as directors and/or
trustees of the Fund Complex:
<TABLE>
<CAPTION>
======================================================================================================================
TOTAL COMPENSATION
FROM REGISTRANT
AGGREGATE COMPENSATION AND FUND COMPLEX*
NAME OF PERSON/POSITION FROM THE TRUST PAID TO TRUSTEES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert A. Nathane, Chairman of the $5,000 $8,500
Board
- ----------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $4,000 $4,000
Trustee
- ----------------------------------------------------------------------------------------------------------------------
John P. Privat $4,000 $4,000
Trustee
- ----------------------------------------------------------------------------------------------------------------------
Duane H. Thompson $4,000 $4,000
Trustee
======================================================================================================================
</TABLE>
________________________
*The "Fund Complex" consists of the Trust, Pacific Horizon Funds, Inc., Master
Investment Trust, Series I, Master Investment Trust, Series II, Time Horizon
Funds and World Horizon Funds.
INVESTMENT ADVISORY AGREEMENT. Under the Investment Advisory
Agreement (the "Advisory Agreement") dated November 1, 1994, between Bank of
America and the Master Trust, Bank of America, as investment adviser, is
responsible for management of the investment of the assets of each of the
Portfolios in conformity with the stated objectives and policies of the
Portfolios. As compensation for its services under the Advisory Agreement,
Bank of America is entitled to a fee for its services, at an annual rate of
.45% of the average daily net assets of the Bond Portfolio, .55% of the average
daily net assets of the Asset Allocation Portfolio, and .75% of the average
daily net assets of the Blue Chip Portfolio.
For the fiscal years indicated and for the period from December 6,
1993 (date of the Reorganization) through
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<PAGE> 247
February 28, 1994, the following advisory fees (net of waivers) were paid or
payable to Bank of America by the Portfolios as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Period From
December 6, 1993
Year Ended Year Ended (date of Reorganization)
February 29, February 28, Through
Portfolio 1996 1995 February 28, 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond $ 0 $0 $0
- ------------------------------------------------------------------------------------------------------------------
Blue Chip $410,060 $0 $0
- ------------------------------------------------------------------------------------------------------------------
Asset Allocation $193,401 $0 $0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years or periods indicated, Bank of America waived
advisory fees with respect to the Portfolios as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Period From
December 6, 1993
Year Ended Year Ended (date of Reorganization)
February 29, February 28, Through
Portfolio 1996 1995 February 28, 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond $ 269,393 $ 293,211 $ 84,856
- ---------------------------------------------------------------------------------------------------------------------
Blue Chip $1,164,358 $1,091,132 $225,019
- ---------------------------------------------------------------------------------------------------------------------
Asset Allocation $ 720,259 $ 849,188 $197,611
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Bank of America is authorized by the Advisory Agreement to employ or
associate with itself such persons as it believes are appropriate to assist it
in the performance of its duties. Any such person is required to be
compensated by Bank of America, not by the Master Trust, and to be approved by
the interestholders of the Master Trust as required by the 1940 Act. In
addition, the agreement provides that Bank of America may, in its discretion,
provide advisory services through its own employees or employees of one or more
of its affiliates that are under the common control of Bank of America's
parent, BankAmerica Corporation; provided such employees are under the
management of Bank of America.
The Advisory Agreement 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 Master Trust or a Portfolio in connection with the performance of the
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. Bank of America is as fully responsible
-33-
<PAGE> 248
to the Master Trust for the acts of any sub-adviser as it is for its own acts.
Each Portfolio of the Master Trust is responsible for its operating
expenses (other than those assumed by Bank of America and Concord) including,
but not limited to, the advisory fee; administration fees; taxes, if any;
custodian, legal and auditing fees; fees and expenses of trustees who are not
interested persons of Bank of America; insurance premiums; trade association
dues; printing and other expenses relating to the Portfolio's operations; and
any extraordinary and non-recurring expenses (unless expressly assumed by
others).
The Advisory Agreement provides that Bank of America will maintain its
policy of conducting its investment management and advisory activities
independently of its commercial banking operations. Therefore, in making
investment decisions with respect to the Portfolio's portfolio securities, Bank
of America will not inquire or consider whether issuers of the securities are
customers of its commercial banking department, nor will it obtain, or seek to
obtain, any information from the commercial banking department with respect to
any issuer of securities.
The Advisory Agreement will be in effect until October 31, 1996, and
will continue in effect from year to year with respect to the Portfolio
thereafter only so long as such continuation is approved at least annually by
(1) the Board of Trustees of the Master Trust or the vote of a "majority," as
defined in the 1940 Act, of the outstanding voting securities of the Portfolio,
and (2) a majority of those trustees who are neither parties to the Advisory
Agreement nor "interested persons," as defined in the 1940 Act, of any such
party, acting in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement will terminate automatically in the event of
its "assignment," as defined in the 1940 Act. In addition, the Advisory
Agreement is terminable with respect to any Portfolio at any time without
penalty by the Board of Trustees of the Master Trust or by vote of holders of a
majority of the Portfolio's outstanding voting securities upon 60 days' written
notice to Bank of America and by Bank of America on 60 days written notice to
the Master Trust.
MASTER TRUST ADMINISTRATION AGREEMENT. Concord, with offices at 125
W. 55th Street, New York, New York 10019, and 3435 Stelzer Road, Columbus, OH
43219, is an indirect wholly-owned subsidiary of The BISYS Group, Inc. and is
responsible for providing administrative services to the Master Trust as
described in the Prospectus pursuant to the Master Trust Administration
Agreement. Among other responsibilities, Concord provides a facility to
receive purchase and redemption orders; provides statistical and research data,
data processing services, clerical, accounting and bookkeeping services, and
internal auditing and legal services; coordinates the preparation of reports to
investors and reports to the Securities and Exchange Commission; prepares tax
returns; maintains or oversees
-34-
<PAGE> 249
maintenance of books and records of the Portfolios; calculates the net asset
value of the shares; and generally assists in all aspects of the Portfolios'
operations. The Master Trust Administration Agreement will continue in effect
until October 31, 1996 and thereafter will be automatically extended for
successive periods of one year with respect to a particular Portfolio if such
continuation is approved annually by the Board of Trustees of the Master Trust
or by a vote of a "majority," as defined in the 1940 Act, of the outstanding
voting securities of such Portfolio, and by a majority of those trustees who
are neither parties to the Master Trust Administration Agreement nor
"interested persons," as defined in the 1940 Act, of any such party. The
Master Trust Administration Agreement is terminable at any time with respect to
a particular Portfolio by the Master Trust's Board of Trustees or by a vote of
a majority of the Portfolio's outstanding voting securities upon 60 days'
written notice to Concord, or by Concord upon 90 days' notice to the Master
Trust.
During the course of the Master Trust's fiscal year, Concord and Bank
of America may prospectively waive payment of fees and/or assume certain
expenses of a Portfolio, as a result of competitive pressures and in order to
preserve and protect the business and reputation of Concord and Bank of
America. This will have the effect of increasing the yield to investors at the
time such fees are not received or amounts are assumed and decreasing the yield
when such fees or amounts are not waived or assumed.
The Master Trust has agreed to pay Concord a fee for its services as
administrator, accrued daily and payable monthly at the annual rate of 0.05% of
the average daily net assets of the Asset Allocation, Blue Chip and Bond
Portfolios.
For the fiscal years indicated and for the period December 6, 1993
(date of the Reorganization) through February 28, 1994, the following
administration fees (net of waivers) were paid or payable to Concord by the
Portfolios as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Period From
December 6, 1993
Year Ended Year Ended (date of Reorganization)
February 29, February 28, Through
Portfolio 1996 1995 February 28, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond $ 0 $0 $0
- -------------------------------------------------------------------------------------------------------------------------
Blue Chip $26,967 $0 $0
- -------------------------------------------------------------------------------------------------------------------------
Asset Allocation $17,569 $0 $0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years or periods indicated, Concord waived
administration fees with respect to the Portfolios as follows:
-35-
<PAGE> 250
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Period From
December 6, 1993
Year Ended Year Ended (Date of Reorganization)
February 29, February 28, Through
Portfolio 1996 1995 February 28, 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond $30,602 $33,431 $ 9,429
- --------------------------------------------------------------------------------------------------------------------
Blue Chip $77,922 $72,742 $15,001
- --------------------------------------------------------------------------------------------------------------------
Asset Allocation $65,491 $79,573 $17,965
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Master Trust Administration Agreement provides that Concord shall
not be liable for any error of judgment or mistake of law for any loss suffered
by the Master Trust in connection with the performance of the Master Trust
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties or from the reckless
disregard by it of its obligations and duties thereunder.
Messrs. Stierwalt and Waters, and Ms. Blaha, officers of the Master
Trust, are also employees and/or officers of Concord.
Pursuant to the authority granted in the Master Trust Administration
Agreement, Concord has entered into an agreement with PFPC under which PFPC
performs certain services for the Portfolios, such as calculating income and
capital gains allocations to shareholders and maintaining the books and records
of each Portfolio.
CUSTODIAN. PNC Bank, National Association, acts as custodian of the
Portfolios pursuant to a Custodian Agreement. The Custodian (i) maintains a
separate account or accounts in the name of each Portfolio, (ii) holds and
disburses portfolio securities on account of each Portfolio, (iii) receives and
disburses money on behalf of each Portfolio, (iv) collects and receives all
income and other payments and distributions on account of each Portfolio's
portfolio securities held by the Custodian, (v) responds to correspondence from
security brokers and others relating to its duties and (vi) makes periodic
reports to the Board of Trustees of the Master Trust concerning its duties
thereunder. Under the Custodian Agreement, each Portfolio will reimburse the
Custodian for its costs and expenses in providing services thereunder.
COUNSEL. Drinker Biddle & Reath (of which Mr. McConnel, Secretary of
the Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania,
19107, is counsel for the Trust and the Master Trust, and will pass upon the
legality of the shares offered hereby.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the
Americas, New York, New York 10036, has been selected as
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<PAGE> 251
the independent accountants of each Fund and their corresponding Portfolio for
the fiscal year ending February 28, 1997.
PORTFOLIO TRANSACTIONS
The 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 portfolio securities. The calculation excludes all securities
whose maturities at the time of acquisition were one year or less. Portfolio
turnover may vary greatly from year to year as well as within a particular
year, and may also be affected by cash requirements for redemptions of shares
and by requirements which enable the Trust to receive certain favorable tax
treatment. Portfolio turnover will not be a limiting factor in making
portfolio decisions.
<TABLE>
<CAPTION>
========================================================================================================
Year Ended Year Ended
February 29, 1996 February 28, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bond Portfolio 172% 240%
- --------------------------------------------------------------------------------------------------------
Blue Chip Portfolio 108% 44%
- --------------------------------------------------------------------------------------------------------
Asset Allocation Portfolio 157% 142%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Subject to the general control of the Master Trust's trustees, Bank of
America is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for each Portfolio.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. There is generally no stated commission in the case of
securities traded in the over-the-counter market, but the price includes an
undisclosed commission or mark-up. The cost of securities purchased from
underwriters 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. Purchases and sales of fixed income securities are
normally principal transactions without brokerage commissions.
For the fiscal years or periods indicated, the Blue Chip and Asset
Allocation Portfolios paid the following brokerage commissions:
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<PAGE> 252
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Period from
December 6,
1993
(date of Reorganization)
Year Ended Year Ended through
February 29, 1996 February 28, 1995 February 28, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Portfolio $428,667 $202,817 $270,323
- -----------------------------------------------------------------------------------------------------
Asset Allocation Portfolio $175,966 $152,778 $ 21,798
- -----------------------------------------------------------------------------------------------------
</TABLE>
For the period from January 1, 1993 through December 5, 1993 (the date
of the Reorganization) the predecessor CIT Funds corresponding to the Asset
Allocation and Blue Chip Funds paid aggregate brokerage commissions of $28,838.
During the fiscal years or periods indicated, neither the Bond Portfolio nor
its predecessor CIT Fund paid any brokerage commissions.
In executing portfolio transactions and selecting brokers or dealers,
it is the Portfolios' policy to seek the best overall terms available. The
Advisory Agreement between the Trust 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 Advisory Agreement authorizes Bank of America, subject to the
approval of the Board, to cause a Portfolio 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 Portfolio. 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.
It is possible that certain of the brokerage and research services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, a
particular Portfolio 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.
Brokerage and 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. Such services may be
useful to Bank of America in
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<PAGE> 253
serving both the Portfolios 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 Portfolios. In connection with
its investment management services with respect to the Portfolios, Bank of
America will not acquire certificates of deposit or other securities issued by
it or its affiliates. Affiliates of Bank of America include Seafirst, Seafirst
Corporation and BankAmerica Corporation, and their subsidiaries, officers and
directors. In addition, portfolio securities in general will be purchased from
and sold to affiliates of the Portfolios, Bank of America, the Distributor and
their affiliates acting as principal, underwriter, syndicate member,
market-maker, dealer, broker or in any similar capacity, provided such
purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder.
A Portfolio may participate, if and when practicable, in bidding for
the purchase of securities of the U.S. Government and its agencies and
instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Portfolio will
engage in this practice only when Bank of America, in its sole discretion
subject to guidelines adopted by the Board, believes such practice to be in the
interest of the Portfolio.
To the extent permitted by law, Bank of America may aggregate the
securities to be sold or purchased on behalf of the Portfolios with those to be
sold or purchased for other investment companies or common trust funds in order
to obtain best execution.
The Trust is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act or their
parents held by the Trust as of the close of its most recent fiscal year. As
of February 29, 1996: (a) the Bond Portfolio held the following securities,
Morgan Stanley Group medium term note in the amount of $2,000,000 and Merrill
Lynch Mtg. Inv. Inc $16,000 (b) the Blue Chip Portfolio held the following
securities, Dean Witter common stock in the principal amount of $2,821,875; and
(c) the Asset Allocation Portfolio held the following securities, Dean Witter
common stock in the principal amount of $1,085,750; Lehman Brothers corporate
obligations in the principal amount of $981,250; Morgan Stanley Group medium
term note in the principal amount of $1,483,125; Merrill Lynch & Co., Inc.
collateralized mortgage obligation in the principal amount of $8,000; and
Merrill Lynch commercial paper in the principal amount of $3,500,000.
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 Trust.
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<PAGE> 254
PERFORMANCE INFORMATION
As indicated above, the Funds are the successors to the CIT Funds.
Certain of the performance information contained in this Statement of
Additional Information therefore relates to the CIT Funds which were the
predecessors of the corresponding Funds.
All performance information, including rankings compiled by
independent organizations ( e.g., Lipper Analytical Services, Inc.), included
in any advertising by the Funds is historical and is not intended to indicate
future returns. A Fund's share price, yield and total return fluctuate in
response to market conditions and other factors, and the value of a Fund's
shares when redeemed or exchanged may be more or less than their original cost.
YIELD CALCULATIONS. The yield quotation based upon the 30-day period
ending February 29, 1996 was computed by dividing net investment income per
share earned during the period by the net asset value per share on the last day
of the period, in accordance with the following formula:
a-b
Yield = 2[(------- +1)6 -1]
cd
where a = dividends and interest earned
b = expenses accrued for the period (net of reimbursements)
c = average daily number of units outstanding during the period
d = offering price per unit on the last day of the period
Interest income calculated for purposes of the yield calculation is
determined according to prescribed methods applicable to all stock and bond
funds. Because yield accounting differs from methods used for other accounting
purposes, a Fund's yield may not equal the rate of income reported in the
Fund's financial statements.
Based on the foregoing calculations, for the 30-day period ended
February 29, 1996, the yield on the Bond Fund was 5.02% and the yield on the
Asset Allocation Fund was 3.04%.
TOTAL RETURN CALCULATIONS. Total return determines the net change in
value, including reinvested earnings, after deduction of expenses, of a
hypothetical $1,000 investment.
Average annual total return is computed by determining the growth or
decline in the value of a hypothetical $1,000 investment in a fund over a
stated period of time, then calculating the average annual compounded
percentage rate which would give the same ending value as if the growth or
decline had been constant over the period. Stated mathematically:
-40-
<PAGE> 255
P(1+T)n = ERV
where P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period at the end of the
same period
Based on the foregoing calculations, the 1) average annual total
returns, and 2) the aggregate total returns for the Bond, Blue Chip and Asset
Allocation Funds (including the CIT Funds) for the years or periods indicated
were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Average Annual Total Returns
- ------------------------------------------------------------------------------------------------------------
One-Year Five-Year Period from March 9, 1988
Period Ended Period Ended (commencement of operations)
February 29, 1996 February 29, 1996 through February 29, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Fund 9.90% 7.08% 8.01%
- ------------------------------------------------------------------------------------------------------------
Blue Chip Fund 33.37% 14.06% 14.78%
- ------------------------------------------------------------------------------------------------------------
Asset Allocation Fund 22.44% 11.06% 11.60%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Aggregate Total Returns
- -------------------------------------------------------------------------------------------------------------
Period from
March 9, 1988
One-Year Period Five-Year (commencement of operations)
Ended Period Ended through
February 29, 1996 February 29, 1996 February 29, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Fund 9.90% 40.86% 84.96%
- -------------------------------------------------------------------------------------------------------------
Blue Chip Fund 33.37% 93.18% 200.44%
- -------------------------------------------------------------------------------------------------------------
Asset Allocation Fund 22.44% 69.01% 138.58%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
GLASS-STEAGALL ACT CONSIDERATIONS
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
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<PAGE> 256
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.
Seafirst provides administrative and shareholder account services to
the Trust. Seafirst believes that if the question were properly presented, a
court should hold that Seafirst may perform the services for the Trust
contemplated by the Administration Agreement, the Shareholder Service Plan, 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 Seafirst
and that 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 Seafirst from continuing to perform such services for the Trust
or from continuing to purchase Fund shares for the accounts of its customers.
Similarly, Bank of America believes that if the question were properly
presented, a court should hold that Bank of America may act as investment
adviser to the Portfolios, as contemplated by the Advisory Agreement, without
violation of the Glass-Steagall Act or other applicable federal banking laws or
regulations. As indicated above, however, future changes in federal statutes
and regulations relating to the permissible activities of bank holding company
subsidiaries, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent
Bank of America from continuing to act as investment adviser to the Portfolios.
If Bank of America were prohibited from acting as investment adviser to the
Portfolios, it is expected that the Board of Trustees of the Master Trust would
consider the possibility of selecting another qualified investment adviser.
Any new investment advisory agreement would be subject to shareholder approval.
State securities laws on these issues may differ from the
interpretations of federal law discussed above, and banks and
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financial institutions may be required to register as dealers pursuant to state
laws.
TAX INFORMATION
TAX STATUS OF THE PORTFOLIOS. Each Portfolio of the Master Trust has
received a private letter ruling from the Internal Revenue Service that the
Portfolio will be classified as a partnership rather than as a trust, a
publicly traded partnership or a corporation under the Internal Revenue Code of
1986, as amended (the "Code"). As a partnership under the Code, any interest,
dividends and gains or losses of each Portfolio will be deemed to have been
"passed through" to the corresponding Fund and other investors in such
Portfolio, regardless of whether such interest, dividends or gains have been
distributed by the Portfolio or such losses have been realized and recognized
by the Fund and other investors. Therefore, to the extent a Portfolio were to
accrue but not distribute any interest, dividends or gains, the Fund and other
investors in the Portfolio would be deemed to have realized and recognized
their proportionate shares of interest, dividends, gains or losses realized and
recognized by the Portfolio without receipt of any corresponding distribution.
However, the Master Trust will seek to minimize recognition by investors in
each Portfolio of interest, dividends, gains or losses allocable to the
Portfolio without a corresponding distribution.
TAX STATUS OF THE FUNDS. The Trust has elected to qualify each Fund
as a regulated investment company under Subchapter M of the Code, and intends
that each Fund will remain so qualified.
As a regulated investment company, a Fund will not be liable for
federal income tax on its income and gains provided it distributes all of its
income and gains currently. Qualification as a regulated investment company
under the Code requires, among other things, that each Fund (a) derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) derive less than 30% of its
gross income from the sale or other disposition of stock, securities, options,
futures, forward contracts, certain foreign currencies and certain options,
futures and forward contracts on foreign currencies held less than three
months; (c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the Fund's total assets is represented
by cash, U.S. Government securities and securities of other regulated
investment companies, and other securities (for purposes of this calculation
generally limited, in respect of any one issuer, to an amount not greater than
5% of the market value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer) and (ii) not more than 25% of the
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value of its assets is invested in the securities of any one issuer (other than
U.S. Government or foreign government securities or the securities of other
regulated investment companies), or two or more issuers that the Fund controls
and that are determined to be engaged in the same or similar trades or
businesses; and (d) distribute at least 90% of its investment company taxable
income (which includes dividends, interest, and net short-term capital gains in
excess of net long-term capital losses) each taxable year.
Each Fund has received a private letter ruling from the Internal
Revenue Service that, as a partner in the corresponding Portfolio, the Fund
will be deemed to own a proportionate interest in the Portfolio's assets and
will be deemed to be entitled to the income of the Portfolio attributable to
such interest for purposes of determining whether the Fund has satisfied the
income and diversification requirements discussed above.
A Fund generally will be subject to a nondeductible excise tax of 4%
to the extent that it fails to currently distribute specified percentages of
its ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). A distribution will be treated as paid on December
31 of the calendar year if it is declared by the Fund in October, November or
December of that year to shareholders of record on a date in such a month and
paid by the Fund during January of the following year. To avoid the excise
tax, the Funds intend to make timely distributions of their income in
compliance with these requirements and anticipate that they will not be subject
to the excise tax.
OTHER INFORMATION
SHARES OF BENEFICIAL INTEREST. Each share of a Fund represents an
equal proportional interest in the Fund with each other share and is entitled
to such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Trustees. In
the event of the liquidation or dissolution of the Trust, shareholders of a
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to a particular Fund that are available for distribution in such
manner and on such basis as the Trustees in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and nonassessable by the Trust.
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 Trust shall not be deemed to have been effectively acted
upon unless approved by
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a majority of the outstanding shares of the series of the Trust affected by the
matter. Under Rule 18f-2, a series is presumed to be affected by a matter,
unless the interests of each series in the matter are identical or the matter
does not affect any interest of such series. Under Rule 18f-2 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 its outstanding shares. However, the rule also provides that
the ratification of independent public accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by the shareholder of the Trust voting without regard to Fund.
Unless otherwise provided by law (for example, by Rule 18f-2 discussed
above) or by the Trust's Declaration of Trust or Bylaws, the Trust may take or
authorize any action upon the favorable vote of the holders of more than 50% of
the outstanding shares of the Trust.
REPORTS. Investors will be sent unaudited semi-annual reports
describing the Trust's and the Master Trust's investment operations and annual
financial statements together with the reports of the independent accountants
of the Trust and the Master Trust.
DECLARATIONS OF TRUST. In accordance with Delaware law and in
connection with the tax treatment sought by the Master Trust, the Master
Trust's Declaration of Trust provides that its investors will be personally and
jointly and severally responsible (with rights of contribution inter se in
proportion to their respective ownership interests in the Master Trust) for the
Master Trust's liabilities and obligations in the event that the Master Trust
fails to satisfy such liabilities and obligations. However, to the extent
assets are available from the Master Trust, the Master Trust will indemnify the
Trust from any claim or liability to which the Trust may become subject solely
by reason of its having been an investor and will reimburse the Trust for all
legal and other expenses reasonably incurred by it in connection with any such
claim or liability.
The Declarations of Trust of both the Trust and Master Trust provide
that obligations of the Trust and the Master Trust are not binding upon their
respective Trustees, officers, employees and agents individually and that the
Trustees, officers, employees and agents will not be liable to the trusts or
their respective investors for any action or failure to act, but nothing in the
Declarations of Trust protects a Trustee, officer, employee or agent against
any liability to the trusts or their respective investors to which the trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties. The Declarations of Trust also provide that the debts, liabilities,
obligations and expenses incurred, contracted for or existing with respect to a
designated Portfolio
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or Fund shall be enforceable against the assets and property of such Portfolio
or Fund only (and, in the case of a Portfolio, its investors), and not against
the assets or property of any other Portfolio or Fund (or in the case of the
Fund the investors therein).
FINANCIAL STATEMENTS AND EXPERTS. The audited financial statements
and notes thereto for the Trust and the Master Trust are contained in the
Trust's Annual Report to Shareholders dated February 29, 1996 and are
incorporated by reference into this Statement of Additional Information. The
financial statements and notes thereto have been audited by Price Waterhouse
LLP, whose report thereon also appears in such Annual Report and is also
incorporated herein by reference. No other parts of the Annual Report are
incorporated by reference herein. 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.
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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 in
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
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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.
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Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally 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 are 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
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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.
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"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
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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 that 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
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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.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
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
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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.
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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 other 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.
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"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.
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The following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in the Prospectus, the Portfolios may enter into futures
contracts and options for hedging purposes. Such transactions are described in
this Appendix A.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Portfolio presently could accomplish a similar result to that which
it hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by a Fund, through using
futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by a Portfolio, as purchaser, to take delivery of
the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the
Portfolio's entering
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into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price in the
sale exceeds the price in the offsetting purchase, the Portfolio is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Portfolio pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Portfolio's entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the Portfolio realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Portfolio realizes a
loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges - principally, the Chicago Board of Trade
and the Chicago Mercantile Exchange. The Portfolio would deal only in
standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury bonds and
notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. A Portfolio may trade in any futures contract for
which there exists a public market, including, without limitation, the
foregoing instruments.
EXAMPLES OF FUTURES CONTRACT SALE. A Portfolio would engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in a
Portfolio tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury bonds"). The investment adviser wishes
to fix the current market value of this portfolio security until some point in
the future. Assume the portfolio security has a market value of 100, and the
investment adviser believes that, because of an anticipated rise in interest
rates, the value will decline to 95. Such Portfolio might enter into futures
contract sales of Treasury bonds for an equivalent of 98. If the market value
of the portfolio security does indeed decline from 100 to 95, the equivalent
futures market price for the Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
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The investment adviser could be wrong in its forecast of interest
rates and the equivalent futures market price could rise above 98. In this
case, the market value of the portfolio securities, including the portfolio
security being protected, would increase. The benefit of this increase would
be reduced by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Portfolio in the above
example might incur a loss of 2 points (which might be reduced by an
off-setting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
EXAMPLES OF FUTURES CONTRACT PURCHASE. A Portfolio would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Portfolio's basic motivation would be to maintain for a
time the income advantage from investing in the short-term securities; the
Portfolio would be endeavoring at the same time to eliminate the effect of all
or part of an expected increase in market price of the long-term bonds that the
Portfolio may purchase.
For example, assume that the market price of a long-term bond that a
Portfolio may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The investment adviser wishes to fix
the current market price (and thus 10% yield) of the long-term bond until the
time (four months away in this example) when it may purchase the bond. Assume
the long-term bond has a market price of 100, and the investment adviser
believes that, because of an anticipated fall in interest rates, the price will
have risen to 105 (and the yield will have dropped to about 9 1/2%) in four
months. The Portfolio might enter into futures contracts purchases of Treasury
bonds for an equivalent price of 98. At the same time, the Portfolio would
assign a pool of investments in short-term securities that are either maturing
in four months or earmarked for sale in four months, for purchase of the
long-term bond at an assumed market price of 100. Assume these short-term
securities are yielding 15%. If the market price of the long-term bond does
indeed rise from 100 to 105, the equivalent futures market price for Treasury
bonds might also rise from 98 to 103. In that case, the 5-point increase in
the price that the Portfolio pays for the long-term bond would be offset by the
5-point gain realized by closing out the futures contract purchase.
The investment adviser could be wrong in its forecast of interest
rates; long-term interest rates might rise to above 10%; and the equivalent
futures market price could fall below 98. If short-term rates at the same time
fall to 10% or below, it is possible that the Portfolio would continue with its
purchase program for long-term bonds. The market price of available long-
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term bonds would have decreased. The benefit of this price decrease, and thus
yield increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that the Portfolio would discontinue its purchase program
for long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing
out the futures contract purchase. In each transaction, expenses would also be
incurred.
II. STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the stocks included in the
index and the index fluctuates with changes in the market values of the stocks
included. A stock index futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
a specified dollar amount times the difference between the stock index value
(which assigns relative values to the common stocks included in the index) at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. Some stock index futures contracts are based on
broad market indices, such as the Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100 or
indices based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through
a clearing corporation, which guarantees the performance of the parties to each
contract.
The Blue Chip and Asset Allocation Portfolios may sell stock index
futures contracts in order to offset a decrease in market value of their
respective portfolio securities that might otherwise result from a market
decline. The Portfolios may do so either to hedge the value of their
respective portfolios as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, the Portfolios will purchase stock index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolios will purchase such securities upon termination of
the long futures position, but a long futures position may be terminated
without a corresponding purchase of securities.
In addition, Blue Chip and Asset Allocation Portfolios may utilize
stock index futures contracts in anticipation of changes in the composition of
their respective portfolio holdings. For example, in the event that a
Portfolio expects to narrow the
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range of industry groups represented in its holdings it may, prior to making
purchases of the actual securities, establish a long futures position based on
a more restricted index, such as an index comprised of securities of a
particular industry group. The Portfolios may also sell futures contracts in
connection with this strategy, in order to protect against the possibility that
the value of the securities to be sold as part of the restructuring of their
respective portfolios will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Blue Chip Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Blue Chip Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge Objective:
Protect Against Declining Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
</TABLE>
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that is,
market value decreased and a Portfolio had entered into an anticipatory
purchase hedge, or market value increased and a Portfolio had hedged its stock
portfolio, the results of the Portfolio's transactions in stock index futures
would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Blue Chip Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Blue Chip Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge Objective:
Protect Against Declining Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
</TABLE>
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss of Futures = $40,000
</TABLE>
III. MARGIN PAYMENTS
Unlike when a Portfolio purchases or sells a security, no price is
paid or received by the Portfolio upon the purchase or sale of a futures
contract. Initially, the Portfolio will be required to deposit with the broker
or in a segregated account with the Portfolio's custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal to 10% or
less of the value of the contract. This amount is known as initial margin.
The nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Portfolio upon termination of
the futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying instruments fluctuates
making the long and short positions in the
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futures contract more or less valuable, a process known as marking-to-market.
For example, when a Portfolio has purchased a futures contract and the price of
the contract has risen in response to a rise in the underlying instruments,
that position will have increased in value and the Portfolio will be entitled
to receive from the broker a variation margin payment equal to that increase in
value. Conversely, where a Portfolio has purchased a futures contract and the
price of the future contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and the Portfolio
would be required to make a variation margin payment to the broker. At any
time prior to expiration of the futures contract, the investment adviser may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the
Portfolio's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Portfolio, and the Portfolio realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures in the
Portfolios as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Portfolio involved will experience either a loss or gain on the
future which will not be completely offset by movements in the price of the
securities which are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of securities being hedged and movements
in the price of futures contracts, a Portfolio may buy or sell futures
contracts in a greater dollar amount than the dollar amount of securities being
hedged if the volatility over a particular time period of the prices of such
securities has been greater than the volatility over such time period of the
future, or if otherwise deemed to be appropriate by the investment adviser.
Conversely, a Portfolio may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures
contract being used, or if otherwise deemed to be appropriate by the investment
adviser. It is also possible that, where the Portfolio has sold futures to
hedge its portfolio against a decline in the market, the market may advance and
the value of securities held in the Portfolio may
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decline. If this occurred, the Portfolio would lose money on the future and
also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Portfolio is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Portfolio then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, the Portfolio will realize a loss
on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the
Portfolio's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and because of the imperfect
correlation between the movements in the cash market and movements in the price
of futures, a correct forecast of general market trends or interest rate
movements by the investment adviser may still not result in a successful
hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not
be possible to close a futures investment position, and in the event of adverse
price movements, the
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Portfolio would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities will in fact correlate with the price movements in the
futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at
a price beyond the limit, thus preventing the liquidation of open futures
positions.
Successful use of futures by a Portfolio is also subject to the
investment adviser's ability to predict correctly movements in the direction of
the market. For example, if a Portfolio has hedged against the possibility of
a decline in the market adversely affecting securities held by it and
securities prices increase instead, the Portfolio will lose part of all of the
benefit to the increased value of its securities which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
V. OPTIONS ON FUTURES CONTRACTS
Each Portfolio may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option.
Upon exercise, the writer of the option is obligated to pay the difference
between the cash value of the futures contract and the exercise price. Like
the buyer or seller of a futures contract, the holder, or writer, of an option
has the right to terminate its position prior to the scheduled expiration of
the option by selling, or purchasing, an option of the same series, at which
time the person entering into the closing transaction will realize a gain or
loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the
purchase of an option also
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entails the risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased. Depending on
the pricing of the option compared to either the futures contract upon which it
is based, or upon the price of the securities being hedged, an option may or
may not be less risky than ownership of the futures contract or such
securities. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract.
Compared to the purchase or sale of futures contracts, however, the purchase of
call or put options on futures contracts may frequently involve less potential
risk to the Portfolios because the maximum amount at risk is the premium paid
for the options (plus transaction costs).
VI. OTHER HEDGING TRANSACTIONS
The Portfolios presently intend to use interest rate futures
contracts, additionally, the Blue Chip and Asset Allocation Portfolios
presently intend to use stock index futures contract in connection with their
hedging activities. Nevertheless, each of these Portfolios is authorized to
enter into hedging transactions in any other futures or options contracts which
are currently traded or which may subsequently become available for trading.
Such instruments may be employed in connection with the Portfolios' hedging
strategies if, in the judgment of the investment adviser, transactions therein
are necessary or advisable.
VII. ACCOUNTING AND TAX TREATMENT
Accounting for futures contracts and related options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by
a Portfolio at the close of the Portfolio's taxable year will be treated for
federal income tax purposes as sold for their fair market value on the last
business day of such year, a process known as "marking-to-market." Forty
percent of any gain or loss resulting from such constructive sale will be
treated as short-term capital gain or loss and 60% of such gain or loss will be
treated as long-term capital gain or loss without regard to the length of time
the Portfolio holds the futures contract or option ("the 40%-60% rule"). The
amount of any capital gain or loss actually realized by a Portfolio in a
subsequent sale or other disposition of those futures contracts or options will
be adjusted to reflect any capital gain or loss taken into account by a
Portfolio in a prior year as a result of the constructive sale of the contracts
or options. With respect to futures contracts to sell, which will be regarded
as parts of a "mixed straddle" because their values fluctuate inversely to the
values of specific securities held by a Portfolio, losses as to such contracts
to sell will be subject to certain loss deferral rules which limit the amount
of loss currently deductible on either part of the straddle to the amount
thereof which exceeds the unrecognized gain (if any) with respect to the
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other part of the straddle, and to certain wash sales regulations. Under short
sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle (if they have not been held for the
long-term holding period) will be deemed not to begin prior to termination of
the straddle. With respect to certain futures contracts and related options,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Portfolio may make an election
which will exempt (in whole or in part) those identified futures contracts from
being treated for federal income tax purposes as sold on the last business day
of the Portfolio's taxable year, but gains and losses will be subject to such
short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a
Portfolio would be allowed (in lieu of the foregoing) to elect either (1) to
offset gains or losses from portions which are part of a mixed straddle by
separately identifying each mixed straddle to which such treatment applies, or
(2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under
either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50 percent of any net gain may be treated as
long-term and no more than 40 percent of any net loss may be treated as
short-term.
With respect to the Bond and Asset Allocation Portfolios, some
investments may be subject to special rules which govern the federal income tax
treatment of certain transactions denominated in terms of a currency other than
the U.S. dollar or determined by reference to the value of one or more
currencies other than the U.S. dollar. The types of transactions covered by
the special rules include the following: (i) the acquisition of, or becoming
the obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
marking-to-market rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency
rules. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. In accordance
B-12
<PAGE> 284
with Treasury regulations, certain transactions subject to the special currency
rules that are part of a "section 988 hedging transaction" (as defined in the
Code and the Treasury regulations) will be integrated and treated as a single
transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the mark-to-market or
loss deferral rules under the Code. It is anticipated that some of the
non-U.S. dollar denominated investments and foreign currency contracts that
such Funds may make or may enter into will be subject to the special currency
rules described above. Gain or loss attributable to the foreign currency
component of transactions engaged in by a Fund which are not subject to special
currency rules (such as foreign equity investments other than certain preferred
stocks) will be treated as capital gain or loss and will not be segregated from
the gain or loss on the underlying transaction.
Qualification as a regulated investment company under the Code
requires that each Fund satisfy certain requirements with respect to the source
of its income during a taxable year. At least 90% of the gross income of each
Fund must be derived from dividends, interests, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including but not limited to gains
from options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.
An additional requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Fund's gross income must be
derived from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the 1940 Act); (2) options, futures and forward
contracts other than those on foreign currencies; and (3) foreign currencies
(and options, futures and forward contracts on foreign currencies) that are not
directly related to a Fund's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities).
With respect to futures contracts and other financial instruments subject to
the marking-to-market rules, the Internal Revenue Service has ruled in private
letter rulings that a gain realized from such a futures contract or financial
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for which the contract or
B-13
<PAGE> 285
instrument is held) if the gain arises as a result of a constructive sale under
the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of each Fund's futures contracts and other investments that qualify as
part of a "designated hedge," as defined in the Code, may be netted.
B-14
<PAGE> 286
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I --
Blue Chip Portfolio, at value...................................... $66,901,094
Receivable from Administrator........................................ 13,816
Deferred organization costs and prepaid expenses..................... 57,555
-----------
Total assets........................................................... 66,972,465
-----------
LIABILITIES:
Accrued reports to shareholders expense.............................. 14,532
Accrued legal fees................................................... 11,122
Accrued fund accounting fees and expenses............................ 5,947
Accrued audit fees................................................... 5,948
Other accrued expenses............................................... 1,462
-----------
Total liabilities...................................................... 39,011
-----------
NET ASSETS............................................................. $66,933,454
===========
Shares Outstanding ($0.001 par value, 100 million shares authorized)... 3,259,781
===========
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value per share............................................ $20.53
Sales charge -- 4.50% of public offering price....................... 0.97
-----
Maximum Offering Price............................................... $21.50
=====
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 3,260
Additional paid-in capital........................................... 59,565,319
Accumulated net realized gains....................................... 740,209
Accumulated undistributed net investment income...................... 136,938
Net unrealized appreciation on investments........................... 6,487,728
-----------
NET ASSETS, FEBRUARY 29, 1996.......................................... $66,933,454
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-1
<PAGE> 287
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio:
Dividends................................................ $ 675,317
Interest................................................. 63,786
----------
739,103
Expenses................................................. $ 260,140
Less: Fee waivers and expense reimbursements............. (164,170) 95,970
--------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio................................. 643,133
EXPENSES:
Shareholder service fees................................. 74,950
Administration fees...................................... 44,971
Transfer agent fees and expenses......................... 62,458
Legal fees............................................... 47,260
Reports to shareholders expenses......................... 40,827
Fund accounting fees and expenses........................ 37,375
Amortization of organization costs....................... 28,263
Registration fees and expenses........................... 22,553
Audit fees............................................... 21,052
Directors' fees.......................................... 6,354
Other expenses........................................... 37,475
---------
423,538
Less: Fee waivers and expense reimbursements............. (270,393) 153,145
--------- ----------
Net Investment Income...................................... 489,988
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- BLUE CHIP PORTFOLIO:
Net realized gain on securities transactions............. 1,358,263
Net change in unrealized appreciation on investments..... 6,093,194
----------
Net Gain on Investments from Master Investment Trust,
Series I -- Blue Chip Portfolio.......................... 7,451,457
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................................... $7,941,445
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-2
<PAGE> 288
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................ $ 489,988 $ 95,584
Net realized gain (loss) on securities
transactions....................................... 1,358,263 (46,800)
Net change in unrealized appreciation (depreciation)
of investments..................................... 6,093,194 401,993
----------- -----------
Net increase in net assets resulting from
operations......................................... 7,941,445 450,777
----------- -----------
Dividends and distribution to shareholders:
Dividends to shareholders from net investment
income............................................. (375,867) (74,501)
Distribution to shareholders from net realized
gains.............................................. (570,774) --
----------- -----------
Total dividends and distributions to shareholders...... (946,641) (74,501)
Fund Share Transactions:
Net proceeds from shares subscribed.................. 59,881,212 5,217,128
Net asset value of shares issued to shareholders in
reinvestment of dividends.......................... 903,918 73,034
Shares redeemed...................................... (6,848,470) (844,793)
----------- -----------
Net increase in net assets resulting from Fund share
transactions....................................... 53,936,660 4,445,369
----------- -----------
Total Increase......................................... 60,931,464 4,821,645
NET ASSETS:
Beginning of year.................................... 6,001,990 1,180,345
----------- -----------
End of year (including undistributed net investment
income of $136,938 and $22,817, respectively)...... $66,933,454 $6,001,990
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-3
<PAGE> 289
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 29, 1996, the Company
operated as a series company comprising fifteen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Blue Chip Fund
(the "Fund") only.
The Fund seeks to achieve its investment objective by investing
substantially all of its assets in the Blue Chip Portfolio of Master Investment
Trust, Series I (the "Portfolio"), an open-end management company that has the
same investment objective as that of the Fund. The value of the Fund's
investment in the Portfolio included in the accompanying Statement of Assets and
Liabilities reflects the Fund's proportionate beneficial interest in the net
assets of the Portfolio (24.3% at February 29, 1996). The financial statements
of the Portfolio, including its portfolio of investments are included elsewhere
within this report and should be read in conjunction with the Fund's financial
statements.
Concord Holding Corporation ("Concord") serves as the Fund's administrator
and Concord Financial Group, Inc. (the "Distributor"), a wholly owned subsidiary
of Concord, serves as the distributor of the Fund's shares. Effective March 29,
1995, Concord became a wholly owned subsidiary of The BISYS Group, Inc.
("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
The valuation of securities of the Fund's investment in the Portfolio is
discussed in Note 2 of the Portfolio's financial statements.
B) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:
The Fund records its share of the investment income, expenses and realized
and unrealized gains and losses recorded by the Portfolio on a daily basis. The
investment income, expenses and realized and unrealized gains and losses are
allocated daily to investors in the Portfolio based upon the value of their
investments in the Portfolio. Such investments are adjusted on a daily basis.
FS-4
<PAGE> 290
C) DIVIDENDS AND DISTRIBUTIONS:
The Fund declares and pays dividends from net investment income, if any, at
least quarterly. Distributions of net realized gains, if any, will be paid at
least annually. However, to the extent that net realized gains of the Fund can
be offset by capital loss carryovers, such gains will not be distributed.
Dividends and distributions are recorded on the ex-dividend date.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or net
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
D) FEDERAL INCOME TAXES:
It is the policy of the Fund to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
E) OTHER:
The Fund incurred certain costs in connection with its organization. Such
costs have been deferred and are being amortized on a straight line basis over
five years.
Expenses directly attributable to the Fund are charged directly to the Fund,
while Company expenses attributable to more than one Fund of the Company are
allocated among the respective funds.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund has an Administration Agreement with Concord and a Distribution
Agreement with the Distributor.
As Administrator, Concord assists in supervising the operations of the Fund.
For its services, Concord is entitled to a fee, which is accrued daily and
payable monthly, at an annual rate of 0.15%, of the Fund's average net assets.
For the year ended February 29, 1996, Concord agreed to waive its entire fee as
administrator.
For the same period, Concord reimbursed the Fund $150,472 in operating
expenses.
For the year ended February 29, 1996, the Distributor advised the Fund that
it retained $255,167 from commissions earned on sales of the Fund's shares. For
the same period, Bank of America and its affiliates advised the Fund that they
retained $1,875,240 from commissions earned on sales of the Fund's shares.
FS-5
<PAGE> 291
The Fund has adopted a Shareholder Service Plan (the "Plan") under which the
Fund pays the Distributor for shareholder servicing expenses incurred in
connection with shares of the Fund. Under the Plan, payments by the Fund may not
exceed 0.25% (annualized) of the Fund's average daily net assets. For the year
ended February 29, 1996, the Distributor waived all of its shareholder service
fees due from the Fund. The Plan provides that if, in any month, the fees paid
to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess costs will not be carried forward beyond the end of the fiscal year
in which such excess costs were incurred.
Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary, served the Fund as transfer agent and dividend disbursing agent. In
this capacity, BISYS Fund Services, Inc., earned $23,505 for the period from
December 11, 1995 through February 1996. Prior to December 11, 1995 an unrelated
party provided these services.
For the year ended February 29, 1996, the Fund incurred legal charges
totalling $47,260, which were earned by a law firm, a partner of which serves as
Secretary of the Company. Certain officers of the Company are "affiliated
persons" (as defined in the Act) of BISYS.
NOTE 4 -- DIRECTORS' COMPENSATION
Each director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives an annual retainer
of $1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former president and chairman of the Company receives an additional $40,000
per year through February 28, 1997, in consideration of his years of service.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. In addition, the amount
payable each year to a Director who dies or resigns shall be increased by $1,000
for each year of service that the Director served as Chairman of the Board. Each
Director may receive any benefits payable under the Retirement Plan, at his or
her election, either in one lump sum payment or ten annual install-
FS-6
<PAGE> 292
ments. A Director's years of service for the purpose of calculating the payments
described above shall be based upon service as a Director or Chairman after
February 28, 1994. Aggregate costs to the Fund pursuant to the Retirement Plan
amounted to $69, for the year ended February 29, 1996.
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
At February 29, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 100 million shares were classified
as Class N Common Stock (Blue Chip Fund).
Transactions in shares of common stock of the Fund are summarized below (000
omitted):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares sold.......... 3,204 353
Shares issued in
reinvestment of
dividends........... 47 5
Shares redeemed...... (371) (57)
----- ---
Net increase......... 2,880 301
===== ===
</TABLE>
NOTE 6 -- FEDERAL INCOME TAX STATUS
During the year ended February 29, 1996 the company utilized its net capital
loss carryover of approximately $47,000.
FS-7
<PAGE> 293
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
---------------------- ENDED
FEBRUARY FEBRUARY FEBRUARY
29, 28, 28,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net asset value per share, beginning of
period....................................... $ 15.81 $14.97 $15.00
------- ------ ------
Income from Investment Operations:
Net investment income........................ 0.26 0.31 0.02
Net realized and unrealized gain on
securities................................. 4.96 0.80 (0.05)
------- ------ ------
Total gain from investment operations........ 5.22 1.11 (0.03)
------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net investment
income..................................... (0.28) (0.27) --
Distributions to shareholders from net
realized gains on securities............... (0.22) -- --
------- ------ ------
Total dividends and distributions.............. (0.50) (0.27) --
------- ------ ------
Net change in net asset value.................. 4.72 0.84 (0.03)
------- ------ ------
Net asset value per share, end of period....... $ 20.53 $15.81 $14.97
======= ====== ======
Total return++................................. 33.39% 7.60% (0.20)%
Ratios/Supplemental Data:
Net assets, end of period (000).............. $66,933 $6,002 $1,180
Ratio of expenses to average net assets**.... 0.83% 0.00% 0.00%+
Ratio of net investment income to average net
assets**................................... 1.63% 2.46% 2.92%+
<FN>
- ---------------
* For the period January 13, 1994 (commencement of operations) through February
28, 1994.
** Reflects the Fund's proportionate share of the Portfolio's expenses, the
Portfolio's fee waivers and expense reimbursements by the Portfolio's
Investment Adviser and Administrator and fee waivers and expense
reimbursements by the Fund's Administrator and Distributor. Such fee waivers
and expense reimbursements 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 1.45%, 6.32% and 55.00% (annualized) for the periods
ended February 29, 1996, February 28, 1995 and February 28, 1994,
respectively.
+ Annualized.
++ The total returns listed are not annualized for the period ended February 28,
1994 and do not include the effect of the maximum 4.50% sales charge.
</TABLE>
See Notes to Financial Statements.
FS-8
<PAGE> 294
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Pacific Horizon Blue Chip Fund (one of the portfolios constituting Pacific
Horizon Funds, Inc., hereafter referred to as the "Funds") at February 29, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
-------------------------------------------------------------
For the year ended February 29, 1996, the Fund paid to shareholders
$0.1958 per share from long-term capital gains.
- --------------------------------------------------------------------------------
FS-9
<PAGE> 295
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE -- 2.5%
Lockheed Martin Corp. .............................................. 38,500 $ 2,935,625
General Dynamics Corp. ............................................. 28,700 1,711,238
Rockwell Intl., Corp. .............................................. 38,600 2,200,200
------------
6,847,063
------------
AIRLINES & FREIGHT -- 0.4%
AMR Corp. .......................................................... 11,800 1,035,450
------------
APPAREL/TEXTILE -- 0.5%
Nike, Inc. ......................................................... 19,800 1,284,525
------------
AUTOMOTIVE -- 2.7%
Chrysler Corp. ..................................................... 55,600 3,134,450
Goodyear Tire & Rubber Co. ......................................... 53,500 2,541,250
Johnson Controls, Inc. ............................................. 23,500 1,686,125
------------
7,361,825
------------
BANKS -- 7.6%
Citicorp............................................................ 78,900 6,154,200
First Interstate Bancorp............................................ 18,500 3,022,438
First Union Corp. .................................................. 47,000 2,843,500
Bank Of Boston Inc. ................................................ 78,400 3,812,200
Bank Of New York Inc. .............................................. 65,400 3,392,625
Nations Bank Corporation............................................ 23,200 1,711,000
------------
20,935,963
------------
BUILDING RELATED/APPLIANCE -- 0.5%
Fleetwood Enterprises............................................... 46,700 1,255,063
------------
BUSINESS EQUIPMENT/SERVICES -- 2.6%
Cisco Systems....................................................... 69,900 3,320,250
Hewlett Packard Co. ................................................ 37,400 3,768,050
------------
7,088,300
------------
CHEMICALS -- 3.2%
Eastman Chemical Co. ............................................... 35,700 2,570,400
Morton International,Inc. .......................................... 31,600 1,196,850
E.I. Du Pont De Nemours & Co. ...................................... 29,500 2,256,750
Monsanto Corp. ..................................................... 20,000 2,692,500
------------
8,716,500
------------
CONSUMER STAPLES -- 7.8%
Coca-Cola Co. ...................................................... 54,400 4,392,800
Conagra Inc. ....................................................... 54,800 2,308,450
Pepsico Inc. ....................................................... 105,700 6,685,525
Philip Morris Cos, Inc. ............................................ 57,900 5,732,100
Sara Lee Corp. ..................................................... 70,300 2,275,963
------------
21,394,838
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-10
<PAGE> 296
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COSMETICS & HOUSEHOLD PRODUCTS -- 4.6%
Johnson & Johnson................................................... 42,700 $ 3,992,450
Newell Co. ......................................................... 59,200 1,642,800
Bay Networks........................................................ 25,300 1,027,813
Clorox Co. ......................................................... 21,200 1,796,700
Avon Products Inc. ................................................. 26,300 2,113,863
Premark Intl., Inc. ................................................ 38,500 2,016,437
------------
12,590,063
------------
DIVERSIFIED MANUFACTURING -- 3.7%
General Electric Co. ............................................... 72,300 5,458,650
United Technologies Corp. .......................................... 44,600 4,794,500
------------
10,253,150
------------
DRUGS BIOTECHNOLOGY -- 5.5%
Medronic Inc. ...................................................... 47,200 2,708,100
Bristol-Meyers...................................................... 52,800 4,494,600
Schering Plough Corp. .............................................. 63,400 3,558,325
Pfizer, Inc. ....................................................... 64,600 4,255,525
------------
15,016,550
------------
ELECTRIC UTILITIES -- 3.5%
Unicom Corp. ....................................................... 75,300 2,409,600
FPL Group, Inc. .................................................... 41,300 1,843,013
General Public Utilities Corp. ..................................... 80,800 2,696,700
DTE Energy Co. ..................................................... 78,400 2,793,000
------------
9,742,313
------------
ELECTRICAL & OTHER ELEC EQUIPMENT -- 0.5%
Applied Materials, Inc. ............................................ 35,100 1,254,825
------------
ELECTRONIC COMPUTERS -- 3.3%
Intel Corp. ........................................................ 37,600 2,211,350
Compaq Computer Corp. .............................................. 42,600 2,156,625
Oracle Corp. ....................................................... 57,900 3,010,800
Sun Microsystems Inc. .............................................. 29,500 1,548,750
------------
8,927,525
------------
ENERGY RELATED -- 0.9%
Halliburton Co. .................................................... 44,200 2,425,475
------------
ENTERTAINMENT -- 0.4%
King World Productions, Inc. Ltd.................................... 26,500 1,109,688
------------
FINANCIAL SERVICES -- 1.1%
Travelers Group..................................................... 44,800 2,996,000
------------
FOODS -- 1.2%
Campbell Soup Co. .................................................. 53,200 3,285,100
------------
FOREST PRODUCTS -- 1.5%
Bemis Co. Inc. ..................................................... 37,800 1,157,625
Kimberly-Clark Corp. ............................................... 40,400 3,085,550
------------
4,243,175
------------
GAS UTILITIES -- 0.9%
Pacific Enterprises, Inc. .......................................... 93,800 2,509,150
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-11
<PAGE> 297
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
HEALTH CARE -- 1.6%
Merck & Co., Inc. .................................................. 64,700 $ 4,286,375
------------
HOSPITAL MANAGEMENT -- 1.2%
Columbia Healthcare Corp. .......................................... 24,400 1,335,900
United Healthcare Corp. ............................................ 30,000 1,957,500
------------
3,293,400
------------
HOSPITAL SUPPLY -- 0.8%
Becton Dickinson & Co. ............................................. 28,400 2,328,800
------------
INDUSTRIAL SERVICES -- 0.6%
Fluor Corp. ........................................................ 26,600 1,785,525
------------
INSURANCE -- 1.6%
Aetna Life & Casualty Co. .......................................... 8,100 612,562
Allstate............................................................ 64,497 2,765,309
ITT Hartford Group Inc. ............................................ 21,400 1,102,100
------------
4,479,971
------------
INTERNATIONAL OIL -- 3.3%
Atlantic Richfield Co. ............................................. 20,300 2,222,850
Mobil Corp. ........................................................ 61,700 6,763,863
------------
8,986,713
------------
LEISURE -- 0.9%
Walt Disney Co. .................................................... 38,400 2,515,200
------------
MACHINERY -- 0.7%
Ingersoll Rand Co. ................................................. 49,400 2,019,225
------------
MEDIA -- 1.6%
Capital Cities/ABC, Inc. ........................................... 23,900 3,029,325
Gannett, Inc. ...................................................... 22,400 1,523,200
------------
4,552,525
------------
METALS -- 1.4%
Nucor Corp. ........................................................ 36,600 1,971,825
Phelps Dodge Corp. ................................................. 30,800 1,882,650
------------
3,854,475
------------
MULTI INDUSTRY -- 2.0%
Textron............................................................. 25,300 1,992,375
Honeywell Inc. ..................................................... 65,900 3,492,700
------------
5,485,075
------------
MULTI INSURANCE -- 1.1%
Providian Corp. .................................................... 69,100 3,195,875
------------
OIL - DOMESTIC & CRUDE -- 3.0%
Exxon Corp. ........................................................ 57,600 4,579,200
Amoco Corp. ........................................................ 53,200 3,697,400
------------
8,276,600
------------
PETROLEUM REFINING -- 1.4%
Royal Dutch Petroleum Co. .......................................... 27,600 3,801,900
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-12
<PAGE> 298
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
PROPERTY CASUALTY INSURANCE -- 0.6%
Safeco. Corp. ...................................................... 50,500 $ 1,830,625
------------
PUBLISHING -- 0.6%
New York Times Co. ................................................. 63,800 1,754,500
------------
RAIL/TRUCKING FREIGHT -- 1.3%
Norfolk Southern Corp. ............................................. 42,800 3,488,200
------------
RESTAURANTS/LODGING -- 1.7%
McDonald's Corp. ................................................... 38,500 1,925,000
Marriott International Inc. ........................................ 30,900 1,517,963
ITT Corp. .......................................................... 21,400 1,292,025
------------
4,734,988
------------
RETAIL -- 3.9%
Home Depot, Inc. ................................................... 52,400 2,266,300
Sears Roebuck & Co. ................................................ 104,700 4,750,762
Gap, Inc. .......................................................... 67,500 3,619,688
------------
10,636,750
------------
RETAIL FOOD & DRUG -- 1.0%
American Stores Co. ................................................ 98,500 2,868,813
------------
SECURITIES, BROKERS & DEALERS -- 1.0%
Dean Witter......................................................... 52,500 2,821,875
------------
SOFTWARE SERVICES -- 1.6%
Microsoft Inc. ..................................................... 45,900 4,529,756
------------
TECHNOLOGY -- 2.8%
International Business Machines..................................... 39,900 4,892,738
National Semiconductor Corp. ....................................... 56,400 881,250
Harris Corp. ....................................................... 16,800 1,117,200
Texas Instruments Inc. ............................................. 18,600 927,675
------------
7,818,863
------------
TELEPHONE -- 7.0%
AT & T.............................................................. 67,900 4,320,138
Bellsouth Corp. .................................................... 120,200 4,792,975
GTE Corp. .......................................................... 76,400 3,275,650
Nynex Corp. ........................................................ 59,800 3,079,700
Ameritech Corp. .................................................... 65,600 3,780,200
------------
19,248,663
------------
TELEPHONE & TELEGRAPH APPARATUS -- 1.2%
Sprint Corp. ....................................................... 75,700 3,255,100
------------
Total Common Stocks -- 98.8%
(cost $225,698,360 )................................................ 272,122,328
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-13
<PAGE> 299
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
DESCRIPTION (000) (NOTE 2)
- ---------------------------------------------------------------------- --------- ------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 3.0%
U.S. Treasury Bill 4.62%............................................. 2,230 $ 2,222,273
U.S. Treasury Bill 4.57%............................................. 805 802,241
U.S. Treasury Bill 4.57%............................................. 795 792,275
U.S. Treasury Bill 4.73%............................................. 306 304,633
U.S. Treasury Bill 4.74%............................................. 370 366,840
U.S. Treasury Bill 4.80%............................................. 460 456,072
U.S. Treasury Bill 4.86%............................................. 1,503 1,490,164
U.S. Treasury Bill 4.87%............................................. 347 344,037
U.S. Treasury Bill 4.88%............................................. 349 346,020
U.S. Treasury Bill 4.79%............................................. 1,211 1,200,657
------------
Total U.S. Government Obligations
(cost $8,326,185).................................................... 8,325,212
------------
TOTAL INVESTMENTS -- 101.8% $280,447,540
(COST $234,024,545)
Other Liabilities In Excess Of Assets -- (1.8)% (4,925,266)
------------
NET ASSETS -- 100%.................................................... $275,522,274
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-14
<PAGE> 300
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $234,024,545).............. $280,447,540
Cash................................................................ 36,086
Contribution receivable............................................. 1,441,870
Dividends receivable................................................ 603,862
Deferred organization costs and prepaid expenses.................... 42,390
------------
Total assets.......................................................... 282,571,748
------------
LIABILITIES:
Withdrawal payable.................................................. 147,114
Payable for investment securities purchased......................... 6,761,140
Advisor fees payable................................................ 75,382
Administration fees payable......................................... 5,024
Accrued accounting fees............................................. 17,633
Accrued audit fees.................................................. 15,958
Accrued custody fees................................................ 6,624
Accrued legal fees.................................................. 6,707
Other accrued expenses.............................................. 13,892
------------
Total liabilities..................................................... 7,049,474
------------
NET ASSETS............................................................ $275,522,274
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-15
<PAGE> 301
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................... $ 427,131
Dividends.............................................. 4,764,288
-----------
5,191,419
-----------
EXPENSES:
Advisory fees.......................................... 1,574,388
Administration fees.................................... 104,889
Fund accounting fees and expenses...................... 134,230
Custodian fees and expenses............................ 38,672
Audit fees............................................. 18,423
Legal fees............................................. 12,848
Amortization of organization costs..................... 13,615
Insurance expense...................................... 4,704
Trustees fees.......................................... 3,500
-----------
1,905,269
Less: Fee waivers and expense reimbursements........... (1,242,250) 663,019
----------- -----------
Net Investment Income.................................... 4,528,400
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on securities transactions........... 21,310,546
Net change in unrealized appreciation on investments... 34,689,746
-----------
Net Gain on Investments.................................. 56,000,292
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $60,528,692
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-16
<PAGE> 302
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP PORTFOLIO
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 4,528,400 $ 3,333,204
Net realized gain on securities transactions........... 21,310,546 373,340
Net change in unrealized appreciation/depreciation on
investments.......................................... 34,689,746 7,922,681
------------ ------------
Net increase in net assets resulting from operations... 60,528,692 11,629,225
------------ ------------
Trust Share Transactions:
Contributions.......................................... 96,776,148 33,341,186
Withdrawals............................................ (39,120,232) (21,900,310)
------------ ------------
Net increase in net assets resulting from Trust share
transactions......................................... 57,655,916 11,440,876
------------ ------------
Total Increase........................................... 118,184,608 23,070,101
NET ASSETS
Beginning of year...................................... 157,337,666 134,267,565
------------ ------------
End of year............................................ $275,522,274 $157,337,666
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-17
<PAGE> 303
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. At February 29, 1996, the Trust
consisted of four portfolios. The accompanying financial statements and notes
are those of the Blue Chip Portfolio (the "Portfolio") only.
The investment objective of the Portfolio is long term capital appreciation
through investments in blue chip stocks.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolio's
investment adviser. Concord Holding Corporation ("Concord") serves as the
Portfolio's administrator through BISYS Fund Services (Ireland) Ltd., a wholly
owned subsidiary of Concord. Effective March 29, 1995, Concord became a wholly
owned subsidiary of The BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation or, if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. Securities that are primarily traded on the NASDAQ national
securities market are valued at the last reported sales price on the date of
valuation or, if none is available, at the last quoted bid price on the date of
valuation. The Portfolio may use an independent pricing service, approved by the
Board of Trustees, to value certain of its securities. Such prices reflect
market values which may be established through the use of electronic data
processing techniques and matrix systems. Restricted securities and securities
for which market quotations are not readily available, if any, are valued at
fair value using methods approved by the Board of Trustees. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. The amortized cost
FS-18
<PAGE> 304
method involves valuing a security at its cost on the date of purchase or, in
the case of securities purchased with more than 60 days until maturity, at their
market value each day until the 61st day prior to maturity, and thereafter
assuming a constant amortization to maturity of the difference between the
principal amount due at maturity and such valuation.
B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recorded on the ex-dividend date.
C) EXPENSES:
Expenses directly attributable to the Portfolio are charged to the Portfolio
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.
D) FEDERAL INCOME TAXES:
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.75% of the average
daily net assets of the Portfolio. For the year ended February 29, 1996, Bank of
America waived $1,164,328 in fees as Adviser of the Portfolio.
As Administrator, Concord assists in supervising the operations of the
Portfolio. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.05% of the Portfolio's average daily net
assets. For the year ended February 29, 1996, Concord waived $77,922 in fees as
Administrator of the Portfolio.
For services provided to all four of the portfolios constituting the Trust,
each Trustee receives an annual fee of $1,500 and a meeting fee of $500. For the
year ended February 29, 1996, the Portfolio incurred legal expenses of $12,848
which were earned by a law firm, a partner of which serves as Secretary of the
Trust. Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS.
FS-19
<PAGE> 305
NOTE 4 -- SECURITIES TRANSACTIONS
During the year ended February 29, 1996, the Portfolio purchased and sold
portfolio securities, excluding short-term securities, in the amount of
$283,161,200 and $219,320,666, respectively.
At February 29, 1996, the cost of the securities of the Portfolio for
federal income tax purposes was substantially the same as for financial
reporting purposes. Accordingly net unrealized appreciation of investments
amounted to $46,422,995 consisting of gross unrealized appreciation of
$48,183,393 and gross unrealized depreciation of $1,760,397.
FS-20
<PAGE> 306
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.31% 0.17% 0.27%***
Ratio of net investment income to average
net assets**............................. 2.16% 2.30% 1.97%***
Portfolio Turnover......................... 108% 44% 86%
<FN>
- ---------------
* For the period December 6, 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 0.59%, 0.80% and 0.80% (annualized) for the periods
ended February 29, 1996, February 28, 1995 and February 28, 1994,
respectively.
*** Annualized.
</TABLE>
See Notes to Financial Statements.
FS-21
<PAGE> 307
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees
and Investors of
Master Investment Trust, Series I
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series I -- Blue
Chip Portfolio (the "Portfolio") at February 29, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the supplementary data for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
FS-22
<PAGE> 308
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Asset Allocation
Portfolio, at value................................................ $22,333,948
Receivable from Administrator........................................ 21,345
Deferred organization costs and prepaid expenses..................... 55,200
-----------
Total assets........................................................... 22,410,493
-----------
LIABILITIES:
Accrued reports to shareholders expense.............................. 23,668
Accrued legal........................................................ 11,005
Accrued audit fee.................................................... 6,310
Accrued fund accounting fees and expense............................. 6,050
Other accrued expenses............................................... 8,787
-----------
Total liabilities...................................................... 55,820
-----------
NET ASSETS............................................................. $22,354,673
===========
Shares Outstanding ($0.001 par value, 100 million shares authorized)... 1,275,880
===========
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value per share............................................ $17.52
Sales charge -- 4.50% of public offering price....................... 0.83
-----
Maximum Offering Price............................................... $18.35
-----
-----
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 1,276
Additional paid-in capital........................................... 20,617,125
Accumulated net realized gains....................................... 292,337
Accumulated undistributed net investment income...................... 112,461
Net unrealized appreciation on investments........................... 1,331,474
-----------
NET ASSETS, FEBRUARY 29, 1996.......................................... $22,354,673
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-23
<PAGE> 309
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Asset Allocation Portfolio:
Interest.................................................. $ 392,503
Dividends................................................. 154,485
---------
546,988
---------
Expenses.................................................. $ 96,101
Less: Fee waivers and expense reimbursements.............. (59,498) 36,603
--------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio........................... 510,385
EXPENSES:
Shareholder service fees.................................. 33,182
Administration fees....................................... 19,909
Legal fees................................................ 46,277
Reports to shareholders expense........................... 40,784
Fund accounting fees and expenses......................... 37,488
Transfer agent fees and expenses.......................... 32,798
Amortization of organization costs........................ 25,649
Registration fees and expenses............................ 18,361
Audit fees................................................ 15,650
Directors' fees........................................... 1,165
Other operating expenses.................................. 20,406
---------
291,669
Less: Fee waivers and expense reimbursements.............. (245,636) 46,033
--------- ----------
Net Investment Income....................................... 464,352
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- ASSET ALLOCATION PORTFOLIO:
Net realized gain on securities transactions.............. 920,161
Net change in unrealized appreciation on investments...... 1,078,509
---------
Net Gain on Investments from Master Investment Trust, Series
I -- Asset Allocation Portfolio........................... 1,998,670
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $2,463,022
=========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-24
<PAGE> 310
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 464,352 $ 132,223
Net realized gain (loss) on securities transactions.... 920,161 (81,088)
Net change in unrealized appreciation of investments... 1,078,509 257,410
----------- ----------
Net increase in net assets resulting from operations... 2,463,022 308,545
----------- ----------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment income... (387,903) (97,653)
Dividends to shareholders from capital gains........... (544,588) --
----------- ----------
Total dividends and distributions to shareholders........ (932,491) (97,653)
Fund Share Transactions:
Net proceeds from shares subscribed.................... 17,093,597 5,286,729
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions.......... 903,640 92,809
Shares redeemed........................................ (2,866,740) (563,241)
----------- ----------
Net increase in net assets from Fund share
transactions......................................... 15,130,497 4,816,297
----------- ----------
Total Increase........................................... 16,661,028 5,027,189
NET ASSETS:
Beginning of year...................................... 5,693,645 666,456
----------- ----------
End of year (including undistributed net investment
income of $112,461 and $36,012, respectively)........ $22,354,673 $5,693,645
=========== ==========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-25
<PAGE> 311
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 29, 1996, the Company
operated as a series company comprising fifteen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Asset Allocation
Fund (the "Fund") only.
The Fund seeks to achieve its investment objective by investing
substantially all of its assets in the Asset Allocation Portfolio of Master
Investment Trust, Series I (the "Portfolio"), an open-end management investment
company that has the same investment objective as that of the Fund. The value of
the Fund's investment in the Portfolio included in the accompanying statement of
assets and liabilities reflects the Fund's proportionate beneficial interest in
the net assets of the Portfolio (12.34% as of February 29, 1996). The financial
statements of the Portfolio, including its portfolio of investments, are
included elsewhere within this report and should be read in conjunction with the
Fund's financial statements.
Concord Holding Corporation ("Concord") serves as the Fund's administrator
and Concord Financial Group, Inc. (the "Distributor"), a wholly owned subsidiary
of Concord, serves as the distributor of the Fund's shares. Effective March 29,
1995, Concord became a wholly owned subsidiary of The BISYS Group, Inc.
("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
The valuation of securities of the Fund's investment in the Portfolio is
discussed in Note 2 of the Portfolio's financial statements.
B) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:
The Fund records its share of the investment income, expenses and realized
and unrealized gains and losses recorded by the Portfolio on a daily basis. The
investment income, expenses and realized and unrealized gains and losses are
allocated daily to investors in the Portfolio based upon the value of their
investments in the
FS-26
<PAGE> 312
Portfolio. Such investments are adjusted on a daily basis.
C) DIVIDENDS AND DISTRIBUTIONS:
The Fund declares dividends to shareholders of record on the day of
declaration from net investment income. Such dividends are paid quarterly.
However, to the extent that net realized gains of the Fund can be offset by
capital loss carryovers, such gains will not be distributed. Dividends and
distributors are recorded on the ex-dividend date.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
D) FEDERAL INCOME TAXES:
It is the policy of the Fund to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
E) OTHER:
The Fund incurred certain costs in connection with its organization. Such
costs have been deferred and are being amortized on a straight line basis over
five years.
Expenses directly attributable to the Fund are charged directly to the Fund,
while Company expenses attributable to more than one Fund of the Company are
allocated among the respective funds.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has an Administration Agreement with Concord and a Distribution
Agreement with the Distributor.
As Administrator, Concord assists in supervising the operations of the Fund.
For its services Concord is entitled to a fee from the Fund, which is accrued
daily and payable monthly, at an annual rate of 0.15% of the Fund's average net
assets. For the year ended February 29, 1996 Concord agreed to waive its entire
fee as Administrator. For the same period, Concord agreed to reimburse the Fund
$192,545 of its operating expenses.
FS-27
<PAGE> 313
For the year ended February 29, 1996, the Distributor advised the Fund that
it retained $69,818 from commissions earned on sales of the Fund's shares. For
the same period, Bank of America and its affiliates advised the Fund that they
retained $569,332 from commissions earned on sales of the Fund's shares.
The Fund has adopted a Shareholder Service Plan (the "Plan") under which the
Fund pays the Distributor for shareholder servicing expenses incurred in
connection with shares of the Fund. Under the Plan, payments by the Fund may not
exceed 0.25% (annualized) of the Fund's average daily net assets. For the year
ended February 29, 1996, the Distributor waived all of its shareholder service
fees due from the Fund. The Plan provides that if, in any month, the fees paid
to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess costs will not be carried forward beyond the end of the fiscal year
in which such excess costs were incurred. Effective December 11, 1995, BISYS
Fund Services, Inc., also a wholly owned subsidiary, served the Fund as transfer
agent and dividend disbursing agent. In this capacity, BISYS Fund Services, Inc.
earned $8,804 for the period from December 11, 1995 through February 1996. Prior
to December 11, 1995 an unrelated party provided these services.
For the year ended February 29, 1996, the Fund incurred legal charges
totaling $46,277 which were earned by a law firm, a partner of which serves as
Secretary of the Company. Certain officers of the Company are "affiliated
persons" (as defined in the Act) of BISYS.
NOTE 4 -- DIRECTORS' COMPENSATION
Each director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives a retainer of
$1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former president and chairman of the Company receives an additional $40,000
per year through February 28, 1997 in consideration of his years of services.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. In addi-
FS-28
<PAGE> 314
tion, the amount payable each year to a Director who dies or resigns shall be
increased by $1,000 for each year of service that the Director served as
Chairman of the Board. Each Director may receive any benefits payable under the
Retirement Plan, at his or her election, either in one lump sum payment or ten
annual installments. A Director's years of service for the purpose of
calculating the payments described above shall be based upon service as a
Director or Chairman after February 28, 1994. Aggregate costs pursuant to the
Retirement plan amounted to $60 for the year ended February 29, 1996.
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
At February 29, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 100 million shares were classified
as Class O Common Stock (Asset Allocation Fund).
Transactions in shares of common stock of the Fund are summarized below (000
omitted):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares subscribed.... 1,016 363
Shares issued to
shareholders in
reinvestment of
dividends........... 53 6
Shares redeemed...... (169) (38)
----- ---
Net increase........ 900 331
===== ===
</TABLE>
NOTE 6 -- FEDERAL INCOME TAX STATUS
During the year ended February 29, 1996, the Company utilized its net
capital loss carryover of approximately $83,000.
FS-29
<PAGE> 315
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value per share, beginning of
period................................... $ 15.15 $14.84 $15.00
------- ------ ------
Income from Investment Operations:
Net investment income.................... 0.52 0.48 0.03
Net realized and unrealized gain (loss)
on securities.......................... 2.86 0.24 (0.19)
------- ------ ------
Total gain (loss) from investment
operations............................. 3.38 0.72 (0.16)
Less Dividends and Distributions:
Dividends to shareholders from net
investment income...................... (0.53) (0.41) --
Distributions to shareholders from net
realized gains on securities........... (0.48)
------- ------ ------
Total dividends and distributions........ (1.01) (0.41) --
------- ------ ------
Net change in net asset value.............. 2.37 0.31 (0.16)
------- ------ ------
Net asset value per share, end of period... $ 17.52 $15.15 $14.84
======= ====== ======
Total Return++............................. 22.80% 5.03% (1.07)%
Ratios/Supplemental Data:
Net assets, end of period (000).......... $ 22,355 $5,694 $ 666
Ratio of expenses to average net
assets**............................... 0.62% 0.00% 0.00%+
Ratio of net investment income to average
net assets**........................... 3.49% 4.25% 4.20%+
<FN>
- ---------------
* For the period January 18, 1994 (commencement of operations) through February
28, 1994.
** Reflects the Fund's proportionate share of the fee waivers and expense
reimbursements by the Portfolio's Investment Adviser and Administrator and
the Fund's Administrator and Distributor. Such fee waivers and expense
reimbursements 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 2.30%, 7.89% and 83.95% (annualized) for the periods ended February
29, 1996, February 28, 1995, and February 28, 1994, respectively.
+ Annualized.
++ The total returns listed are not annualized for the period ending February
28, 1994 and do not include the effect of the maximum 4.50% sales charge.
</TABLE>
See Notes to Financial Statements.
FS-30
<PAGE> 316
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Pacific Horizon Asset Allocation Fund (one of the portfolios constituting
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
29, 1996, the results of its operations for the year then ended, and the changes
in its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
--------------------------------------------------
For the year ended February 29, 1996, the Fund paid to shareholders
$0.3345 per share from long term capital gains.
- --------------------------------------------------------------------------------
FS-31
<PAGE> 317
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE -- 0.9%
Boeing Co. ......................................................... 19,000 $ 1,541,375
------------
AIRLINES & FREIGHT -- 0.2%
AMR Corp. .......................................................... 4,500 394,875
------------
ALUMINIUM/STEEL -- 0.2%
Worthington Industry Inc. .......................................... 20,000 430,000
------------
AUTOMOTIVE -- 1.0%
Echlin, Inc. ....................................................... 12,300 416,663
General Motors Corp. ............................................... 25,800 1,322,250
------------
1,738,913
------------
BANKS -- 3.3%
Chase Manhattan Corp. .............................................. 10,000 745,000
CitiCorp............................................................ 32,400 2,527,200
First Interstate BanCorp............................................ 6,800 1,110,950
Fleet Financial Group Inc. ......................................... 41,000 1,686,125
------------
6,069,275
------------
BUSINESS EQUIPMENT/SERVICES -- 1.3%
Cisco Systems....................................................... 24,600 1,168,500
Hewlett Packard Co. ................................................ 12,000 1,209,000
------------
2,377,500
------------
CHEMICALS -- 1.7%
Corning, Inc. ...................................................... 13,400 435,500
Dow Chemical Co. ................................................... 4,000 321,000
E.I. Du Pont de Nemours & Co. ...................................... 9,700 742,050
Monsanto Corp. ..................................................... 6,300 848,138
Sigma Adrich Corp. ................................................. 11,900 681,275
------------
3,027,963
------------
CONSUMER CYCLICAL -- 0.5%
Armstrong World Industries.......................................... 15,200 891,100
------------
CONSUMER STAPLES -- 5.6%
Coca-Cola Co. ...................................................... 23,400 1,889,550
Conagra Inc. ....................................................... 19,600 825,650
Pepsico Inc. ....................................................... 18,700 1,182,775
Philip Morris Cos, Inc. ............................................ 17,700 1,752,300
Procter & Gamble Co. ............................................... 17,000 1,394,000
Whitman Corp. ...................................................... 27,600 641,700
Ralston Purina Co. ................................................. 7,800 522,600
Sysco Corp. ........................................................ 27,000 887,625
Anheuser Busch Companies Inc. ...................................... 14,900 1,003,888
------------
10,100,088
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-32
<PAGE> 318
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
COSMETICS & HOUSEHOLD PRODUCTS -- 1.2%
Colgate-Palmolive Co................................................ 4,600 $ 359,950
Gillette Co. ....................................................... 14,800 801,050
Johnson & Johnson................................................... 4,000 374,000
Newell Co. ......................................................... 23,000 638,250
------------
2,173,250
------------
DIVERSIFIED MANUFACTURING -- 4.3%
Alco Standard Corp. ................................................ 53,000 2,510,875
General Electric Co. ............................................... 49,000 3,699,500
Illinois Tool Works, Inc. .......................................... 23,000 1,515,125
------------
7,725,500
------------
DRUGS BIOTECHNOLOGY -- 3.6%
American Home Products Corp. ....................................... 10,500 1,034,250
Amgen, Inc. ........................................................ 10,000 597,500
Bristol-Meyers...................................................... 15,800 1,344,975
Lilly (Eli), and Co. ............................................... 19,800 1,197,900
Medtronic Inc. ..................................................... 8,100 464,738
Pfizer Inc. ........................................................ 16,600 1,093,525
Schering Plough Corp. .............................................. 10,400 583,700
Warner Lambert Co. ................................................. 2,700 266,962
------------
6,583,550
------------
DRUG & HOSPITAL SUPPLIES -- 0.5%
Baxter International, Inc. ......................................... 21,200 969,900
------------
ELECTRICAL & OTHER ELEC. EQUIPMENT -- 0.7%
Emerson Electric Co. ............................................... 17,600 1,370,600
------------
ELECTRIC UTILITIES -- 1.1%
Central & Southwest Corp. .......................................... 30,500 846,375
Duke Power Co. ..................................................... 14,200 694,025
Northern STS PWR Minnesota.......................................... 10,300 507,275
------------
2,047,675
------------
ELECTRONIC COMPUTERS -- 1.9%
Amp, Inc. .......................................................... 19,500 831,188
Intel Corp. ........................................................ 36,000 2,117,250
Motorola, Inc. ..................................................... 10,700 580,475
------------
3,528,913
------------
FINANCE SERVICES -- 3.1%
American Express.................................................... 45,000 2,070,000
Dun & Bradstreet Corp. ............................................. 3,300 208,725
Household International Inc. ....................................... 33,000 2,219,250
Dean Witter......................................................... 20,200 1,085,750
------------
5,583,725
------------
FOREST PRODUCTS -- 0.2%
Wayerhaeuser Co. ................................................... 9,500 402,563
------------
GAS UTILITIES -- 0.7%
Pacific Enterprises, Inc. .......................................... 36,200 968,350
Eastern Enterprises................................................. 11,000 389,125
------------
1,357,475
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-33
<PAGE> 319
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
HEALTH CARE -- 1.6%
Abbot Laboratories.................................................. 27,000 $ 1,127,250
Merck & Co., Inc. .................................................. 18,200 1,205,750
US Healthcare, Inc. ................................................ 10,000 487,500
------------
2,820,500
------------
INDUSTRIAL INORGANIC CHEMICALS -- 0.4%
Silicon Graphics.................................................... 29,700 742,500
------------
LEISURE -- 0.7%
Walt Disney Co. .................................................... 11,300 740,150
Hilton Hotels Corp. ................................................ 3,900 365,625
Mattel, Inc. ....................................................... 5,600 186,200
------------
1,291,975
------------
LIFE INSURANCE -- 0.4%
Chubb Corp. ........................................................ 6,900 670,163
------------
MACHINE EQUIPMENT -- 0.6%
Deere & Co. ........................................................ 26,500 1,036,813
------------
MEDIA -- 1.1%
Capital Cities/ABC, Inc. ........................................... 4,000 507,000
Gannett, Inc. ...................................................... 4,100 278,800
McGraw Hill, Inc. .................................................. 4,700 410,663
Time Warner, Inc. .................................................. 9,600 410,400
Tribune Co. New..................................................... 6,300 420,525
------------
2,027,388
------------
MINING -- 0.3%
Newmont Mining Corp. ............................................... 9,500 540,313
------------
MULTI INDUSTRY -- 1.6%
TRW Inc. ........................................................... 17,000 1,472,625
Tyco Labs Inc. ..................................................... 37,000 1,336,625
------------
2,809,250
------------
MULTI INSURANCE -- 1.7%
American International Group........................................ 12,750 1,231,969
General Re Corp. ................................................... 5,500 791,312
Providian Corp. .................................................... 21,800 1,008,250
------------
3,031,531
------------
OIL -- DOMESTIC & CRUDE -- 4.2%
Amoco Corp. ........................................................ 8,900 618,550
Coastal Corp. ...................................................... 27,300 1,003,275
Exxon Corp. ........................................................ 24,500 1,947,750
Texaco Inc. ........................................................ 9,000 717,750
USX Marathon Group.................................................. 41,800 773,300
Mobil Corp. ........................................................ 9,200 1,008,550
Halliburton Co. .................................................... 17,500 960,313
Schlumberger Ltd. .................................................. 8,900 648,588
------------
7,678,076
------------
PAPER & ALLIED PRODUCTS -- 0.4%
Federal Paper Board Co., Inc. ...................................... 4,800 256,200
Mead Corp. ......................................................... 9,000 450,000
------------
706,200
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-34
<PAGE> 320
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.3%
Eastman Kodak Co. .................................................. 6,900 $ 493,350
------------
RAILROADS -- 0.7%
Union Pacific Corp. ................................................ 9,600 633,600
Burlington Northern Santa Fe C...................................... 8,400 672,000
------------
1,305,600
------------
RESTAURANTS -- 0.4%
McDonald's Corp. ................................................... 13,150 657,500
------------
RETAIL -- 2.8%
Home Depot Inc. .................................................... 24,000 1,038,000
Nordstrom, Inc. .................................................... 14,600 658,825
Price/Costco Inc. .................................................. 49,500 853,875
Wal Mart Stores Inc. ............................................... 64,100 1,362,125
May Dept. Stores Co. ............................................... 24,000 1,119,000
------------
5,031,825
------------
SOFTWARE SERVICES -- 1.7%
Automatic Data Processing, Inc. .................................... 16,800 651,000
Microsoft Corp. .................................................... 24,000 2,368,500
------------
3,019,500
------------
TECHNOLOGY -- 1.5%
International Business Machines..................................... 16,000 1,962,000
National Semiconductor Corp. ....................................... 44,700 698,440
------------
2,660,440
------------
TELEPHONE -- 3.4%
AT&T................................................................ 32,800 2,086,900
Bellsouth Corp. .................................................... 17,200 685,850
GTE Corp. .......................................................... 29,500 1,264,813
MCI Communications Corp. ........................................... 24,500 716,625
SBC Communications Corp. ........................................... 21,700 1,190,787
Tele-Communications, Inc. .......................................... 8,300 174,300
------------
6,119,275
------------
TIRE AND RUBBER -- 0.1%
Cooper Tire and Rubber Co........................................... 11,100 281,660
------------
Total Common Stocks -- 55.9%
(cost $84,556,256).................................................. 101,238,092
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
U.S. TREASURY BONDS -- 6.5%
U.S. Treasury Bond............................. 10.38% 11/15/12 $ 8,800 $ 11,669,855
------------
U.S. TREASURY NOTES -- 8.4%
U.S. Treasury Note............................. 5.75% 8/15/03 6,400 6,300,671
U.S. Treasury Note............................. 7.88% 11/15/04 8,000 8,930,478
------------
15,231,149
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS -- 14.9%
(cost $27,291,693)............................. 26,901,004
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-35
<PAGE> 321
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.0%
Federal Home Loan Mortgage Corporation
Pool #G10304................................. 6.50% 4/01/09 $ 946 $ 937,478
Federal Home Loan Mortgage Corporation
Pool #E60891................................. 6.50% 7/01/10 3,343 3,311,369
Federal Home Loan Mortgage Corporation
Pool #297505................................. 8.00% 6/01/17 17 17,148
Federal Home Loan Mortgage Corporation
Pool #53301.................................. 10.50% 4/01/19 35 38,110
Federal Home Loan Mortgage Corporation
Pool #544066................................. 8.00% 12/01/19 17 16,880
FNCI 6.5%TBA................................... 6.50% 3/15/11 5,000 4,950,000
FGLMC Pool #D67963............................. 6.50% 1/01/26 9,100 8,787,188
Government National Mortgage Association
Pool #146301................................. 10.00% 2/15/16 98 108,237
------------
Total U.S. Government Agency Obligations
(cost $18,454,981)............................. 18,166,410
------------
TAXABLE MUNICIPAL BONDS -- 0.5%
ALASKA --
Alaska State, Housing Finance Authority,
Series G..................................... 10.55% 1/15/18 115 113,419
------------
ILLINOIS --
Cook County, General Obligation Bond........... 5.00% 11/15/23 800 722,000
------------
Total Taxable Municipal Bonds
(cost $836,299)................................ 835,419
------------
CORPORATE OBLIGATIONS -- 9.0%
CORPORATE BONDS -- 1.9%
Hertz Corp. ................................... 6.00% 1/15/03 2,500 2,421,875
Lehman Brothers................................ 5.75% 11/15/98 1,000 981,250
------------
3,403,125
------------
MEDIUM TERM NOTES -- 7.1%
Chrysler Finance Corp. ........................ 5.48% 2/23/99 2,500 2,468,750
Morgan Stanley Group........................... 5.63% 3/01/99 1,500 1,483,125
Ford Motor Credit.............................. 8.38% 1/15/00 3,000 3,217,500
International Lease Finance.................... 5.71% 2/01/00 1,600 1,570,000
Province of Quebec............................. 7.98% 4/01/99 3,000 3,161,250
Philip Morris.................................. 8.75% 3/12/98 1,000 1,055,000
------------
12,955,625
------------
Total Corporate Obligations
(cost $16,452,588)............................. 16,358,750
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.4%
Discover Credit Card Trust..................... 7.85% 11/20/98 3,000 3,148,200
Prime Credit Card Master Trust................. 7.05% 12/15/97 3,000 3,071,089
NationsBank Credit Card Master................. 6.45% 4/15/03 3,500 3,563,760
Merrill Lynch & Co. ........................... 6.85% 4/15/12 8 7,734
------------
Total Collateralized Mortgage Obligations
(cost $9,733,978).............................. 9,790,783
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-36
<PAGE> 322
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
COMMERCIAL PAPER DISCOUNT -- 3.9%
Brown Forman................................... 5.50% 3/01/96 $ 3,500 $ 3,500,000
Merrill Lynch.................................. 5.47% 3/01/96 3,500 3,500,000
------------
7,000,000
------------
TOTAL INVESTMENTS -- 99.6%
(COST $164,325,795)............................ 180,290,458
Other Assets In Excess Of Liabilities -- 0.4%... 763,956
------------
NET ASSETS -- 100%.............................. $181,054,414
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-37
<PAGE> 323
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $164,325,795).............. $180,290,458
Cash................................................................ 66,207
Receivable for investment securities sold........................... 5,307,998
Contribution receivable............................................. 262,293
Dividends receivable................................................ 243,397
Interest receivable................................................. 870,288
Deferred organization costs and prepaid expenses.................... 41,137
------------
Total assets.......................................................... 187,081,778
------------
LIABILITIES:
Withdrawal payable.................................................. 200,358
Payable for investment securities purchased......................... 5,731,750
Advisor fees payable................................................ 37,278
Administration fees payable......................................... 3,384
Accrued accounting fees............................................. 15,596
Accrued audit fees.................................................. 16,095
Accrued custody fees................................................ 5,303
Accrued legal fees.................................................. 6,868
Other accrued expenses.............................................. 10,732
------------
Total liabilities..................................................... 6,027,364
------------
NET ASSETS............................................................ $181,054,414
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-38
<PAGE> 324
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................................. $ 4,919,733
Dividends............................................. 1,936,890
-----------
6,856,623
-----------
EXPENSES:
Advisory fees......................................... 913,660
Administration fees................................... 83,060
Fund accounting fees and expenses..................... 122,609
Custodian fees and expenses........................... 30,446
Audit fees............................................ 22,305
Legal fees............................................ 17,976
Amortization of organization costs.................... 13,692
Insurance expense..................................... 3,637
Trustees fees......................................... 3,500
Other operating expenses.............................. 5,835
-----------
1,216,720
Less: Fee waivers and expense reimbursements.......... (785,750) 430,970
----------- -----------
Net Investment Income................................... 6,425,653
-----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on securities transactions.......... 19,223,012
Net change in unrealized appreciation on
investments......................................... 8,662,241
-----------
Net Gain on Investments................................. 27,885,253
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $34,310,906
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-39
<PAGE> 325
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 6,425,653 $ 6,185,598
Net realized gain (loss) on securities transactions.... 19,223,012 (4,776,038)
Net change in unrealized appreciation/depreciation on
investments.......................................... 8,662,241 5,934,051
------------ ------------
Net increase in net assets resulting from operations... 34,310,906 7,343,611
------------ ------------
Trust Share Transactions:
Contributions.......................................... 31,372,458 18,683,561
Withdrawals............................................ (35,499,213) (32,967,230)
------------ ------------
Net decrease in net assets resulting from Trust share
transactions......................................... (4,126,755) (14,283,669)
------------ ------------
Total Increase (Decrease)................................ 30,184,151 (6,940,058)
NET ASSETS:
Beginning of year...................................... 150,870,263 157,810,321
------------ ------------
End of year............................................ $181,054,414 $150,870,263
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-40
<PAGE> 326
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act")
as an open-end management investment company. At February 29, 1996, the Trust
consisted of four portfolios. The accompanying financial statements and notes
are those of the Asset Allocation Portfolio (the "Portfolio") only.
The investment objective of the Portfolio is to obtain long term growth from
capital appreciation and dividend and interest income. The Portfolio seeks to
achieve its objective by actively allocating investments among the three major
asset categories: bonds, equity securities and cash equivalents.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolio's
investment adviser.
Concord Holding Corporation ("Concord") serves as the Portfolio's
administrator through BISYS Fund Services (Ireland) Ltd., a wholly owned
subsidiary of Concord. Effective March 29, 1995, Concord became a wholly owned
subsidiary of The BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation or, if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. Securities that are primarily traded on the NASDAQ national
securities market are valued at the last reported sales price on the date of
valuation or, if none is available, at the last quoted bid price on the date of
valuation. The Portfolio may use an independent pricing service, approved by the
Board of Trustees, to value certain of its securities. Such prices reflect
market values which may be established through the use of electronic data
processing techniques and matrix systems. Restricted securities and securities
for which market quotations are not readily available, if any, are valued at
fair value using methods approved by the Board of Trustees. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. The amortized cost
FS-41
<PAGE> 327
method involves valuing a security at its cost on the date of purchase or, in
the case of securities purchased with more than 60 days until maturity, at their
market value each day until the 61st day prior to maturity, and thereafter
assuming a constant amortization to maturity of the difference between the
principal amount due at maturity and such valuation.
B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recorded on the ex-dividend date.
C) EXPENSES:
Expenses directly attributable to the Portfolio are charged to the Portfolio
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.
D) FEDERAL INCOME TAXES:
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on their share
of the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio has an Advisory Agreement with Bank of America and an
Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.55% of the average
daily net assets of the Portfolio. For the year ended February 29, 1996, Bank of
America waived $720,259 in fees as Adviser of the Portfolio.
As Administrator, Concord assists in supervising the operations of the
Portfolio. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.05% of the Portfolio's average daily net
assets. For the year ended February 29, 1996, Concord waived $65,491 in fees as
Administrator of the Portfolio.
For services provided to all four of the portfolios constituting the Trust,
each Trustee receives an annual fee of $1,500 and a meeting fee of $500. For the
year ended February 29, 1996, the Portfolio incurred legal expenses of $17,976,
which were earned by a law firm, a partner of which serves as Secretary of the
Trust. Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS.
NOTE 4 -- PURCHASES AND SALES OF SECURITIES
The following table summarizes the securities transactions effected by the
Port-
FS-42
<PAGE> 328
folio, excluding short-term securities, for the year ended February 29, 1996.
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
U.S. Government.......... $85,887,588 $ 85,359,727
Other.................... 161,276,120 160,698,929
----------- -----------
$247,163,708 $246,058,656
=========== ===========
</TABLE>
At February 29, 1996, the cost of the securities of the Portfolio for
federal income tax purposes was substantially the same as for financial
reporting purposes. Accordingly, Net unrealized appreciation of investments
amounted to $15,964,735, consisting of gross unrealized appreciation of
$18,488,396 and gross unrealized depreciation of $2,523,661.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Portfolio had the following concentrations by industry sector at
February 29, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U.S.Treasury Obligations........... 15.0%
U.S. Govt. Agency Obligations...... 10.1%
Taxable Municipal Bonds............ 0.5%
Medium Term Notes.................. 7.2%
Corporate Bonds.................... 1.9%
Collateralized Mortgage
Obligations....................... 5.4%
Commercial Paper Discount.......... 3.9%
Aerospace.......................... 0.9%
Airlines & Freight................. 0.2%
Aluminium/Steel.................... 0.2%
Automotive......................... 1.0%
Banks.............................. 3.4%
Business Equipment/Services........ 1.3%
Chemicals.......................... 1.7%
Consumer Cyclical.................. 0.5%
Consumer Staples................... 5.6%
Cosmetics & Household Products..... 1.2%
Diversified Manufacturing.......... 4.3%
Drugs & Biotechnology.............. 3.6%
Drugs & Hospital................... 0.5%
Electrical & Other Electrical
Equipment......................... 0.8%
Electric Utilities................. 1.1%
Electronic Computers............... 1.9%
Finance Services................... 3.1%
Forest Products.................... 0.2%
Gas Utilities...................... 0.7%
Health Care........................ 1.6%
Industrial Inorganic Chemicals..... 0.4%
Leisure............................ 0.7%
Life Insurance..................... 0.4%
Machine Equipment.................. 0.6%
Media.............................. 1.1%
Mining............................. 0.3%
Multi Industry..................... 1.6%
Multi Insurance.................... 1.7%
Oil -- Domestic & Crude............ 4.2%
Paper & Allied Products............ 0.4%
Photographic Equipment &
Supplies.......................... 0.3%
Railroads.......................... 1.3%
Restaurants........................ 0.4%
Retail............................. 2.2%
Software Services.................. 1.7%
Technology......................... 1.5%
Telephone.......................... 3.4%
Tire & Rubber...................... 0.1%
-------
100.0%
========
</TABLE>
FS-43
<PAGE> 329
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.26% 0.17% 0.24%***
Ratio of net investment income to average
net assets**............................. 3.87% 4.01% 3.35%***
Portfolio Turnover......................... 157% 142% 67%
<FN>
- ---------------
* For the period December 6, 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 0.47%, 0.60%, and 0.03% (annualized) for the periods
ended February 29, 1996, February 28, 1995, and February 28, 1994,
respectively.
*** Annualized.
</TABLE>
See Notes to Financial Statements.
FS-44
<PAGE> 330
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees
and Investors of
Master Investment Trust, Series I
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series I -- Asset
Allocation Portfolio (the "Portfolio") at February 29, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and its supplementary data for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations were not received, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
FS-45
<PAGE> 331
PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Investment Grade
Bond Portfolio, at value.......................................... $13,147,500
Receivable from Administrator....................................... 20,992
Deferred organization costs and prepaid expenses.................... 60,087
-----------
Total assets.......................................................... 13,228,579
-----------
LIABILITIES:
Accrued reports to shareholders expenses............................ 21,204
Accrued legal fees.................................................. 11,405
Accrued audit fees.................................................. 6,304
Accrued fund accounting............................................. 6,448
Other accrued fees and expenses..................................... 3,819
-----------
Total liabilities..................................................... 49,180
-----------
NET ASSETS............................................................ $13,179,399
===========
Shares Outstanding ($0.001 par value, 100 million shares
authorized)......................................................... 1,351,159
===========
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value per share........................................... $ 9.75
Sales charge -- 4.50% of public offering price...................... 0.46
-----
Maximum Offering Price.............................................. $10.21
=====
Capital stock, at par............................................... $ 1,351
Paid-in capital..................................................... 13,122,538
Accumulated net realized gains...................................... 96,796
Net unrealized depreciation on investments.......................... (41,286)
-----------
NET ASSETS, FEBRUARY 29, 1996......................................... $13,179,399
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-46
<PAGE> 332
PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Investment Grade Bond Portfolio:
Interest.................................................. $ 424,314
Expenses.................................................. $ 43,122
Less: Fee waivers and expense reimbursements.............. (33,018) 10,104
---------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 414,210
----------
EXPENSES:
Shareholder service fees.................................. 16,582
Administration fees....................................... 9,952
Legal fees................................................ 47,105
Reports to shareholders expenses.......................... 41,311
Fund accounting fees and expenses......................... 37,398
Transfer agent fees and expenses.......................... 32,408
Amortization of organization costs........................ 29,964
Registration fees......................................... 20,001
Audit fees................................................ 21,190
Directors' fees........................................... 6,935
Other operating expenses.................................. 25,403
----------
288,249
Less: Fee waivers and expense reimbursements.............. (280,525) 7,724
---------- ----------
Net Investment Income....................................... 406,486
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS FROM MASTER INVESTMENT TRUST,
SERIES I -- INVESTMENT GRADE BOND PORTFOLIO:
Net realized gain on securities transactions.............. 154,841
Net change in unrealized depreciation on investments...... (58,037)
----------
Net Gain on Investments from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 96,804
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................... $ 503,290
=========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-47
<PAGE> 333
PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................ $ 406,486 $ 74,137
Net realized gain (loss) on securities
transactions....................................... 154,841 (30,755)
Net change in unrealized appreciation (depreciation)
of investments..................................... (58,037) 19,011
----------- -----------
Net increase in net assets resulting from
operations......................................... 503,290 62,393
----------- -----------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment
income............................................. (406,485) (74,137)
Dividends to shareholders from net realized gains on
securities......................................... (26,279) --
----------- -----------
Total Dividends and Distributions to Shareholders...... (432,764) (74,137)
Fund Share Transactions:
Net proceeds from shares subscribed.................. 12,184,154 2,413,917
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions........ 273,214 53,731
Shares redeemed...................................... (1,312,597) (848,073)
----------- -----------
Net increase in net assets from
Fund share transactions............................ 11,144,771 1,619,575
----------- -----------
Total Increase......................................... 11,215,297 1,607,831
NET ASSETS:
Beginning of year.................................... 1,964,102 356,271
----------- -----------
End of year.......................................... $13,179,399 $ 1,964,102
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-48
<PAGE> 334
PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 29, 1996, the Company
operated as a series company comprising fifteen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Flexible Bond
Fund (the "Fund") only.
The Fund seeks to achieve its investment objectives by investing
substantially all of its assets in the Investment Grade Bond Portfolio of Master
Investment Trust, Series I (the "Portfolio"), an open-ended management
investment company, that has the same investment objective as that of the Fund.
The value of the Fund's investment in the Portfolio included in the accompanying
statements of assets and liabilities reflects the Fund's proportionate
beneficial interest in the net assets of the Portfolio (19.8% at February 29,
1996). The financial statements of the Portfolio, including the portfolio of
investments, are included elsewhere within this report and should be read in
conjunction with the Fund's financial statements.
Concord Holding Corporation ("Concord") serves as the Fund's administrator
and Concord Financial Group, Inc. (the "Distributor"), a wholly owned subsidiary
of Concord, serves as the distributor of the Fund's shares. Effective March 29,
1995, Concord became a wholly owned subsidiary of The BISYS Group, Inc.
("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
The valuation of securities by the Portfolio is discussed in Note 2 of the
Portfolio's financial statements.
B) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:
The Fund records its share of the investment income, expenses and realized
and unrealized gains and losses recorded by the Portfolio on a daily basis. The
investment income, expenses and realized and unrealized gains and losses are
allocated daily to investors in the Portfolio based upon the value of their
investments in the Portfolio. Such investments are adjusted on a daily basis.
FS-49
<PAGE> 335
C) DIVIDENDS AND DISTRIBUTIONS:
The Fund declares dividends to shareholders of record on the day of
declaration from net investment income. Such dividends are declared daily and
paid monthly. Net realized gains, if any, will be distributed annually. However,
to the extent that net realized gains of the Fund can be offset by capital loss
carryovers of the Fund, such gains will not be distributed. Dividends and
distributions are recorded on the ex-dividend date.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
D) FEDERAL INCOME TAXES:
It is the policy of the Fund to meet the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
E) OTHER:
The Fund incurred certain costs in connection with their organization. Such
costs have been deferred and are being amortized by the Fund on a straight line
basis over five years.
Expenses directly attributable to the Fund are charged to the Fund, while
Company expenses attributable to more than one portfolio of the Company are
allocated among the respective funds.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has an Administration Agreement with Concord and a Distribution
Agreement with the Distributor.
As Administrator, Concord assists in supervising the operations of the Fund.
For its services, Concord is entitled to a fee accrued daily and payable
monthly, at an annual rate of 0.15% of the Fund's average net assets. For the
year ended February 29, 1996 Concord agreed to waive its entire fee as
Administrator.
Concord reimbursed the Fund $253,991 in operating expenses for the year
ended February 29, 1996.
For the year ended February 29, 1996, the Distributor advised the Fund that
it retained $51,076 from commissions earned on sales of the Fund's shares. For
the same period, Bank of America and its affiliates advised the Fund that they
retained $408,407 from commissions earned on sales of the Fund's shares.
FS-50
<PAGE> 336
The Fund has adopted a Shareholder Service Plan (the "Plan") under which the
Fund pays the Distributor for shareholder servicing expenses incurred in
connection with shares of the Fund. Under the Plan, payments by the Fund may not
exceed 0.25% (annualized) of the Fund's average daily net assets. For the year
ended February 29, 1996, the Distributor waived all shareholder service fees.
The Plan provides that if, in any months, the fees paid to the Distributor are
less than the costs incurred by the Distributor, the excess costs will be
included in future computations of the fee, provided that any excess costs will
not be carried forward beyond the end of the fiscal year in which such excess
costs were incurred.
Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary, served the Fund as transfer agent and dividend disbursing agent. In
this capacity, BISYS Fund Services, Inc. earned $4,265 for the period from
December 11, 1995 through February 1996. Prior to December 11, 1995 an unrelated
party provided these services.
For the year ended February 29, 1996, the Fund incurred legal charges
totaling $47,105 which were earned by a law firm, a partner of which serves as
Secretary of the Company. Certain officers of the Company are "affiliated
persons" (as defined in the Act) of BISYS.
NOTE 4 -- DIRECTORS' COMPENSATION
Each director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives an annual retainer
of $1,000 for services as Chairman of the Committee. In addition, the Fund's
President is entitled to an annual salary of $20,000 for services as President.
The former president and chairman of the Company receives an additional $40,000
per year through February 28, 1997 in consideration of his services.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. In addition, the amount
payable each year to a Director who dies or resigns shall be increased by $1,000
for each year of service that the Director served as Chairman of the Board. Each
Director may receive any benefits payable under the Retirement Plan, at his or
her election, either in one lump sum payment or ten annual installments. A
Director's years of service for the
FS-51
<PAGE> 337
purpose of calculating the payments described above shall be based upon service
as a Director or Chairman after February 28, 1994. Aggregate costs to the Fund
pursuant to the Retirement Plan amounted to $20, for the year ended February 29,
1996.
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
At February 29, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 100 million shares were classified
as Class M Common Stock, (Flexible Bond Fund).
Transactions in shares of the Fund are summarized below (000's omitted):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares subscribed.... 1,249 257
Shares issued in
reinvestment of
dividends........... 28 6
Shares redeemed...... (134) (91)
----- ---
Net increase........ 1,143 172
===== ===
</TABLE>
NOTE 6 -- FEDERAL INCOME TAX STATUS
During the year ended February 29, 1996, the Company utilized its net
capital loss carryovers of approximately $14,000.
FS-52
<PAGE> 338
PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value per share, beginning of
period................................ $ 9.44 $ 9.81 $10.00
-------- -------- --------
Income from Investment Operations:
Net investment income................. 0.59 0.59 0.08
Net realized and unrealized gain
(loss) on securities................ 0.33 (0.37) (0.19)
-------- -------- --------
Total income (loss) from investment
operations.......................... 0.92 0.22 (0.11)
Less Dividends and Distributions:
Dividends to shareholders from net
investment income................... (0.59) (0.59) (0.08)
Distributions to shareholders from Net
realized gains on securities........ (0.02)
-------- -------- --------
Total dividends and distributions....... (0.61) (0.59) (0.08)
Net change in net asset value........... 0.31 (0.37) (0.19)
-------- -------- --------
Net asset value per share, end of
period................................ $ 9.75 $ 9.44 $ 9.81
======== ======== ========
Total return++.......................... 10.45% 2.27% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 13,179 $1,964 $ 356
Ratio of expenses to average
net assets**........................ 0.27% 0.00% 0.00%+
Ratio of net investment income to
average net assets**................ 6.13% 6.43% 5.70%+
- ---------------
<FN>
* For the period January 24, 1994 (commencement of operations) through February
28, 1994.
** Reflects the Fund's proportionate share of the Portfolio's expenses and fee
waivers and expense reimbursements by the Portfolio's Investment Adviser and
Administrator and the Fund's Administrator and Distributor. Such fee waivers
and expense reimbursements 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 4.73%, 17.95% and 160.20% (annualized) for the periods
ended February 29, 1996 , February 28, 1995 and February 28, 1994
respectively.
+ Annualized.
++ The total returns listed are not annualized for the period February 28, 1994,
and do not include the effect of the maximum 4.50% sales charge.
</TABLE>
See Notes to Financial Statements.
FS-53
<PAGE> 339
PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Pacific Horizon Flexible Bond Fund (one of the portfolios constituting
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
29, 1996, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
- --------------------------------------------------------------------------------
TAX STATUS OF DIVIDENDS (UNAUDITED)
--------------------------------------------
For the year ended February 29, 1996, the Fund paid to shareholders
$0.0035 per share from long-term capital gains.
- --------------------------------------------------------------------------------
FS-54
<PAGE> 340
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ---------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 15.4%
Household International BV....... AB/A 5.25% 10/15/98 $ 2,000 $ 1,970,000
MCI Communications Corp. ........ A2/A- 6.25% 3/23/99 2,000 2,017,500
American Brands.................. A2/A 7.50% 5/15/99 1,000 1,038,750
Ford Motor Credit................ A1/A+ 9.50% 4/15/00 2,500 2,790,625
Hertz Corp. ..................... AB/A 6.00% 1/15/03 2,500 2,421,875
-----------
10,238,750
-----------
COMMERCIAL PAPER DISCOUNT -- 2.6%
Brown Forman..................... A-1/P-1 5.50% 3/01/96 1,760 1,760,000
-----------
MEDIUM TERM NOTES -- 17.5%
Chrysler Finl Corp. ............. AB/A- 6.60% 8/03/98 2,000 2,027,500
International Lease Finance...... A2/A+ 6.27% 2/10/99 2,500 2,515,625
Morgan Stanley Group............. A1/A+ 5.63% 3/01/99 2,000 1,977,500
General Motors Accept Corp. ..... A3/A- 7.38% 5/26/99 2,000 2,072,500
Associates Corp. ................ Aa3/AA- 6.35% 6/29/00 3,000 3,022,500
-----------
11,615,625
-----------
U.S. TREASURY NOTES -- 35.8%
U.S. Treasury Notes.............. Treasury 5.13% 11/30/98 7,900 7,816,812
U.S. Treasury Notes.............. Treasury 6.88% 8/31/99 2,000 2,079,380
U.S. Treasury Notes.............. Treasury 7.75% 11/30/99 3,500 3,744,650
U.S. Treasury Notes.............. Treasury 7.75% 1/31/00 2,500 2,680,175
U.S. Treasury Notes.............. Treasury 5.63% 11/30/00 1,500 1,491,210
U.S. Treasury Notes.............. Treasury 5.75% 8/15/03 6,000 5,906,879
-----------
23,719,106
-----------
U.S. TREASURY BONDS -- 7.3%
U.S.Treasury Bonds............... Treasury 10.38% 11/05/09 3,800 4,845,988
-----------
MUNICIPAL BONDS -- 0.2%
Alaska Housing Series G.......... Aaa/AAA 10.55% 1/15/18 110 108,488
-----------
COLLATERALIZED MORTGAGE OBLIGATION -- 12.5%
Standard Credit Card Master Tr... Aaa/AAA 7.85% 2/07/02 2,500 2,664,500
NationsBank Credit Card Master... Aaa/AAA 6.45% 4/15/03 2,700 2,749,186
Merrill Lynch Mtg Inv. Inc. ..... Aaa/AAA 6.85% 4/15/12 16 16,434
Discover Credit Card Trust....... Aaa/AAA 7.85% 11/20/98 2,700 2,833,380
-----------
8,263,500
-----------
U.S. GOVERNMENT AGENCY NOTES -- 7.0%
FNCX. Pool #303528............... Treasury 6.00% 8/01/01 2,491 2,461,742
Federal National Mortgage
Association Pool #131579....... Treasury 6.50% 7/01/04 240 231,770
Federal National Mortgage
Association Pool #286087....... Treasury 8.00% 6/01/24 872 894,218
Federal Home Loan Mortgage Corp.
Pool #160034................... Treasury 8.50% 12/01/07 76 78,750
Federal Home Loan Mortgage Corp.
Pool #549837................... Treasury 8.00% 7/01/10 241 245,406
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-55
<PAGE> 341
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ---------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY NOTES -- (CONTINUED)
Federal Home Loan Mortgage Corp.
Pool #284343................... Treasury 8.00% 12/01/16 $ 17 $ 17,227
Federal Home Loan Mortgage Corp.
Pool #297505................... Treasury 8.00% 6/01/17 25 25,327
Government National Mortgage
Assoc. Pool #136688............ Treasury 10.00% 9/15/15 38 41,779
Government National Mortgage
Assoc. Pool #166744............ Treasury 10.00% 7/15/16 361 398,893
Government National Mortgage
Assoc. Pool #209480............ Treasury 10.00% 7/15/17 81 89,483
Government National Mortgage
Assoc. Pool #227082............ Treasury 10.00% 8/15/17 115 126,636
-----------
4,611,231
-----------
TOTAL INVESTMENTS -- 98.3%
(COST $65,110,819)............... 65,162,688
Other Assets in excess of Liabilities -- 1.7% 1,126,887
-----------
NET ASSETS -- 100.0%.............. $66,289,575
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-56
<PAGE> 342
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $65,110,819)................ $65,162,688
Cash................................................................. 85,452
Contribution receivable.............................................. 164,227
Interest receivable.................................................. 930,804
Deferred organization costs and prepaid expenses..................... 39,209
-----------
Total assets........................................................... 66,382,380
-----------
LIABILITIES:
Withdrawal payable................................................... 46,142
Accrued accounting fees.............................................. 5,113
Accrued audit fees................................................... 15,666
Accrued custody fees................................................. 2,118
Accrued legal fees................................................... 6,049
Other accrued expenses............................................... 17,717
-----------
Total liabilities...................................................... 92,805
-----------
NET ASSETS............................................................. $66,289,575
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-57
<PAGE> 343
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................ $3,989,704
----------
3,989,704
----------
EXPENSES:
Advisory fees........................................... 269,136
Administration fees..................................... 30,769
Fund accounting fees and expenses....................... 44,790
Custodian fees and expenses............................. 12,697
Audit fees.............................................. 17,687
Legal fees.............................................. 16,094
Amortization of organization costs...................... 13,691
Insurance expense....................................... 1,266
Trustees fees........................................... 3,499
----------
409,629
Less: Fee waivers and expense reimbursements............ (299,905) 109,724
---------- ----------
Net Investment Income..................................... 3,879,980
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on securities transactions............ 2,336,008
Net change in unrealized depreciation on investments.... (247,652)
----------
Net Gain on Investments................................... 2,088,356
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $5,968,336
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-58
<PAGE> 344
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
PORTFOLIO
---------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 3,879,980 $ 4,061,925
Net realized gain (loss) on securities transactions.... 2,336,008 (4,166,543)
Net change in unrealized appreciation/depreciation on
investments.......................................... (247,652) 1,011,785
----------- -----------
Net increase in net assets resulting from operations... 5,968,336 907,167
----------- -----------
Trust Share Transactions:
Contributions.......................................... 21,358,278 4,879,443
Withdrawals............................................ (18,755,421) (25,317,238)
----------- -----------
Net increase (decrease) in net assets resulting from
Trust share transactions............................. 2,602,857 (20,437,795)
----------- -----------
Total Increase (Decrease)................................ 8,571,193 (19,530,628)
NET ASSETS:
Beginning of year...................................... 57,718,382 77,249,010
----------- -----------
End of year............................................ $66,289,575 $57,718,382
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-59
<PAGE> 345
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940 as amended (the "Act"),
as an open-end management investment company. At February 29, 1996, the Trust
consisted of four portfolios. The accompanying financial statements and notes
are those of the Investment Grade Bond Portfolio (the "Portfolio") only.
The investment objective of the Portfolio is to obtain interest income and
capital appreciation by investing in investment grade intermediate and longer
term bonds, including corporate and governmental fixed income obligations and
mortgaged backed securities.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolio's
investment adviser. Concord Holding Corporation ("Concord") serves as the
Portfolio's administrator through BISYS Fund Services (Ireland) Ltd., a wholly
owned subsidiary of Concord. Effective March 29, 1995, Concord became a wholly
owned subsidiary of The BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation, or if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. The Portfolio may use an independent pricing service,
approved by the Board of Trustees, to value certain of their securities. Such
prices reflect market values which may be established through the use of
electronic data processing techniques and matrix systems. Restricted securities
and securities for which market quotations are not readily available, if any,
are valued at fair value using methods approved by the Board of Trustees. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase or, in the case of
securities purchased with more than 60 days until maturity, at their market
value each
FS-60
<PAGE> 346
day until the 61st day prior to maturity, and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and such valuation.
B) SECURITIES TRANSACTIONS AND
INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income is accrued daily.
C) EXPENSES:
Expenses directly attributable to the Portfolio are charged to the Portfolio
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.
D) FEDERAL INCOME TAXES:
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
that Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.45% of the average
daily net assets of the Portfolio. For the year ended February 29, 1996, Bank of
America waived its entire fee as Adviser.
As Administrator, Concord assists in supervising the operations of the
Portfolio. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.05% of the Portfolio's average daily net
assets. For the year ended February 29, 1996, Concord waived its entire fee as
Administrator.
For services provided to all four of the portfolios constituting the Trust,
each Trustee receives an annual fee of $1,500 and a meeting fee of $500. For the
year ended February 29, 1996, the Portfolio incurred legal expenses of $16,094,
which were earned by a law firm, a partner of which serves as Secretary of the
Trust. Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS.
NOTE 4 -- PURCHASES AND SALES OF SECURITIES
The following table summarizes the securities transactions effected by the
Port-
FS-61
<PAGE> 347
folio, excluding short-term securities, for the year ended February 29, 1996:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
U.S. Government
Securities.............. $ 32,171,911 $38,550,500
Other Securities......... 69,941,871 59,104,968
------------ -----------
$102,113,782 $97,655,468
============ ===========
</TABLE>
At February 29, 1996, the cost of securities of the Portfolio for federal
income tax purposes was substantially the same as for financial reporting
purposes. Accordingly net unrealized appreciation of investments amounted to
$51,869 consisting of gross unrealized appreciation of $618,210 and gross
unrealized depreciation of $566,341.
NOTE 5 -- CONCENTRATION OF
CREDIT RISK
The Portfolio had the following concentrations by industry sector at
February 29, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U.S. Treasury Notes............ 36.4%
Medium Term Notes.............. 17.8%
U.S. Treasury Bonds............ 7.4%
Collateralized Mortgage
Obligation................... 12.7%
U.S. Government Agency Notes... 7.1%
Commercial Paper Discount...... 2.7%
Corporate Obligations.......... 15.7%
Municipal Bonds................ 0.2%
-----
100.0%
=====
</TABLE>
FS-62
<PAGE> 348
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.18% 0.25% 0.41%***
Ratio of net investment income to average
net assets**............................. 6.47% 6.22% 4.93%***
Portfolio Turnover......................... 172% 240% 32%
<FN>
- ---------------
* For the period December 6, 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 0.50% for the periods ended February 29, 1996,
February 28, 1995 and February 28, 1994 (annualized) respectively.
*** Annualized.
</TABLE>
See Notes to Financial Statements.
FS-63
<PAGE> 349
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees
and Investors of
Master Investment Trust, Series I
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series
I -- Investment Grade Bond Portfolio (the "Portfolio") at February 29, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and its supplementary data
for each of the periods presented, in conformity with generally accepted
accounting principles. These financial statements and supplementary data
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
FS-64
<PAGE> 350
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (in thousands)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP
FUND FUND BOND FUND
---------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Investment in Master Investment Trust,
Series I -- Asset Allocation Portfolio,
Blue Chip Portfolio and Investment Grade
Bond Portfolio, at value................ $ 158,592 $206,344 $ 47,100
Receivable from Administrator............. -- -- 5
Deferred organization costs, prepaid
expenses and other receivables.......... 32 36 32
---------- -------- ---------
Total assets................................ 158,624 206,380 47,137
---------- -------- ---------
LIABILITIES:
Administration fees payable............... 36 48 11
Accrued shareholder service fees.......... 32 41 10
Accrued reports to shareholders expense... 24 21 23
Accrued legal fees........................ 15 14 14
Accrued audit fees........................ 12 11 12
Other accrued expenses.................... 20 25 5
---------- -------- ---------
Total liabilities........................... 139 160 75
---------- -------- ---------
NET ASSETS.................................. $ 158,485 $206,220 $ 47,062
========== ======== =========
Shares Outstanding (no par value, unlimited
number of shares authorized).............. 10,592,206 9,778,995 4,330,357
========== ========= =========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE................ $14.96 $21.09 $10.87
====== ====== ======
COMPOSITION OF NET ASSETS:
Paid-in capital........................... $ 140,369 $ 159,992 $ 48,907
Accumulated net realized gains (losses)... 3,491 5,844 (1,988)
Undistributed net investment income....... -- 479 --
Net unrealized appreciation on
investments............................. 14,625 39,905 143
---------- --------- ---------
NET ASSETS, FEBRUARY 29, 1996............... $ 158,485 $ 206,220 $ 47,062
========== ========= =========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-65
<PAGE> 351
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations (in thousands)
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP
FUND FUND BOND FUND
---------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio, Blue Chip Portfolio and
Investment Grade Bond Portfolio, respectively:
Interest...................................................... $ 4,524 $ 363 $ 3,460
Dividends..................................................... 1,781 4,084 --
--------- -------- ---------
6,305 4,447 3,460
--------- -------- ---------
EXPENSES......................................................... 1,123 1,603 360
Less: Fee waivers and expense reimbursements.................... (726) (1,077) (259)
--------- -------- ---------
397 526 101
--------- -------- ---------
Net Investment Income from Master Investment Trust, Series I --
Asset Allocation Portfolio, Blue Chip Portfolio and Investment
Grade Bond Portfolio, respectively.............................. 5,908 3,921 3,359
--------- -------- ---------
EXPENSES:
Administration fees............................................. 443 521 150
Shareholder service fees........................................ 382 449 129
Custodian fees and expenses..................................... 46 54 16
Reports to shareholders expense................................. 37 37 37
Legal fees...................................................... 33 36 36
Audit fees...................................................... 18 24 19
Registration fees and expenses.................................. 19 22 14
Insurance expense............................................... 12 13 5
Trustees fees................................................... 10 10 6
Amortization of organization costs.............................. 8 8 6
Other operating expenses........................................ 31 5 33
--------- -------- ---------
1,039 1,179 451
Less: Fee waivers and expense reimbursements.................... -- -- (62)
--------- -------- ---------
1,039 1,179 389
--------- -------- ---------
Net Investment Income............................................ 4,869 2,742 2,970
--------- -------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM
MASTER INVESTMENT TRUST, SERIES I -- ASSET ALLOCATION PORTFOLIO,
BLUE CHIP PORTFOLIO AND INVESTMENT GRADE BOND PORTFOLIO,
RESPECTIVELY
Net realized gain on securities transactions.................... 18,289 19,935 2,153
Net change in unrealized appreciation (depreciation) on
investments................................................... 7,580 28,575 (139)
--------- -------- ---------
Net Gain on Investments from Master Investment Trust, Series I --
Asset Allocation Portfolio, Blue Chip Portfolio and Investment
Grade Bond Portfolio, respectively.............................. 25,869 48,510 2,014
--------- -------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $ 30,738 $ 51,252 $ 4,984
========= ======== =========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-66
<PAGE> 352
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
----------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 4,869 $ 5,133
Net realized gain (loss) on securities transactions.... 18,289 (4,691)
Net change in unrealized appreciation of investments... 7,580 5,672
-------- --------
Net increase in net assets resulting from operations... 30,738 6,114
-------- --------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment
income............................................... (4,869) (5,133)
Distributions to shareholders from net realized
gains................................................ (10,103) (6,328)
-------- --------
Total Dividends and Distributions to Shareholders........ (14,972) (11,461)
-------- --------
Fund Share Transactions:
Net proceeds from shares subscribed.................... 14,252 21,409
Net asset value of shares issued to shareholders in
reinvestment of dividends............................ 14,972 11,461
Shares redeemed........................................ (31,637) (39,346)
-------- --------
Net decrease in net assets resulting from Fund share
transactions......................................... (2,413) (6,476)
-------- --------
Total Increase (Decrease)................................ 13,353 (11,823)
NET ASSETS:
Beginning of year...................................... 145,132 156,955
-------- --------
End of year............................................ $158,485 $145,132
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-67
<PAGE> 353
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP FUND
----------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 2,742 $ 2,319
Net realized gain on securities transactions........... 19,935 421
Net change in unrealized appreciation of investments... 28,575 7,514
-------- --------
Net increase in net assets resulting from operations... 51,252 10,254
-------- --------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment income... (2,736) (2,156)
Distributions to shareholders from net realized
gains................................................ (14,510) (10,537)
-------- --------
Total Dividends and Distributions to Shareholders........ (17,246) (12,693)
-------- --------
Fund Share Transactions:
Net proceeds from shares subscribed.................... 34,754 35,008
Net asset value of shares issued to shareholders in
reinvestment of dividends............................ 17,246 12,693
Shares redeemed........................................ (31,053) (26,911)
-------- --------
Net increase in net assets resulting from Fund share
transactions......................................... 20,947 20,790
-------- --------
Total Increase........................................... 54,953 18,351
NET ASSETS:
Beginning of year...................................... 151,267 132,916
-------- --------
End of year (including undistributed net investment
income of $479,371 and $473,208, respectively)....... $206,220 $151,267
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-68
<PAGE> 354
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND FUND
----------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 2,970 $ 3,613
Net realized gain (loss) on securities transactions.... 2,153 (4,130)
Net change in unrealized appreciation (depreciation) of
investments.......................................... (139) 991
-------- --------
Net increase in net assets resulting from operations... 4,984 474
-------- --------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment
income............................................... (2,970) (3,613)
Distributions to shareholders from net realized
gains................................................ -- (369)
-------- --------
Total Dividends and Distributions to Shareholders........ (2,970) (3,982)
-------- --------
Fund Share Transactions:
Net proceeds from shares subscribed.................... 3,242 5,341
Net asset value of shares issued to shareholders in
reinvestment of dividends............................ 2,970 3,982
Shares redeemed........................................ (16,954) (26,798)
-------- --------
Net decrease in net assets resulting from Fund share
transactions......................................... (10,742) (17,475)
-------- --------
Total Decrease........................................... (8,728) (20,983)
NET ASSETS:
Beginning of year...................................... 55,790 76,773
-------- --------
End of year............................................ $ 47,062 $ 55,790
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-69
<PAGE> 355
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Seafirst Retirement Funds (the "Company"), a Delaware business trust, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 29, 1996, the Company
consisted of three funds -- the Asset Allocation Fund, the Blue Chip Fund and
the Bond Fund (collectively, the "SRF Funds").
The SRF Funds seek to achieve their investment objective by investing
substantially all of their assets in the corresponding Portfolios that have the
same investment objectives as those of the Funds. The value of each SRF Fund's
investment in each Portfolio included in the accompanying statements of assets
and liabilities reflects each SRF Fund's proportionate beneficial interest in
the net assets of that Portfolio. At February 29, 1996, the SRF Funds held
proportionate interests in the corresponding Portfolios in the following
amounts:
<TABLE>
<S> <C>
Asset Allocation Fund....................................................... 87.6%
Blue Chip Fund.............................................................. 74.9%
Bond Fund................................................................... 71.1%
</TABLE>
The financial statements of each Portfolio, including their portfolio of
investments, are included elsewhere within this report and should be read in
conjunction with each SRF Fund's financial statements.
Seattle-First National Bank ("Seafirst") serves as the Company's
administrator and Concord Financial Group, Inc. (the "Distributor"), a wholly
owned subsidiary of Concord Holding Corp. ("Concord"), serves as the distributor
of the Company's shares.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The
BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the SRF Funds in the preparation of their financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:
The SRF Funds record their proportionate share of the investment income,
expenses and realized and unrealized gains and losses recorded by the
corresponding Portfolio on a daily basis. The investment income, expenses and
realized and unrealized gains and losses are allocated daily to investors in
each Portfolio based upon their investments in each Portfolio.
FS-70
<PAGE> 356
Such investments are adjusted on a daily basis. The valuation of securities by
the Portfolios is discussed in Note 2 to the financial statements of the
Portfolios.
B) FEDERAL INCOME TAXES:
It is the policy of the SRF Funds to meet the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies and to
distribute substantially all of their taxable income to shareholders. Therefore,
no federal income tax provision is required.
C) DIVIDENDS AND DISTRIBUTIONS:
The SRF Funds declare dividends to shareholders of record on the day of
declaration from net investment income. Such dividends are paid quarterly by the
Blue Chip Fund and monthly by the Asset Allocation Fund and the Bond Fund. Net
realized gains, if any, will be distributed at least annually. However, to the
extent that net realized gains of an SRF Fund can be reduced by capital loss
carryovers, such gains will not be distributed. Dividends and distributions are
recorded on the ex-dividend date.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or net
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
D) OTHER:
The SRF Funds incurred certain costs in connection with their organization.
Such costs have been deferred and are being amortized on a straight-line basis
over five years.
Expenses directly attributable to each SRF Fund are charged to that SRF
Fund, while Company expenses attributed to more than one SRF Fund of the Company
are allocated among the respective SRF Funds.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The SRF Funds have an Administration Agreement with Seafirst and a
Distribution Agreement with the Distributor. In addition, Seafirst has entered
into a Sub-Administration Agreement with Concord.
As Administrator, Seafirst assists in supervising the operations of the SRF
Funds. For its services, Seafirst is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.29% of each SRF Fund's average daily net
assets. As Sub-Administrator, Concord has agreed to provide officers and certain
administrative and compliance monitoring services to
FS-71
<PAGE> 357
the SRF Funds. For its services, Concord is entitled to a fee, from Seafirst, at
an annual rate of 0.06% of each SRF Fund's average daily net assets. The
Distributor is not entitled to a fee under the Distribution Agreement.
Seafirst has agreed to waive fees payable to it to the extent any SRF Fund's
expenses exceed an annual rate of 0.95% of average daily net assets. For the
year ended February 29, 1996, Seafirst waived $61,604 of fees of the Bond Fund
so the Fund could meet this expense limitation.
The SRF Funds have adopted a Shareholder Service Plan (the "Plan") under
which the SRF Funds pays for non-distribution shareholder servicing expenses
incurred in connection with shares of the Funds. Under the Plan, payments by the
SRF Funds may not exceed an annual rate of 0.25% of each Fund's average daily
net assets. For the year ended February 29, 1996, the SRF Funds paid the
following amounts to Seafirst in connection with the Plan:
<TABLE>
<S> <C>
Asset Allocation Fund.................................................... $ 381,675
Blue Chip Fund........................................................... 448,869
Bond Fund................................................................ 129,465
</TABLE>
For services provided to all three of the SRF Funds constituting the
Company, each Trustee receives an annual fee of $4,000. For the year ended
February 29, 1996 the SRF Funds incurred the following legal charges which were
earned by a law firm, a partner of which serves as Secretary of the Company:
<TABLE>
<S> <C>
Asset Allocation.......................................................... $ 33,176
Blue Chip Fund............................................................ 35,603
Bond Fund................................................................. 35,980
</TABLE>
Certain officers of the Company are "affiliated persons" (as defined in the
Act) of BISYS.
NOTE 4 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the SRF Funds for the year ended February 29, 1996
are summarized below:
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP BOND
---------- ---------- ----------
<S> <C> <C> <C>
Shares subscribed............................ 977,718 1,773,483 300,687
Shares issued to shareholders in reinvestment
of dividends............................... 1,016,950 862,906 275,066
Shares redeemed.............................. (2,171,336) (1,575,254) (1,570,679)
---------- ---------- ----------
Net increase (decrease)...................... (176,668) 1,061,135 (994,926)
========== ========== ==========
</TABLE>
FS-72
<PAGE> 358
Transactions in shares of the SRF Funds for the year ended February 28, 1995
are summarized below:
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP BOND
---------- ---------- ----------
<S> <C> <C> <C>
Shares subscribed............................ 1,590,550 2,042,409 500,832
Shares issued to shareholders in reinvestment
of dividends............................... 868,287 756,038 379,746
Shares redeemed.............................. (2,951,182) (1,570,016) (2,535,451)
---------- ---------- ----------
Net increase (decrease)...................... (492,345) 1,228,431 (1,654,873)
========== ========== ==========
</TABLE>
NOTE 5 -- FEDERAL INCOME TAX STATUS
The Bond Fund had $1,996,470 of capital loss carryovers which may be used to
offset future realized gains on securities transactions to the extent provided
for in the Code. Any such unused capital loss carryovers will expire as follows:
<TABLE>
<S> <C>
2001.................................................................... $1,996,470
</TABLE>
It is anticipated that no distributions of future net realized gains on
investments will be made to shareholders until the capital loss carryovers are
offset by net realized gains or expire.
FS-73
<PAGE> 359
SEAFIRST RETIREMENT FUNDS -- ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR FOR THE PERIOD JAN. 1, 1993
ENDED DEC. 6, 1993 THROUGH YEAR ENDED DECEMBER 31
FEB. 29, YEAR ENDED THROUGH DEC. 5, ------------------------------
1996 FEB. 28, 1995 FEB. 28, 1994 1993(1) 1992(1) 1991(1) 1990(1)
-------- ------------- -------------- -------------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period................. $ 13.48 $ 13.94 $ 13.86 $ 12.99 $ 12.75 $11.30 $11.47
------- --------- -------- -------- -------- ------ ------
Income from Operations:
Net investment income.. 0.47 0.46 0.05 0.43 0.46 0.56 0.62
Net realized and
unrealized gain
(loss) on
investments.......... 2.49 0.12 0.08 0.87 0.24 1.45 (0.17)
------- --------- -------- -------- -------- ------ ------
Total income from
investment
operations............. 2.96 0.58 0.13 1.30 0.70 2.01 0.45
------- --------- -------- -------- -------- ------ ------
Less Dividends and
Distributions:
Dividends to
shareholders from net
investment income.... (0.47) (0.46) (0.05) (0.43) (0.46) (0.56) (0.62)
Distributions to
shareholders from
capital gains........ (1.01) (0.58) -- -- -- -- --
------- --------- -------- -------- -------- ------ ------
Total dividends and
distributions.......... (1.48) (1.04) (0.05) (0.43) (0.46) (0.56) (0.62)
------- --------- -------- -------- -------- ------ ------
Net asset value per
share, end of period... $ 14.96 $ 13.48 $ 13.94 $ 13.86 $ 12.99 $12.75 $11.30
======= ========= ======== ======== ========= ====== ======
Total Return............ 22.44 % 4.49% 0.94%** 10.15%** 5.62% 18.11% 4.21%
Ratios/Supplemental
Data:
Net assets, end of
period (000)......... $158,485 $ 145,132 $156,955 $149,719 $106,822 $47,825 $23,608
Ratio of expenses to
average net assets..... 0.94%* 0.78%* 0.95%+* 0.95%+ 0.95% 0.95% 0.58%
Ratio of net investment
income to average net
assets................. 3.19%* 3.40%* 2.64%+* 3.47%+ 3.68% 4.72% 5.58%
Portfolio turnover
rate................... NA NA NA 79% 171% 124% 121%
<FN>
- ---------------
* Reflects the Fund's proportionate share of the Portfolio's expenses and fee
waivers and expense reimbursements by the Portfolio's Investment Adviser and
Administrator and the Fund's Administrator and Distributor. Such fee waivers
and expense reimbursements 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 0.48%, 0.60%, and 0.69% (annualized) for the periods
ended February 29, 1996, February 28, 1995, and February 28, 1994,
respectively.
** For the period indicated, not annualized.
+ Annualized.
(1) Represents activity of the Fund prior to its reorganization from the Asset
Allocation Fund of Collective Investment Trust for Seafirst Retirement
Accounts. Since the operation and organization of the Fund was changed upon
reorganization, this activity may not be reflective of activity after the
reorganization.
NA -- Not applicable.
</TABLE>
See Notes to Financial Statements.
FS-74
<PAGE> 360
SEAFIRST RETIREMENT FUNDS -- BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR FOR THE PERIOD JAN. 1, 1993
ENDED DEC. 6, 1993 THROUGH YEAR ENDED DECEMBER 31,
FEB. 29, YEAR ENDED THROUGH DEC. 5, -----------------------------
1996 FEB. 28, 1995 FEB. 28, 1994 1993(1) 1992(1) 1991(1) 1990(1)
-------- ------------- -------------- -------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period................. $ 17.35 $ 17.75 $ 17.34 $ 15.65 $15.17 $12.68 $13.35
------- --------- -------- -------- ------ ------ ------
Income from Investment
Operations:
Net investment income.. 0.31 0.28 0.05 0.29 0.30 0.33 0.44
Net realized and
unrealized gain
(loss) on
securities........... 5.35 0.88 0.37 1.69 0.48 2.49 (0.67)
------- --------- -------- -------- ------ ------ ------
Total income (loss) from
investment
operations............. 5.66 1.16 0.42 1.98 0.78 2.82 (0.23)
------- --------- -------- -------- ------ ------ ------
Less Dividends and
Distributions:
Dividends to
shareholders from net
investment income.... (0.31) (0.26) (0.01) (0.29) (0.30) (0.33) (0.44)
Distributions to
shareholders from
capital gains........ (1.61) (1.30) -- -- -- -- --
------- --------- -------- -------- ------ ------ ------
Total dividends and
distributions.......... (1.92) (1.56) (0.01) (0.29) (0.30) (0.33) (0.44)
------- --------- -------- -------- ------ ------ ------
Net asset value per
share, end of period... $ 21.09 $ 17.35 $ 17.75 $ 17.34 $15.65 $15.17 $12.68
======= ========= ======== ======== ====== ====== ======
Total Return............ 33.37% 6.95% 2.42%** 12.74%** 5.16% 22.52% (1.79)%
Ratios/Supplemental
Data:
Net assets, end of
period (000)......... $206,220 $ 151,267 $132,916 $123,257 $96,206 $49,838 $24,727
Ratio of expenses to
average net assets... 0.95%* 0.82%* 0.95%+* 0.95%+ 0.95% 0.95% 0.57%
Ratio of net investment
income to average net
assets............... 1.53%* 1.64%* 1.28%+* 1.91%+ 2.08% 2.37% 3.40%
Portfolio turnover
rate................... NA NA NA 4% 27% 16% 22%
<FN>
- ---------------
* Reflects the Fund's proportionate share of the Portfolio's expenses and fee
waivers and expense reimbursements by the Portfolio's Investment Adviser and
Administrator and the Fund's Administrator and Distributor. Such fee waivers
and expense reimbursements 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 0.59%, 0.80% and 0.93% (annualized) for the periods
ended February 29, 1996, February 28, 1995, and February 28, 1994,
respectively.
** For the period indicated, not annualized.
+ Annualized.
(1) Represents activity of the Fund prior to its reorganization from the Blue
Chip Fund of Collective Investment Trust for Seafirst Retirement Accounts.
Since the operation and organization of the Fund was changed upon
reorganization, this activity may not be reflective of activity after the
reorganization.
NA -- Not applicable.
</TABLE>
See Notes to Financial Statements.
FS-75
<PAGE> 361
SEAFIRST RETIREMENT FUNDS -- BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR FOR THE PERIOD JAN. 1, 1993
ENDED DEC. 6, 1993 THROUGH YEAR ENDED DECEMBER 31,
FEB. 29, YEAR ENDED THROUGH DEC. 5, ---------------------------
1996 FEB. 28, 1995 FEB. 28, 1994 1993(1) 1992(1) 1991(1) 1990(1)
-------- ------------- -------------- -------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period.................. $ 10.48 $ 11.00 $ 11.14 $ 10.99 $11.01 $10.40 $10.30
------- ------- -------- -------- ------ ------ ------
Income from Investment
Operations:
Net investment income... 0.64 0.61 0.12 0.58 0.67 0.72 0.82
Net realized and
unrealized gain (loss)
on securities......... 0.39 (0.46) (0.14) 0.15 (0.02 ) 0.61 0.10
------- ------- -------- -------- ------ ------ ------
Total income (loss) from
investment operations... 1.03 0.15 (0.02) 0.73 0.65 1.33 0.92
------- ------- -------- -------- ------ ------ ------
Less Dividends and
Distributions:
Dividends to
shareholders from net
investment income..... (0.64) (0.61) (0.12) (0.58) (0.67) (0.72) (0.82)
Distributions to
shareholders from
capital gains......... -- (0.06) -- -- -- -- --
------- ------- -------- -------- ------ ------ ------
Total dividends and
distributions........... (0.64) (0.67) (0.12) (0.58) (0.67) (0.72) (0.82)
------- ------- -------- -------- ------ ------ ------
Net asset value per
share, end of period.... $ 10.87 $ 10.48 $ 11.00 $ 11.14 $10.99 $11.01 $10.40
======= ======= ======== ======== ====== ====== ======
Total Return............. 9.90% 1.57% (0.23)%** 6.80%** 6.04% 13.28% 9.43%
Ratios/Supplemental Data:
Net assets, end of
period (000).......... $47,062 $55,791 $ 76,773 $ 82,970 $73,826 $53,469 $9,445
Ratio of expenses to
average net assets.... 0.95%* 0.83%* 0.95%+* 0.95%+ 0.95% 0.66% 0.00%
Ratio of net investment
income to average net
assets................ 5.74%* 5.64%* 4.38%+* 5.60%+ 6.15% 7.13% 8.31%
Portfolio turnover
rate.................... NA NA NA 95% 154% 197% 113%
<FN>
- ---------------
* Reflects the Fund's proportionate share of the Portfolio's expenses and fee
waivers and expense reimbursements by the Portfolio's Investment Adviser and
Administrator and the Fund's Administrator and Distributor. Such fee waivers
and expense reimbursements 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 0.61%, 0.58% and 0.84% (annualized) for the periods
ended February 29, 1996, February 28, 1995, and February 28, 1994
respectively.
** For the period indicated, not annualized.
+ Annualized.
(1) Represents activity of the Fund prior to its reorganization from the Bond
Fund of Collective Investment Trust for Seafirst Retirement Accounts. Since
the operation and organization of the Fund was changed upon reorganization,
this activity may not be reflective of activity after the reorganization.
NA -- Not applicable.
</TABLE>
See Notes to Financial Statements.
FS-76
<PAGE> 362
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees
and Shareholders of
Seafirst Retirement Funds
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Asset Allocation Fund, the Blue Chip Fund, and the Bond Fund (constituting
Seafirst Retirement Funds, hereafter referred to as the "Funds") at February 29,
1996, the results of each of their operations for the year then ended, the
changes in each of their net assets and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
the "financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above. The financial highlights for the period January 1, 1993 through December
5, 1993 and for each of the three years in the period ended December 31, 1992
were audited by other independent accountants whose report dated December 30,
1993 expressed an unqualified opinion on those financial highlights.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
-------------------------------------------------------------
For the year ended February 29, 1996, the Asset Allocation Fund paid to
shareholders $0.66265 per share from long-term capital gains.
For the year ended February 29, 1996, the Blue Chip Fund paid to
shareholders $1.1677 per share from long-term capital gains.
- --------------------------------------------------------------------------------
FS-77
<PAGE> 363
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE -- 0.9%
Boeing Co. ......................................................... 19,000 $ 1,541,375
------------
AIRLINES & FREIGHT -- 0.2%
AMR Corp. .......................................................... 4,500 394,875
------------
ALUMINIUM/STEEL -- 0.2%
Worthington Industry Inc. .......................................... 20,000 430,000
------------
AUTOMOTIVE -- 1.0%
Echlin, Inc. ....................................................... 12,300 416,663
General Motors Corp. ............................................... 25,800 1,322,250
------------
1,738,913
------------
BANKS -- 3.3%
Chase Manhattan Corp. .............................................. 10,000 745,000
CitiCorp............................................................ 32,400 2,527,200
First Interstate BanCorp............................................ 6,800 1,110,950
Fleet Financial Group Inc. ......................................... 41,000 1,686,125
------------
6,069,275
------------
BUSINESS EQUIPMENT/SERVICES -- 1.3%
Cisco Systems....................................................... 24,600 1,168,500
Hewlett Packard Co. ................................................ 12,000 1,209,000
------------
2,377,500
------------
CHEMICALS -- 1.7%
Corning, Inc. ...................................................... 13,400 435,500
Dow Chemical Co. ................................................... 4,000 321,000
E.I. Du Pont de Nemours & Co. ...................................... 9,700 742,050
Monsanto Corp. ..................................................... 6,300 848,138
Sigma Adrich Corp. ................................................. 11,900 681,275
------------
3,027,963
------------
CONSUMER CYCLICAL -- 0.5%
Armstrong World Industries.......................................... 15,200 891,100
------------
CONSUMER STAPLES -- 5.6%
Coca-Cola Co. ...................................................... 23,400 1,889,550
Conagra Inc. ....................................................... 19,600 825,650
Pepsico Inc. ....................................................... 18,700 1,182,775
Philip Morris Cos, Inc. ............................................ 17,700 1,752,300
Procter & Gamble Co. ............................................... 17,000 1,394,000
Whitman Corp. ...................................................... 27,600 641,700
Ralston Purina Co. ................................................. 7,800 522,600
Sysco Corp. ........................................................ 27,000 887,625
Anheuser Busch Companies Inc. ...................................... 14,900 1,003,888
------------
10,100,088
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-78
<PAGE> 364
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ------------
<S> <C> <C>
COSMETICS & HOUSEHOLD PRODUCTS -- 1.2%
Colgate-Palmolive Co. .............................................. 4,600 $ 359,950
Gillette Co. ....................................................... 14,800 801,050
Johnson & Johnson................................................... 4,000 374,000
Newell Co. ......................................................... 23,000 638,250
------------
2,173,250
------------
DIVERSIFIED MANUFACTURING -- 4.3%
Alco Standard Corp. ................................................ 53,000 2,510,875
General Electric Co. ............................................... 49,000 3,699,500
Illinois Tool Works, Inc. .......................................... 23,000 1,515,125
------------
7,725,500
------------
DRUGS BIOTECHNOLOGY -- 3.6%
American Home Products Corp. ....................................... 10,500 1,034,250
Amgen, Inc. ........................................................ 10,000 597,500
Bristol-Meyers...................................................... 15,800 1,344,975
Lilly (Eli), and Co. ............................................... 19,800 1,197,900
Medtronic Inc. ..................................................... 8,100 464,738
Pfizer Inc. ........................................................ 16,600 1,093,525
Schering Plough Corp. .............................................. 10,400 583,700
Warner Lambert Co. ................................................. 2,700 266,962
------------
6,583,550
------------
DRUG & HOSPITAL SUPPLIES -- 0.5%
Baxter International, Inc. ......................................... 21,200 969,900
------------
ELECTRICAL & OTHER ELEC. EQUIPMENT -- 0.7%
Emerson Electric Co. ............................................... 17,600 1,370,600
------------
ELECTRIC UTILITIES -- 1.1%
Central & Southwest Corp. .......................................... 30,500 846,375
Duke Power Co. ..................................................... 14,200 694,025
Northern STS PWR Minnesota.......................................... 10,300 507,275
------------
2,047,675
------------
ELECTRONIC COMPUTERS -- 1.9%
Amp, Inc. .......................................................... 19,500 831,188
Intel Corp. ........................................................ 36,000 2,117,250
Motorola, Inc. ..................................................... 10,700 580,475
------------
3,528,913
------------
FINANCE SERVICES -- 3.1%
American Express.................................................... 45,000 2,070,000
Dun & Bradstreet Corp. ............................................. 3,300 208,725
Household International Inc. ....................................... 33,000 2,219,250
Dean Witter......................................................... 20,200 1,085,750
------------
5,583,725
------------
FOREST PRODUCTS -- 0.2%
Wayerhaeuser Co. ................................................... 9,500 402,563
------------
GAS UTILITIES -- 0.7%
Pacific Enterprises, Inc. .......................................... 36,200 968,350
Eastern Enterprises................................................. 11,000 389,125
------------
1,357,475
------------
HEALTH CARE -- 1.6%
Abbot Laboratories.................................................. 27,000 1,127,250
Merck & Co., Inc. .................................................. 18,200 1,205,750
US Healthcare, Inc. ................................................ 10,000 487,500
------------
2,820,500
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-79
<PAGE> 365
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ------------
<S> <C> <C>
INDUSTRIAL INORGANIC CHEMICALS -- 0.4%
Silicon Graphics.................................................... 29,700 $ 742,500
------------
LEISURE -- 0.7%
Walt Disney Co. .................................................... 11,300 740,150
Hilton Hotels Corp. ................................................ 3,900 365,625
Mattel, Inc. ....................................................... 5,600 186,200
------------
1,291,975
------------
LIFE INSURANCE -- 0.4%
Chubb Corp. ........................................................ 6,900 670,163
------------
MACHINE EQUIPMENT -- 0.6%
Deere & Co. ........................................................ 26,500 1,036,813
------------
MEDIA -- 1.1%
Capital Cities/ABC, Inc. ........................................... 4,000 507,000
Gannett, Inc. ...................................................... 4,100 278,800
McGraw Hill, Inc. .................................................. 4,700 410,663
Time Warner, Inc. .................................................. 9,600 410,400
Tribune Co. New..................................................... 6,300 420,525
------------
2,027,388
------------
MINING -- 0.3%
Newmont Mining Corp. ............................................... 9,500 540,313
------------
MULTI INDUSTRY -- 1.6%
TRW Inc. ........................................................... 17,000 1,472,625
Tyco Labs Inc. ..................................................... 37,000 1,336,625
------------
2,809,250
------------
MULTI INSURANCE -- 1.7%
American International Group........................................ 12,750 1,231,969
General Re Corp. ................................................... 5,500 791,312
Providian Corp. .................................................... 21,800 1,008,250
------------
3,031,531
------------
OIL -- DOMESTIC & CRUDE -- 4.2%
Amoco Corp. ........................................................ 8,900 618,550
Coastal Corp. ...................................................... 27,300 1,003,275
Exxon Corp. ........................................................ 24,500 1,947,750
Texaco Inc. ........................................................ 9,000 717,750
USX Marathon Group.................................................. 41,800 773,300
Mobil Corp. ........................................................ 9,200 1,008,550
Halliburton Co. .................................................... 17,500 960,313
Schlumberger Ltd. .................................................. 8,900 648,588
------------
7,678,076
------------
PAPER & ALLIED PRODUCTS -- 0.4%
Federal Paper Board Co., Inc. ...................................... 4,800 256,200
Mead Corp. ......................................................... 9,000 450,000
------------
706,200
------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.3%
Eastman Kodak Co. .................................................. 6,900 493,350
RAILROADS -- 0.7%
Union Pacific Corp. ................................................ 9,600 633,600
Burlington Northern Santa Fe C...................................... 8,400 672,000
------------
1,305,600
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-80
<PAGE> 366
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ------------
<S> <C> <C>
RESTAURANTS -- 0.4%
McDonald's Corp. ................................................... 13,150 $ 657,500
------------
RETAIL -- 2.8%
Home Depot Inc. .................................................... 24,000 1,038,000
Nordstrom, Inc. .................................................... 14,600 658,825
Price/Costco Inc. .................................................. 49,500 853,875
Wal Mart Stores Inc. ............................................... 64,100 1,362,125
May Dept. Stores Co. ............................................... 24,000 1,119,000
------------
5,031,825
------------
SOFTWARE SERVICES -- 1.7%
Automatic Data Processing, Inc. .................................... 16,800 651,000
Microsoft Corp. .................................................... 24,000 2,368,500
------------
3,019,500
------------
TECHNOLOGY -- 1.5%
International Business Machines..................................... 16,000 1,962,000
National Semiconductor Corp. ....................................... 44,700 698,440
------------
2,660,440
------------
TELEPHONE -- 3.4%
AT&T................................................................ 32,800 2,086,900
Bellsouth Corp. .................................................... 17,200 685,850
GTE Corp. .......................................................... 29,500 1,264,813
MCI Communications Corp. ........................................... 24,500 716,625
SBC Communications Corp. ........................................... 21,700 1,190,787
Tele-Communications, Inc. .......................................... 8,300 174,300
------------
6,119,275
------------
TIRE AND RUBBER -- 0.1%
Cooper Tire and Rubber Co........................................... 11,100 281,660
------------
Total Common Stocks -- 55.9%
(cost $84,556,256).................................................. 101,238,092
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
U.S. TREASURY BONDS -- 6.5%
U.S. Treasury Bond............................. 10.38% 11/15/12 $ 8,800 $ 11,669,855
------------
U.S. TREASURY NOTES -- 8.4%
U.S. Treasury Note............................. 5.75% 8/15/03 6,400 6,300,671
U.S. Treasury Note............................. 7.88% 11/15/04 8,000 8,930,478
------------
15,231,149
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS -- 14.9%
(cost $27,291,693)............................. 26,901,004
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.0%
Federal Home Loan Mortgage Corporation
Pool #G10304................................. 6.50% 4/01/09 946 937,478
Federal Home Loan Mortgage Corporation
Pool #E60891................................. 6.50% 7/01/10 3,343 3,311,369
Federal Home Loan Mortgage Corporation
Pool #297505................................. 8.00% 6/01/17 17 17,148
Federal Home Loan Mortgage Corporation
Pool #53301.................................. 10.50% 4/01/19 35 38,110
Federal Home Loan Mortgage Corporation
Pool #544066................................. 8.00% 12/01/19 17 16,880
FNCI 6.5%TBA................................... 6.50% 3/15/11 5,000 4,950,000
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-81
<PAGE> 367
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
----------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
FGLMC Pool #D67963............................. 6.50% 1/01/26 $ 9,100 $ 8,787,188
Government National Mortgage Association
Pool #146301................................. 10.00% 2/15/16 98 108,237
------------
Total U.S. Government Agency Obligations
(cost $18,454,981)............................. 18,166,410
------------
TAXABLE MUNICIPAL BONDS -- 0.5%
ALASKA --
Alaska State, Housing Finance Authority, Series
G............................................ 10.55% 1/15/18 115 113,419
------------
ILLINOIS --
Cook County, General Obligation Bond........... 5.00% 11/15/23 800 722,000
------------
Total Taxable Municipal Bonds
(cost $836,299)................................ 835,419
------------
CORPORATE OBLIGATIONS -- 9.0%
CORPORATE BONDS -- 1.9%
Hertz Corp. ................................... 6.00% 1/15/03 2,500 2,421,875
Lehman Brothers................................ 5.75% 11/15/98 1,000 981,250
------------
3,403,125
------------
MEDIUM TERM NOTES -- 7.1%
Chrysler Finance Corp. ........................ 5.48% 2/23/99 2,500 2,468,750
Morgan Stanley Group........................... 5.63% 3/01/99 1,500 1,483,125
Ford Motor Credit.............................. 8.38% 1/15/00 3,000 3,217,500
International Lease Finance.................... 5.71% 2/01/00 1,600 1,570,000
Province of Quebec............................. 7.98% 4/01/99 3,000 3,161,250
Philip Morris.................................. 8.75% 3/12/98 1,000 1,055,000
------------
12,955,625
------------
Total Corporate Obligations
(cost $16,452,588)............................. 16,358,750
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.4%
Discover Credit Card Trust..................... 7.85% 11/20/98 3,000 3,148,200
Prime Credit Card Master Trust................. 7.05% 12/15/97 3,000 3,071,089
NationsBank Credit Card Master................. 6.45% 4/15/03 3,500 3,563,760
Merrill Lynch & Co. ........................... 6.85% 4/15/12 8 7,734
------------
Total Collateralized Mortgage Obligations
(cost $9,733,978).............................. 9,790,783
------------
COMMERCIAL PAPER DISCOUNT -- 3.9%
Brown Forman................................... 5.50% 3/01/96 3,500 3,500,000
Merrill Lynch.................................. 5.47% 3/01/96 3,500 3,500,000
------------
Total Commercial Paper Discount
(cost $7,000,000) 7,000,000
------------
TOTAL INVESTMENTS -- 99.6%
(COST $164,325,795)............................ 180,290,458
Other Assets In Excess Of Liabilities -- 0.4%... 763,956
------------
NET ASSETS -- 100%.............................. $181,054,414
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-82
<PAGE> 368
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
----------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE -- 2.5%
Lockheed Martin Corp. .............................................. 38,500 $ 2,935,625
General Dynamics Corp. ............................................. 28,700 1,711,238
Rockwell Intl., Corp. .............................................. 38,600 2,200,200
------------
6,847,063
------------
AIRLINES & FREIGHT -- 0.4%
AMR Corp. .......................................................... 11,800 1,035,450
------------
APPAREL/TEXTILE -- 0.5%
Nike, Inc. ......................................................... 19,800 1,284,525
------------
AUTOMOTIVE -- 2.7%
Chrysler Corp. ..................................................... 55,600 3,134,450
Goodyear Tire & Rubber Co. ......................................... 53,500 2,541,250
Johnson Controls, Inc. ............................................. 23,500 1,686,125
------------
7,361,825
------------
BANKS -- 7.6%
Citicorp............................................................ 78,900 6,154,200
First Interstate Bancorp............................................ 18,500 3,022,438
First Union Corp. .................................................. 47,000 2,843,500
Bank Of Boston Inc. ................................................ 78,400 3,812,200
Bank Of New York Inc. .............................................. 65,400 3,392,625
Nations Bank Corporation............................................ 23,200 1,711,000
------------
20,935,963
------------
BUILDING RELATED/APPLIANCE -- 0.5%
Fleetwood Enterprises............................................... 46,700 1,255,063
------------
BUSINESS EQUIPMENT/SERVICES -- 2.6%
Cisco Systems....................................................... 69,900 3,320,250
Hewlett Packard Co. ................................................ 37,400 3,768,050
------------
7,088,300
------------
CHEMICALS -- 3.2%
Eastman Chemical Co. ............................................... 35,700 2,570,400
Morton International,Inc. .......................................... 31,600 1,196,850
E.I. Du Pont De Nemours & Co. ...................................... 29,500 2,256,750
Monsanto Corp. ..................................................... 20,000 2,692,500
------------
8,716,500
------------
CONSUMER STAPLES -- 7.8%
Coca-Cola Co. ...................................................... 54,400 4,392,800
Conagra Inc. ....................................................... 54,800 2,308,450
Pepsico Inc. ....................................................... 105,700 6,685,525
Philip Morris Cos, Inc. ............................................ 57,900 5,732,100
Sara Lee Corp. ..................................................... 70,300 2,275,963
------------
21,394,838
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-83
<PAGE> 369
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
------------- --------- ------------
<S> <C> <C>
COSMETICS & HOUSEHOLD PRODUCTS -- 4.6%
Johnson & Johnson................................................... 42,700 $ 3,992,450
Newell Co. ......................................................... 59,200 1,642,800
Bay Networks........................................................ 25,300 1,027,813
Clorox Co. ......................................................... 21,200 1,796,700
Avon Products Inc. ................................................. 26,300 2,113,863
Premark Intl., Inc. ................................................ 38,500 2,016,437
------------
12,590,063
------------
DIVERSIFIED MANUFACTURING -- 3.7%
General Electric Co. ............................................... 72,300 5,458,650
United Technologies Corp. .......................................... 44,600 4,794,500
------------
10,253,150
------------
DRUGS BIOTECHNOLOGY -- 5.5%
Medronic Inc. ...................................................... 47,200 2,708,100
Bristol-Meyers...................................................... 52,800 4,494,600
Schering Plough Corp. .............................................. 63,400 3,558,325
Pfizer, Inc. ....................................................... 64,600 4,255,525
------------
15,016,550
------------
ELECTRIC UTILITIES -- 3.5%
Unicom Corp. ....................................................... 75,300 2,409,600
FPL Group, Inc. .................................................... 41,300 1,843,013
General Public Utilities Corp. ..................................... 80,800 2,696,700
DTE Energy Co. ..................................................... 78,400 2,793,000
------------
9,742,313
------------
ELECTRICAL & OTHER ELEC EQUIPMENT -- 0.5%
Applied Materials, Inc. ............................................ 35,100 1,254,825
------------
ELECTRONIC COMPUTERS -- 3.3%
Intel Corp. ........................................................ 37,600 2,211,350
Compaq Computer Corp. .............................................. 42,600 2,156,625
Oracle Corp. ....................................................... 57,900 3,010,800
Sun Microsystems Inc. .............................................. 29,500 1,548,750
------------
8,927,525
------------
ENERGY RELATED -- 0.9%
Halliburton Co. .................................................... 44,200 2,425,475
------------
ENTERTAINMENT -- 0.4%
King World Productions, Inc. Ltd.................................... 26,500 1,109,688
------------
FINANCIAL SERVICES -- 1.1%
Travelers Group..................................................... 44,800 2,996,000
------------
FOODS -- 1.2%
Campbell Soup Co. .................................................. 53,200 3,285,100
------------
FOREST PRODUCTS -- 1.5%
Bemis Co. Inc. ..................................................... 37,800 1,157,625
Kimberly-Clark Corp. ............................................... 40,400 3,085,550
------------
4,243,175
------------
GAS UTILITIES -- 0.9%
Pacific Enterprises, Inc. .......................................... 93,800 2,509,150
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-84
<PAGE> 370
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
------------- --------- ------------
<S> <C> <C>
HEALTH CARE -- 1.6%
Merck & Co., Inc. .................................................. 64,700 $ 4,286,375
------------
HOSPITAL MANAGEMENT -- 1.2%
Columbia Healthcare Corp. .......................................... 24,400 1,335,900
United Healthcare Corp. ............................................ 30,000 1,957,500
------------
3,293,400
------------
HOSPITAL SUPPLY -- 0.8%
Becton Dickinson & Co. ............................................. 28,400 2,328,800
------------
INDUSTRIAL SERVICES -- 0.6%
Fluor Corp. ........................................................ 26,600 1,785,525
------------
INSURANCE -- 1.6%
Aetna Life & Casualty Co. .......................................... 8,100 612,562
Allstate............................................................ 64,497 2,765,309
ITT Hartford Group Inc. ............................................ 21,400 1,102,100
------------
4,479,971
------------
INTERNATIONAL OIL -- 3.3%
Atlantic Richfield Co. ............................................. 20,300 2,222,850
Mobil Corp. ........................................................ 61,700 6,763,863
------------
8,986,713
------------
LEISURE -- 0.9%
Walt Disney Co. .................................................... 38,400 2,515,200
------------
MACHINERY -- 0.7%
Ingersoll Rand Co. ................................................. 49,400 2,019,225
------------
MEDIA -- 1.6%
Capital Cities/ABC, Inc. ........................................... 23,900 3,029,325
Gannett, Inc. ...................................................... 22,400 1,523,200
------------
4,552,525
------------
METALS -- 1.4%
Nucor Corp. ........................................................ 36,600 1,971,825
Phelps Dodge Corp. ................................................. 30,800 1,882,650
------------
3,854,475
------------
MULTI INDUSTRY -- 2.0%
Textron............................................................. 25,300 1,992,375
Honeywell Inc. ..................................................... 65,900 3,492,700
------------
5,485,075
------------
MULTI INSURANCE -- 1.1%
Providian Corp. .................................................... 69,100 3,195,875
------------
OIL - DOMESTIC & CRUDE -- 3.0%
Exxon Corp. ........................................................ 57,600 4,579,200
Amoco Corp. ........................................................ 53,200 3,697,400
------------
8,276,600
------------
PETROLEUM REFINING -- 1.4%
Royal Dutch Petroleum Co. .......................................... 27,600 3,801,900
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-85
<PAGE> 371
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
------------- --------- ------------
<S> <C> <C>
PROPERTY CASUALTY INSURANCE -- 0.6%
Safeco. Corp. ...................................................... 50,500 $ 1,830,625
------------
PUBLISHING -- 0.6%
New York Times Co. ................................................. 63,800 1,754,500
------------
RAIL/TRUCKING FREIGHT -- 1.3%
Norfolk Southern Corp. ............................................. 42,800 3,488,200
------------
RESTAURANTS/LODGING -- 1.7%
McDonald's Corp. ................................................... 38,500 1,925,000
Marriott International Inc. ........................................ 30,900 1,517,963
ITT Corp. .......................................................... 21,400 1,292,025
------------
4,734,988
------------
RETAIL -- 3.9%
Home Depot, Inc. ................................................... 52,400 2,266,300
Sears Roebuck & Co. ................................................ 104,700 4,750,762
Gap, Inc. .......................................................... 67,500 3,619,688
------------
10,636,750
------------
RETAIL FOOD & DRUG -- 1.0%
American Stores Co. ................................................ 98,500 2,868,813
------------
SECURITIES, BROKERS & DEALERS -- 1.0%
Dean Witter......................................................... 52,500 2,821,875
------------
SOFTWARE SERVICES -- 1.6%
Microsoft Inc. ..................................................... 45,900 4,529,756
------------
TECHNOLOGY -- 2.8%
International Business Machines..................................... 39,900 4,892,738
National Semiconductor Corp. ....................................... 56,400 881,250
Harris Corp. ....................................................... 16,800 1,117,200
Texas Instruments Inc. ............................................. 18,600 927,675
------------
7,818,863
------------
TELEPHONE -- 7.0%
AT & T.............................................................. 67,900 4,320,138
Bellsouth Corp. .................................................... 120,200 4,792,975
GTE Corp. .......................................................... 76,400 3,275,650
Nynex Corp. ........................................................ 59,800 3,079,700
Ameritech Corp. .................................................... 65,600 3,780,200
------------
19,248,663
------------
TELEPHONE & TELEGRAPH APPARATUS -- 1.2%
Sprint Corp. ....................................................... 75,700 3,255,100
------------
Total Common Stocks -- 98.8%
(cost $225,698,360 )................................................ 272,122,328
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-86
<PAGE> 372
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
DESCRIPTION (000) (NOTE 2)
------------- --------- ------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 3.0%
U.S. Treasury Bill 4.62%............................................. 2,230 $ 2,222,273
U.S. Treasury Bill 4.57%............................................. 805 802,241
U.S. Treasury Bill 4.57%............................................. 795 792,275
U.S. Treasury Bill 4.73%............................................. 306 304,633
U.S. Treasury Bill 4.74%............................................. 370 366,840
U.S. Treasury Bill 4.80%............................................. 460 456,072
U.S. Treasury Bill 4.86%............................................. 1,503 1,490,164
U.S. Treasury Bill 4.87%............................................. 347 344,037
U.S. Treasury Bill 4.88%............................................. 349 346,020
U.S. Treasury Bill 4.79%............................................. 1,211 1,200,657
------------
Total U.S. Government Obligations
(cost $8,326,185).................................................... 8,325,212
------------
TOTAL INVESTMENTS -- 101.8% $280,447,540
(COST $234,024,545)
Other Liabilities In Excess Of Assets -- (1.8)% (4,925,266)
------------
NET ASSETS -- 100%.................................................... $275,522,274
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-87
<PAGE> 373
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ---------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 15.4%
Household International BV....... AB/A 5.25% 10/15/98 $ 2,000 $ 1,970,000
MCI Communications Corp. ........ A2/A- 6.25% 3/23/99 2,000 2,017,500
American Brands.................. A2/A 7.50% 5/15/99 1,000 1,038,750
Ford Motor Credit................ A1/A+ 9.50% 4/15/00 2,500 2,790,625
Hertz Corp. ..................... AB/A 6.00% 1/15/03 2,500 2,421,875
-----------
10,238,750
-----------
COMMERCIAL PAPER DISCOUNT -- 2.6%
Brown Forman..................... A-1/P-1 5.50% 3/01/96 1,760 1,760,000
-----------
MEDIUM TERM NOTES -- 17.5%
Chrysler Financial Corp. ........ AB/A- 6.60% 8/03/98 2,000 2,027,500
International Lease Finance...... A2/A+ 6.27% 2/10/99 2,500 2,515,625
Morgan Stanley Group............. A1/A+ 5.63% 3/01/99 2,000 1,977,500
General Motors Acceptance
Corp. ......................... A3/A- 7.38% 5/26/99 2,000 2,072,500
Associates Corp. ................ Aa3/AA- 6.35% 6/29/00 3,000 3,022,500
-----------
11,615,625
-----------
U.S. TREASURY NOTES -- 35.8%
U.S. Treasury Notes.............. Treasury 5.13% 11/30/98 7,900 7,816,812
U.S. Treasury Notes.............. Treasury 6.88% 8/31/99 2,000 2,079,380
U.S. Treasury Notes.............. Treasury 7.75% 11/30/99 3,500 3,744,650
U.S. Treasury Notes.............. Treasury 7.75% 1/31/00 2,500 2,680,175
U.S. Treasury Notes.............. Treasury 5.63% 11/30/00 1,500 1,491,210
U.S. Treasury Notes.............. Treasury 5.75% 8/15/03 6,000 5,906,879
-----------
23,719,106
-----------
U.S. TREASURY BONDS -- 7.3%
U.S.Treasury Bonds............... Treasury 10.38% 11/05/09 3,800 4,845,988
-----------
MUNICIPAL BONDS -- 0.2%
Alaska Housing Series G.......... Aaa/AAA 10.55% 1/15/18 110 108,488
-----------
COLLATERALIZED MORTGAGE OBLIGATION -- 12.5%
Standard Credit Card Master
Trust.......................... Aaa/AAA 7.85% 2/07/02 2,500 2,664,500
NationsBank Credit Card Master
Trust.......................... Aaa/AAA 6.45% 4/15/03 2,700 2,749,186
Merrill Lynch Mtg Inv. Inc. ..... Aaa/AAA 6.85% 4/15/12 16 16,434
Discover Credit Card Trust....... Aaa/AAA 7.85% 11/20/98 2,700 2,833,380
-----------
8,263,500
-----------
U.S. GOVERNMENT AGENCY NOTES -- 7.0%
FNCX. Pool #303528............... Treasury 6.00% 8/01/01 2,491 2,461,742
Federal National Mortgage
Association Pool #131579....... Treasury 6.50% 7/01/04 240 231,770
Federal National Mortgage
Association Pool #286087....... Treasury 8.00% 6/01/24 872 894,218
Federal Home Loan Mortgage Corp.
Pool #160034................... Treasury 8.5% 12/01/07 76 78,750
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-88
<PAGE> 374
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ---------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY NOTES -- (CONTINUED)
Federal Home Loan Mortgage Corp.
Pool #549837................... Treasury 8.0% 7/01/10 $ 241 $ 245,406
Federal Home Loan Mortgage Corp.
Pool #284343................... Treasury 8.0% 12/01/16 17 17,227
Federal Home Loan Mortgage Corp.
Pool #297505................... Treasury 8.0% 6/01/17 25 25,327
Government National Mortgage
Assoc. Pool #136688............ Treasury 10.00% 9/15/15 38 41,779
Government National Mortgage
Assoc. Pool #166744............ Treasury 10.00% 7/15/16 361 398,893
Government National Mortgage
Assoc. Pool #209480............ Treasury 10.00% 7/15/17 81 89,483
Government National Mortgage
Assoc. Pool #227082............ Treasury 10.00% 8/15/17 115 126,636
-----------
4,611,231
-----------
TOTAL INVESTMENTS -- 98.3%
(COST $65,110,819)............... 65,162,688
Other Assets in excess of Liabilities -- 1.7% 1,126,887
-----------
NET ASSETS -- 100.0%.............. $66,289,575
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-89
<PAGE> 375
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET INVESTMENT
ALLOCATION BLUE CHIP GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value
(cost
$164,325,795, $234,024,545 and
$65,110,819 respectively)............ $180,290,458 $280,447,540 $65,162,688
Cash................................... 66,207 36,086 85,452
Receivable for investment securities
sold................................. 5,307,998 -- --
Contribution receivable................ 262,293 1,441,870 164,227
Dividends receivable................... 243,397 603,862 --
Interest receivable.................... 870,288 -- 930,804
Deferred organization costs and prepaid
expenses............................. 41,137 42,390 39,209
------------ ------------ -----------
Total assets............................. 187,081,778 282,571,748 66,382,380
------------ ------------ -----------
LIABILITIES:
Withdrawal payable..................... 200,358 147,114 46,142
Payable for investment securities
purchased............................ 5,731,750 6,761,140 --
Advisor fees payable................... 37,278 75,382 --
Administration fees payable............ 3,384 5,024 --
Accrued accounting fees................ 15,596 17,633 5,113
Accrued audit fees..................... 16,095 15,958 15,666
Accrued custody fees................... 5,303 6,624 2,118
Accrued legal fees..................... 6,868 6,707 6,049
Other accrued expenses................. 10,732 13,892 17,717
------------ ------------ -----------
Total liabilities........................ 6,027,364 7,049,474 92,805
------------ ------------ -----------
NET ASSETS............................... $181,054,414 $275,522,274 $66,289,575
============ ============ ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-90
<PAGE> 376
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET INVESTMENT
ALLOCATION BLUE CHIP GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................. $ 4,919,733 $ 427,131 $3,989,704
Dividends................................ 1,936,890 4,764,288 --
----------- ----------- ----------
6,856,623 5,191,419 3,989,704
----------- ----------- ----------
EXPENSES:
Advisory fees............................ 913,660 1,574,388 269,135
Administration fees...................... 83,060 104,889 30,769
Fund accounting fees and expenses........ 122,609 134,230 44,790
Custodian fees and expenses.............. 30,446 38,672 12,697
Audit fees............................... 22,305 18,423 17,687
Legal fees............................... 17,976 12,848 16,094
Amortization of organization costs....... 13,692 13,615 13,691
Insurance expense........................ 3,637 4,704 1,266
Trustees fees............................ 3,500 3,500 3,500
Other operating expenses................. 5,835 -- --
----------- ----------- ----------
1,216,720 1,905,269 409,629
Less: Fee waivers and expense
reimbursements......................... (785,750) (1,242,250) (299,905)
----------- ----------- ----------
430,970 663,019 109,724
----------- ----------- ----------
Net Investment Income...................... 6,425,653 4,528,400 3,879,980
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on securities
transactions........................... 19,223,012 21,310,546 2,336,008
Net change in unrealized appreciation
(depreciation) on investments.......... 8,662,241 34,689,746 (247,652)
----------- ----------- ----------
Net Gain on Investments.................... 27,885,253 56,000,292 2,088,356
----------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $34,310,906 $60,528,692 $5,968,336
=========== =========== ==========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-91
<PAGE> 377
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 6,425,653 $ 6,185,598
Net realized gain (loss) on securities transactions.... 19,223,012 (4,776,038)
Net change in unrealized appreciation/depreciation on
investments.......................................... 8,662,241 5,934,051
------------ ------------
Net increase in net assets resulting from operations... 34,310,906 7,343,611
------------ ------------
Trust Share Transactions:
Contributions.......................................... 31,372,458 18,683,561
Withdrawals............................................ (35,499,213) (32,967,230)
------------ ------------
Net decrease in net assets resulting from Trust share
transactions......................................... (4,126,755) (14,283,669)
------------ ------------
Total Increase (Decrease)................................ 30,184,151 (6,940,058)
NET ASSETS:
Beginning of year...................................... 150,870,263 157,810,321
------------ ------------
End of year............................................ $181,054,414 $150,870,263
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-92
<PAGE> 378
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP PORTFOLIO
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 4,528,400 $ 3,333,204
Net realized gain on securities transactions........... 21,310,546 373,340
Net change in unrealized appreciation/depreciation on
investments.......................................... 34,689,746 7,922,681
------------ ------------
Net increase in net assets resulting from operations... 60,528,692 11,629,225
------------ ------------
Trust Share Transactions:
Contributions.......................................... 96,776,148 33,341,186
Withdrawals............................................ (39,120,232) (21,900,310)
------------ ------------
Net increase in net assets resulting from Trust share
transactions......................................... 57,655,916 11,440,876
------------ ------------
Total Increase........................................... 118,184,608 23,070,101
NET ASSETS
Beginning of year...................................... 157,337,666 134,267,565
------------ ------------
End of year............................................ $275,522,274 $157,337,666
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-93
<PAGE> 379
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
PORTFOLIO
---------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 3,879,980 $ 4,061,925
Net realized gain (loss) on securities transactions.... 2,336,008 (4,166,543)
Net change in unrealized appreciation/depreciation on
investments.......................................... (247,652) 1,011,785
----------- -----------
Net increase in net assets resulting from operations... 5,968,336 907,167
----------- -----------
Trust Share Transactions:
Contributions.......................................... 21,358,278 4,879,443
Withdrawals............................................ (18,755,421) (25,317,238)
----------- -----------
Net increase(decrease) in net assets resulting from
Trust share transactions............................. 2,602,857 (20,437,795)
----------- -----------
Total Increase (Decrease)................................ 8,571,193 (19,530,628)
NET ASSETS:
Beginning of year...................................... 57,718,382 77,249,010
----------- -----------
End of year............................................ $66,289,575 $57,718,382
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-94
<PAGE> 380
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. At February 29, 1996 the Trust
consisted of four portfolios. The accompanying financial statements and notes
are those of the Blue Chip Portfolio (the "Blue Chip Portfolio"), Investment
Grade Bond Portfolio, (the "Bond Portfolio") and Asset Allocation Portfolio (the
"Asset Allocation Portfolio") (collectively the "Portfolios") only.
The investment objective of the Blue Chip Portfolio is long-term capital
appreciation through investments in blue chip stocks. The investment objective
of the Investment Grade Bond Portfolio is to obtain interest income and capital
appreciation by investing in investment grade intermediate and longer return
bonds, including corporate and governmental fixed income obligations and
mortgage-backed securities. The investment objective of the Asset Allocation
Portfolio is to obtain long term growth from capital appreciation and dividend
and interest income. The Asset Allocation Portfolio seeks to achieve its
objective by actively allocating investments among the three major asset
categories: bonds, equity securities and cash equivalents.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolios'
Investment Adviser. Concord Holding Corporation ("Concord") serves as the
Portfolios' Administrator through BISYS Fund Services (Ireland) Ltd., a wholly
owned subsidiary of Concord.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The
BISYS Group, Inc., ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles. The preparation
of financial statements in accordance with generally accepted principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
FS-95
<PAGE> 381
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation or, if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. Securities that are primarily traded on the NASDAQ national
securities market are valued at the last reported sales price on the date of
valuation or, if none is available, at the last quoted bid price on the date of
valuation. The Portfolio may use an independent pricing service, approved by the
Board of Trustees, to value certain of its securities. Such prices reflect
market values which may be established through the use of electronic data
processing techniques and matrix systems. Restricted securities and securities
for which market quotations are not readily available, if any, are valued at
fair value using methods approved by the Board of Trustees. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase or, in the case of securities purchased with
more than 60 days until maturity, at their market value each day until the 61st
day prior to maturity, and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and such
valuation.
B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recorded on the ex-dividend date.
C) EXPENSES:
Expenses directly attributable to a Portfolio are charged to that Portfolio,
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.
D) FEDERAL INCOME TAXES:
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in the Portfolios will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolios will be managed in such a way that an investor will be able to
satisfy the requirements of the Internal Revenue Code applicable to regulated
investment companies.
FS-96
<PAGE> 382
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolios have an Investment Advisory Agreement with Bank of America
and an Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolios. For its services, Bank of America is entitled to a
fee, accrued daily and payable monthly, at an annual rate of 0.55%, 0.75% and
0.45% of the average daily net assets of the Asset Allocation Portfolio, Blue
Chip Portfolio and Bond Portfolio, respectively. For the year ended February 29,
1996, Bank of America waived the following fees as Adviser for each Portfolio.
<TABLE>
<S> <C>
Asset Allocation........................................................ $ 720,259
Blue Chip............................................................... $1,164,328
Bond.................................................................... $ 269,303
</TABLE>
As Administrator, Concord assists in supervising the operations of the
Portfolios. For its services, Concord is entitled to a fee from each Portfolio
accrued daily and payable monthly, at an annual rate of 0.05% of each of the
Portfolio's average daily net assets. For the year ended February 29, 1996,
Concord waived the following fees as Administrator for each Portfolio.
<TABLE>
<S> <C>
Asset Allocation.......................................................... $ 65,491
Blue Chip................................................................. $ 77,922
Bond...................................................................... $ 30,602
</TABLE>
For services provided to all four of the portfolios constituting the Trust,
each Trustee receives an annual fee of $1,500 and a meeting fee of $500. For the
year ended February 29, 1996, the Asset Allocation Portfolio, Blue Chip
Portfolio and Bond Portfolio incurred legal expenses of $17,976, $12,848 and
$16,094, which were earned by a law firm, a partner of which serves as Secretary
of the Trust. Certain officers of the Trust are "affiliated persons" (as defined
in the Act) of BISYS.
FS-97
<PAGE> 383
NOTE 4 -- SECURITIES TRANSACTIONS
During the year ended February 29, 1996, each Portfolio purchased and sold
portfolio securities, excluding short-term securities, in the following amounts:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
ASSET ALLOCATION PORTFOLIO
U.S. Government................................ $ 85,887,588 $ 85,359,727
Other.......................................... 161,276,120 160,698,929
------------ ------------
Total.......................................... 247,163,708 246,058,656
============ ============
BLUE CHIP PORTFOLIO
Total Common Stocks............................ $283,161,200 $219,320,666
============ ============
BOND PORTFOLIO
U.S. Government................................ $ 32,171,911 $ 38,550,500
Other.......................................... 69,941,871 59,104,968
------------ ------------
Total.......................................... 102,113,782 97,655,468
============ ============
</TABLE>
At February 29, 1996, the cost of the securities of the Asset Allocation
Portfolio, Blue Chip Portfolio and Bond Portfolio for federal income tax
purposes was substantially the same as for financial reporting purposes.
Accordingly net unrealized appreciation of investments amounted to $15,964,663,
$46,422,995 and $51,869 respectively, consisting of gross unrealized
appreciation of $18,488,324, $48,183,392 and $618,210, respectively, and gross
unrealized depreciation of $2,523,661, $1,760,397 and $566,341, respectively.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Asset Allocation Portfolio had the following concentrations by industry
sector at February 29, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U. S. Treasury Bonds............................................... 6.5%
U. S. Treasury Notes............................................... 8.5
U. S. Government Agency Obligations................................ 10.1
Taxable Municipal Bonds............................................ 0.4
Medium Term Notes.................................................. 7.2
Corporate Bonds.................................................... 1.9
Collateralized Mortgage Obligations................................ 5.4
Commercial Paper Discount.......................................... 3.9
Aerospace.......................................................... 0.9
Airlines & Freight................................................. 0.2
Aluminium/Steel.................................................... 0.2
Automotive......................................................... 1.0
Banks.............................................................. 3.4
</TABLE>
FS-98
<PAGE> 384
<TABLE>
<S> <C>
Business Equipment/Services........................................ 1.3
Chemicals.......................................................... 1.7
Consumer Cyclical.................................................. 0.5
Consumer Staples................................................... 5.6
Cosmetics & Household Products..................................... 1.2
Diversified Manufacturing.......................................... 4.3
Drugs Biotechnology................................................ 3.6
Drug & Hospital Supplies........................................... 0.5
Electrical & Other Electrical Equipment............................ 0.8
Electric Utilities................................................. 1.1
Electronic Computers............................................... 1.9
Finance Services................................................... 3.1
Forest Products.................................................... 0.2
Gas Utilities...................................................... 0.7
Health Care........................................................ 1.6
Industrial Inorganic Chemicals..................................... 0.4
Leisure............................................................ 0.7
Life Insurance..................................................... 0.4
Machinery Equipment................................................ 0.6
Media.............................................................. 1.1
Mining............................................................. 0.3
Multi Industry..................................................... 1.6
Multi Insurance.................................................... 1.7
Oil -- Domestic & Crude............................................ 4.2
Paper and Allied products.......................................... 0.4
Photographic Equipment & Supplies.................................. 0.3
Railroads.......................................................... 1.3
Restaurants........................................................ 0.4
Retail............................................................. 2.2
Software Services.................................................. 1.7
Technology......................................................... 1.5
Telephone.......................................................... 3.4
Tire & Rubber...................................................... 0.1
-----
100.0%
=====
</TABLE>
FS-99
<PAGE> 385
The Bond Portfolio had the following concentrations by industry sector at
February 29, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U.S. Treasury Notes................................................ 36.4%
Medium Term Notes.................................................. 17.8
U.S. Government Treasury Bonds..................................... 7.4
Municipal Bonds.................................................... 0.2
Collateralized Mortgage Obligation................................. 12.7
U.S. Government Agency Notes....................................... 7.1
Commercial Paper Discount.......................................... 2.7
Corporate Obligations.............................................. 15.7
-----
100.0%
=====
</TABLE>
FS-100
<PAGE> 386
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.26% 0.17% 0.24%***
Ratio of net investment income to average
net assets**............................. 3.87% 4.01% 3.35%***
Portfolio Turnover......................... 157% 142% 67%
</TABLE>
- ---------------
* For the period December 6, 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 0.47%, 0.60%, and 0.03% (annualized) for the periods
ended February 29, 1996, February 28, 1995, and February 28, 1994,
respectively.
*** Annualized.
See Notes to Financial Statements.
FS-101
<PAGE> 387
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.31% 0.17% 0.27%***
Ratio of net investment income to average
net assets**............................. 2.16% 2.30% 1.97%***
Portfolio Turnover......................... 108% 44% 86%
</TABLE>
- ---------------
* For the period December 6, 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 0.59%, 0.80% and 0.80% (annualized) for the periods
ended February 29, 1996, February 28, 1995 and February 28, 1994,
respectively.
*** Annualized.
See Notes to Financial Statements.
FS-102
<PAGE> 388
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.18% 0.25% 0.41%***
Ratio of net investment income to average
net assets**............................. 6.47% 6.22% 4.93%***
Portfolio Turnover......................... 172% 240% 32%
</TABLE>
- ---------------
* For the period December 6, 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 0.50% for the periods ended February 29, 1996,
February 28, 1995 and February 28, 1994 (annualized) respectively.
*** Annualized.
See Notes to Financial Statements.
FS-103
<PAGE> 389
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees
and Investors of
Master Investment Trust, Series I
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series I -- Asset
Allocation Portfolio, Blue Chip Portfolio and Investment Grade Bond Portfolio
(the "Portfolios") at February 29, 1996, the results of each of their operations
for the year then ended, the changes in each of their net assets and the
supplementary data for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
supplementary data (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 25, 1996
FS-104
<PAGE> 390
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS -- 94.3%
AEROSPACE & DEFENSE -- 3.2%
Remec, Inc.*........................................................ 182,850 $ 2,651,325
Tracor, Inc. ....................................................... 195,400 3,785,875
------------
6,437,200
------------
APPAREL -- 5.4%
Kenneth Cole Productions, Inc. ..................................... 170,000 3,315,000
Quiksilver, Inc.*................................................... 111,000 2,608,500
Tommy Hilfiger Corp. ............................................... 49,700 2,491,212
Warnaco Group, Inc. ................................................ 95,000 2,351,250
------------
10,765,962
------------
BIO-TECHNOLOGY -- 0.7%
Genome Therapeutics Corp. .......................................... 149,700 1,366,012
------------
COMMERCIAL SERVICES -- 9.0%
Accustaff, Inc.*.................................................... 70,000 1,627,500
Career Horizons, Inc.*.............................................. 74,000 2,580,750
Equity Corp. International.......................................... 80,000 2,470,000
May & Speh, Inc. ................................................... 53,000 854,625
NuCo2, Inc. ........................................................ 113,000 2,938,000
PMT Services, Inc.*................................................. 63,000 1,141,875
Team Rental Group, Inc. ............................................ 157,000 2,904,500
Volt Information Sciences, Inc. .................................... 80,650 3,145,350
Wackenhut Corrections Corp.*........................................ 30,000 731,250
------------
18,393,850
------------
COMPUTERS, SOFTWARE & PERIPHERALS -- 5.7%
Cimatron Ltd. ...................................................... 154,100 914,969
Computervision Corp. ............................................... 175,000 1,225,000
Diamond Multimedia Systems, Inc. ................................... 198,300 1,859,063
Egghead, Inc. ...................................................... 233,500 1,926,375
Gandalf Technologies, Inc. ......................................... 150,000 984,375
Komag, Inc. ........................................................ 112,000 2,380,000
OneWave, Inc. ...................................................... 48,900 733,500
PC Service Source, Inc. ............................................ 64,000 896,000
Spectrum Holobyte, Inc. ............................................ 160,300 821,537
------------
11,740,819
------------
ENVIRONMENTAL & POLLUTION CONTROLS -- 6.0%
Air & Water Technologies Corp....................................... 475,000 3,978,125
Culligan Water Technologies*........................................ 84,000 3,223,500
Osmonics, Inc. ..................................................... 120,800 2,355,600
United States Filter Corp. ......................................... 100,764 2,632,460
------------
12,189,685
------------
FINANCIAL SERVICES -- 5.3%
Consumer Portfolio Services, Inc.................................... 319,050 3,190,500
First Merchants Acceptance Co. ..................................... 74,000 1,415,250
Imperial Credit Industries, Inc. ................................... 96,000 2,904,000
SEI Corp. .......................................................... 157,000 3,355,875
------------
10,865,625
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-105
<PAGE> 391
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
FOOD & BEVERAGES -- 3.2%
New York Bagel Enterprises.......................................... 20,000 $ 217,500
Northland Cranberries, Inc. ........................................ 95,000 3,420,000
Unimark Group, Inc. ................................................ 207,000 2,923,875
------------
6,561,375
------------
GAMING -- 1.3%
Sodak Gaming, Inc. ................................................. 51,050 2,654,600
------------
HEALTHCARE PRODUCTS & SERVICES -- 6.4%
Caremark International, Inc......................................... 100,000 2,487,500
Emeritus Corp. ..................................................... 119,950 2,159,100
Envoy Corp. ........................................................ 150,000 4,968,750
Neopath, Inc. ...................................................... 69,500 1,676,687
Orthodontic Centers of America, Inc. ............................... 49,200 1,857,300
------------
13,149,337
------------
LEISURE, ENTERTAINMENT & RECREATION -- 6.0%
Cinergi Pictures Entertainment, Inc................................. 176,500 353,000
Family Golf Centers, Inc. .......................................... 87,950 2,605,519
Gaylord Entertainment Co. .......................................... 63,000 1,543,500
Iwerks Entertainment, Inc. ......................................... 280,000 2,240,000
Morrow Snowboards, Inc. ............................................ 119,800 1,467,550
WMS Industries, Inc. ............................................... 175,000 4,046,875
------------
12,256,444
------------
MEDIA-BROADCASTING -- 2.8%
All American Communications, Class B................................ 100,000 675,000
Cablevision Systems Corp., Class A.................................. 25,000 1,053,125
Spelling Entertainment Group, Inc. ................................. 125,000 875,000
United International Holdings, Inc., Class A........................ 228,250 3,138,437
------------
5,741,562
------------
OIL & GAS PRODUCTION & SERVICES -- 3.9%
Aquila Gas Pipeline Corp. .......................................... 200,000 2,450,000
ENSCO International, Inc. .......................................... 100,000 2,925,000
Flores & Rucks, Inc. ............................................... 81,000 2,662,875
------------
8,037,875
------------
PHARMACEUTICALS -- 1.5%
Alpharmaceuticals, Inc., Class A.................................... 75,000 1,181,250
SEQUUS Pharmaceuticals, Inc. ....................................... 129,600 1,879,200
------------
3,060,450
------------
RESTAURANTS -- 4.1%
Apple South, Inc. .................................................. 80,000 1,680,000
Daka International, Inc. ........................................... 167,000 2,880,750
Landry's Seafood Restaurants, Inc. ................................. 137,000 3,784,625
------------
8,345,375
------------
RETAIL -- SPECIALTY STORES -- 4.7%
Consolidated Stores Corp. .......................................... 87,700 3,332,600
Petco Animal Supplies, Inc. ........................................ 134,000 3,216,000
West Coast Entertainment Corp. ..................................... 74,200 612,150
Wolverine World Wide, Inc. ......................................... 103,500 2,496,938
------------
9,657,688
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-106
<PAGE> 392
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
SEMICONDUCTORS -- 6.7%
Actel, Corp. ....................................................... 170,000 $ 2,720,000
Dallas Semiconductor Corp. ......................................... 75,000 1,425,000
International Rectifier Corp. ...................................... 165,000 3,155,625
S3, Inc. ........................................................... 220,000 3,245,000
Triquint Semiconductor Corp. ....................................... 156,000 3,139,500
------------
13,685,125
------------
TELECOMMUNICATION EQUIPMENT -- 10.4%
C-Cor Electronics, Inc. ............................................ 195,000 3,022,500
ECI Telecommunications Limited Designs.............................. 170,000 3,506,250
Gilat Satellite Networks............................................ 75,000 1,471,875
Harmonic Lightwaves, Inc. .......................................... 175,000 3,500,000
Nice Systems Ltd. ADR............................................... 142,500 3,526,875
Tadiran Ltd. ....................................................... 105,800 2,697,900
TSX Corp. .......................................................... 292,000 3,577,000
------------
21,302,400
------------
TELECOMMUNICATION SERVICES -- 5.8%
American Paging, Inc. .............................................. 300,000 1,912,500
Arch Communications Group, Inc. .................................... 140,000 1,907,500
Brooks Fiber Properties, Inc. ...................................... 64,300 1,929,000
Millicom International Cellular, S.A. .............................. 45,000 1,788,750
Teleport Communications Group, Inc. ................................ 135,250 3,127,657
United States Cellular Corp. ....................................... 40,000 1,210,000
------------
11,875,407
------------
TOYS -- 1.0%
Toy Biz, Inc., Class A.............................................. 121,900 2,072,300
------------
TRANSPORTATION -- 1.2%
Airways Corp. ...................................................... 150,000 918,750
Mesaba Holdings, Inc. .............................................. 150,000 1,612,500
------------
2,531,250
------------
Total Common Stocks
(cost $176,413,382)................................................. 192,690,341
------------
WARRANTS -- 0.0%
Sound Advice+*...................................................... 15 0
------------
Total Warrants (cost $0)............................................. 0
------------
TOTAL INVESTMENTS
(COST $176,413,383) (a) -- 94.3%
192,690,341
Other assets in excess of liabilities -- 5.7%........................ 11,685,342
------------
NET ASSETS -- 100.0%................................................. $204,375,683
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $204,375,683.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................. $ 33,906,461
Unrealized depreciation................................. (17,629,503)
------------
Net unrealized appreciation............................. $ 16,276,958
============
</TABLE>
* Non-income producing security.
+ Fair value as determined by the Board of Directors.
ADR -- American Depositary Receipt.
See Notes to Financial Statements.
FS-107
<PAGE> 393
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $176,413,383).............. $192,690,341
Cash................................................................ 26,385,378
Receivable for Portfolio shares sold................................ 1,196,040
Dividends receivable................................................ 21,270
Receivable for investment securities sold........................... 1,377,069
------------
Total assets.......................................................... 221,670,098
------------
LIABILITIES:
Due to custodian.................................................... 7,828
Payable for investment securities purchased......................... 7,462,752
Payable for Portfolio shares redeemed............................... 9,459,434
Advisory fees payable............................................... 103,370
Administration fees payable......................................... 51,685
Shareholder service fees payable -- A Shares........................ 43,070
Other accrued expenses.............................................. 166,276
------------
Total liabilities..................................................... 17,294,415
------------
NET ASSETS............................................................ $204,375,683
============
Net Assets:
A Shares............................................................ $204,374,628
K Shares............................................................ 1,055
------------
$204,375,683
============
Shares Outstanding ($0.001 par value,
1,050 million shares authorized):
A Shares............................................................ 8,295,284
K Shares............................................................ 43
------------
8,295,327
============
CALCULATION OF MAXIMUM OFFERING PRICE A SHARES:
Net asset value and redemption price per share...................... $24.64
Sales charge -- 4.50% of public offering price...................... 1.16
------------
Maximum Offering Price.............................................. $25.80
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -- K
SHARES.............................................................. $24.62
============
COMPOSITION OF NET ASSETS:
Shares of common stock, at par...................................... $ 8,295
Additional paid-in capital.......................................... 150,755,077
Accumulated undistributed net realized gains........................ 38,641,099
Net unrealized appreciation of investments.......................... 16,276,958
Undistributed net investment loss................................... (1,305,746)
------------
NET ASSETS, AUGUST 31, 1996........................................... $204,375,683
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-108
<PAGE> 394
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ 122,025
EXPENSES:
Advisory fees............................................ $ 605,222
Administration fees...................................... 302,611
Shareholder service fees -- A Shares..................... 252,185
Transfer agent fees and expenses......................... 172,779
Custodian fees and expenses.............................. 19,397
Audit fees............................................... 20,237
Reports to shareholders.................................. 35,611
Legal fees............................................... 1,090
Directors' fees.......................................... 1,140
Insurance expense........................................ 615
Registration fees........................................ 20,805
Other expenses........................................... 923
----------
Total Expenses........................................... 1,432,615
Less: Expenses paid by third parties..................... (6,061) 1,426,554
---------- ------------
Net Investment Loss........................................ (1,304,529)
------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on securities transactions............. 39,303,602
Net change in unrealized appreciation of investments..... (19,760,507)
------------
Net Gain on Investments.................................... 19,543,095
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $ 18,238,566
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-109
<PAGE> 395
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss............................... $ (1,304,529) $ (2,105,712)
Net realized gains on securities transactions..... 39,303,602 31,636,853
Net change in unrealized appreciation
(depreciation) of investments................... (19,760,507) 24,124,656
------------ ------------
Net increase in net assets resulting from
operations...................................... 18,238,566 53,655,797
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- A
SHARES:
Distributions from net realized gains............. (7,173,110) (33,681,224)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- K
SHARES:
Distributions from net realized gains (a)......... (37) --
------------ ------------
Total Dividends and distributions to shareholders... (7,173,147) (33,681,224)
------------ ------------
FUND SHARE TRANSACTIONS:
Net proceeds from shares subscribed............... 336,891,539 344,733,316
Net asset value of shares issued to shareholders
in reinvestment of dividends.................... 6,930,867 32,628,136
Cost of shares redeemed........................... (330,859,078) (348,867,889)
------------ ------------
Net increase in net assets from Fund share
transactions.................................... 12,963,328 28,493,563
------------ ------------
Total Increase...................................... 24,028,747 48,468,136
NET ASSETS:
Beginning of year................................. 180,346,936 131,878,800
------------ ------------
End of year....................................... $204,375,683 $180,346,936
============ ============
</TABLE>
- ---------------
(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.
See Notes to Financial Statements.
FS-110
<PAGE> 396
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I --
Blue Chip Portfolio, at value...................................... $95,169,376
Deferred organization costs and prepaid expenses..................... 33,823
-----------
Total assets........................................................... 95,203,199
-----------
LIABILITIES:
Accrued audit fees................................................... 10,279
Accrued accounting fees and expenses................................. 9,442
Accrued reports to shareholders expense.............................. 1,746
Accrued legal fees................................................... 2,734
Other accrued expenses............................................... 15,049
-----------
Total liabilities...................................................... 39,250
-----------
NET ASSETS............................................................. $95,163,949
===========
Net Assets:
A Shares............................................................. $95,162,921
K Shares............................................................. 1,028
-----------
$95,163,949
===========
Shares Outstanding ($0.001 par value, 150 million shares authorized):
A Shares............................................................. 4,530,289
K Shares............................................................. 49
-----------
4,530,338
===========
CALCULATION OF MAXIMUM OFFERING PRICE -- A SHARES:
Net asset value per share............................................ $21.01
Sales charge -- 4.50% of public offering price....................... 0.99
-----------
Maximum Offering Price............................................... $22.00
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE --
K SHARES:............................................................ $20.99
===========
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 4,530
Additional paid-in capital........................................... 86,221,281
Accumulated net realized gains....................................... 2,517,150
Accumulated undistributed net investment income...................... 185,808
Net unrealized appreciation on investments........................... 6,235,180
-----------
NET ASSETS, AUGUST 31, 1996............................................ $95,163,949
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-111
<PAGE> 397
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Period ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio:
Dividends................................................ $ 898,243
Interest................................................. 79,937
----------
978,180
Expenses................................................. $ 432,886
Less: Fee waivers and expense reimbursements............. (127,284) 305,602
--------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio................................. 672,578
EXPENSES:
Shareholder service fees -- A Shares..................... 101,110
Administration fees...................................... 60,605
Transfer agent fees and expenses......................... 34,379
Registration fees and expenses........................... 18,067
Reports to shareholders expenses......................... 16,530
Fund accounting fees and expenses........................ 12,465
Amortization of organization costs....................... 9,260
Audit fees............................................... 6,339
Legal fees............................................... 5,068
Directors' fees.......................................... 624
Other expenses........................................... 5,981
---------
270,428
Less: Fee waivers and expense reimbursements............... (60,605) 209,823
--------- ----------
Net Investment Income...................................... 462,775
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES 1 -- BLUE CHIP PORTFOLIO:
Net realized gain on securities transactions............. 1,776,941
Net change in unrealized appreciation (depreciation) on
Investments............................................ (252,548)
----------
Net Gain on Investments from Master Investment Trust,
Series I--Blue Chip Portfolio.......................... 1,524,393
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $1,987,168
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-112
<PAGE> 398
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................ $ 462,775 $ 489,988
Net realized gain on securities transactions......... 1,776,941 1,358,263
Net change in unrealized appreciation (depreciation)
of investments..................................... (252,548) 6,093,194
----------- -----------
Net increase in net assets resulting from
operations......................................... 1,987,168 7,941,445
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
A SHARES:
Dividends to shareholders from net investment
income............................................. (413,905) (375,867)
Distribution to shareholders from net realized
gains.............................................. -- (570,774)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
K SHARES:
Dividends to shareholders from net investment income
(a)................................................ -- --
----------- -----------
(413,905) (946,641)
=========== ===========
FUND SHARE TRANSACTIONS:
Net proceeds from shares subscribed.................. 34,597,271 59,881,212
Net asset value of shares issued to shareholders in
reinvestment of dividends.......................... 397,673 903,918
Cost of shares redeemed.............................. (8,337,712) (6,848,470)
----------- -----------
Net increase in net assets resulting from Fund share
transactions....................................... 26,657,232 53,936,660
----------- -----------
Total Increase......................................... 28,230,495 60,931,464
NET ASSETS:
Beginning of period.................................. 66,933,454 6,001,990
----------- -----------
End of period (including undistributed net investment
income of $185,808 and $136,938, respectively)..... $95,163,949 $66,933,454
=========== ===========
</TABLE>
- ---------------
(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.
See Notes to Financial Statements.
FS-113
<PAGE> 399
PACIF IC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At August 31, 1996, the Company
operated as a series company comprising seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Aggressive
Growth Fund ("the Aggressive Growth Fund") and the Pacific Horizon Blue Chip
Fund (the "Blue Chip Fund") (collectively, the "Funds") only. The Funds offer
two classes of shares: A Shares and K Shares. A Shares have a Shareholder
Service Plan while K Shares have a Distribution Plan and Administrative and
Shareholder Services Plan.
The Aggressive Growth Fund seeks to maximize capital appreciation through
investments in common stocks and convertible securities. The Blue Chip Fund
seeks to achieve its investment objective by investing substantially all of its
assets in the Blue Chip Portfolio of Master Investment Trust, Series I (the
"Portfolio"), an open-end management company that has the same investment
objective as that of the Blue Chip Fund. The value of the Blue Chip Fund's
investment in the Portfolio included in the accompanying Statement of Assets and
Liabilities reflects the Blue Chip Fund's proportionate beneficial interest in
the net assets of the Portfolio (28.2% at August 31, 1996). The financial
statements of the Portfolio, including its portfolio of investments are included
elsewhere within this report and should be read in conjunction with the Blue
Chip Fund's financial statements.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Aggressive Growth Fund's
investment adviser. Concord Holding Corporation ("Concord") serves as the Funds'
administrator, and Concord Financial Group, Inc. (the "Distributor"), a wholly
owned subsidiary of Concord, serves as the distributor of the Funds' shares.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The BISYS
Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
The securities of the Aggressive Growth Fund for which market quotations
FS-114
<PAGE> 400
are readily available (other than debt securities with remaining maturities of
60 days or less) are valued at the last reported sales price on the securities
exchange on which such securities are primarily traded or at the last reported
sales price on the NASDAQ national securities market. Securities not listed on
an exchange or the NASDAQ national securities market, or securities for which
there were no transactions on the day of valuation, are valued at the mean of
the most recent bid and ask prices. Bid price is used when no ask price is
available. Restricted securities and securities for which market quotations are
not readily available, if any, are valued at fair value using methods approved
by the Board of Directors. Debt securities with maturities of 60 days or less
are valued at amortized cost, which approximates market value. The amortized
cost method involves valuing a security at its cost on the day of purchase or,
in the case of securities purchased with more than 60 days to maturity, at their
market value each day until the 61st day prior to maturity, and thereafter
assuming a constant amortization to maturity of the difference between principal
amount due at maturity and such valuation.
The valuation of securities of the Blue Chip Fund's investment in the
Portfolio is discussed in Note 2 of the Portfolio's financial statements.
B) SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND UNREALIZED GAINS AND
LOSSES:
The Aggressive Growth Fund records securities on a trade date basis.
Realized gains and losses from securities transactions are recorded on the
identified cost basis. Dividend income is recognized on the ex-dividend date and
interest income is accrued daily. The Blue Chip Fund records its share of the
investment income, expenses and realized and unrealized gains and losses
recorded by the Portfolio on a daily basis. The investment income, expenses and
realized and unrealized gains and losses are allocated daily to investors in the
Portfolio based upon the value of their investments in the Portfolio. Such
investments are adjusted on a daily basis. The valuation of securities by the
Portfolio is discussed in Note 2 of the Portfolio's financial statements.
Expenses directly attributable to the Aggressive Growth Fund and the Blue
Chip Fund are charged directly to the Aggressive Growth Fund and the Blue Chip
Fund, respectively, while Fund expenses attributable to more than one portfolio
of the Fund are allocated among the respective portfolios.
C) DIVIDENDS AND DISTRIBUTIONS:
The Aggressive Growth Fund and Blue Chip Fund declare and pay dividends from
net investment income, if any, at least annually for the Aggressive Growth Fund
and quarterly for the Blue Chip Fund. Distributions of net realized gains, if
any, will be paid at least annually. However, to the extent that net realized
gains of the Funds can be offset by capital loss carryovers, such gains will not
be distributed. Dividends and distributions are recorded by the Funds on the
ex-dividend date.
FS-115
<PAGE> 401
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or net
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital. Accordingly, the Aggressive Growth Fund reclassified
$2,104,495 from accumulated undistributed net realized gains relating to
permanent differences arising from the reclassification of net investment losses
against short-term realized gains. There was no effect on additional paid-in
capital.
D) FEDERAL INCOME TAXES:
It is the policy of the Funds to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of their taxable income to shareholders. Therefore, no federal
income tax provision is required.
E) OTHER:
The Blue Chip Fund incurred certain costs in connection with its
organization. Such costs have been deferred and are being amortized on a
straight line basis over five years.
The Aggressive Growth Fund maintains a cash balance with its custodian and
receives a reduction of its custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting purposes for
the six months ended August 31, 1996, custodian fees and expenses paid by third
parties were increased by $6,061. There was no effect on net investment income.
The Aggressive Growth Fund could have invested such cash amounts in an income
producing asset if it had not agreed to a reduction of fees or expenses under
the expense offset arrangement with its custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Aggressive Growth Fund has an Investment Advisory Agreement with Bank of
America, and the Portfolios have an Administration agreement with Concord and a
Distribution Agreement with the Distributor. Pursuant to the terms of Investment
Advisory Agreement, Bank of America is entitled to a fee from the Aggressive
Growth Fund, which is accrued daily and payable monthly, at an annual rate of
0.60%, of the Aggressive Growth Fund's average net asset. Pursuant to the terms
of the Administration Agreement, Concord is entitled to a fee from the
Aggressive Growth Fund and the Blue Chip
FS-116
<PAGE> 402
Fund, which is accrued daily and payable monthly, at an annual rate of 0.30% and
0.15%, respectively, of each Fund's average net assets. Concord waived its
entire fee from the Blue Chip Fund for the six months ended August 31, 1996.
The Investment Advisory and Administration Agreements provide that if, in
any fiscal year, the operating expenses of the Funds (generally excluding
interest, taxes, brokerage commissions and extraordinary expenses) exceed the
most restrictive expense limitation of any state having jurisdiction over the
Funds, then Bank of America and Concord will reimburse the Funds for any excess
expenses. At August 31, 1996, the most restrictive expense limitation is
believed to limit expenses to 2.5% of the first $30 million of each Fund's
average daily net assets, plus 2.0% of the next $70 million of such assets, plus
1.5% of such assets in excess of $100 million. These agreements provide that
such reimbursements will be estimated and paid on a monthly basis. No
reimbursement was required for the six months ended August 31, 1996.
For the six months ended August 31, 1996, the Distributor advised the Funds
that it retained $72,224 and $130,114 from commissions earned on sales of the
Aggressive Growth Fund's and the Blue Chip Fund's shares, respectively. For the
same period, Bank of America and its affiliates advised the Funds that they
retained $517,181 and $1,015,245 from commissions earned on sales of the Funds'
shares from the Aggressive Growth Fund and the Blue Chip Fund, respectively.
The Funds have adopted a Shareholder Service Plan (the "Plan") under which
each Fund pays the Distributor for shareholder servicing expenses incurred in
connection with A Shares of the Fund. Under the Plan, payments by each Fund may
not exceed 0.25% (annualized) of the Fund's average daily net assets of each
Fund's A Shares. For the six months ended August 31, 1996, the Aggressive Growth
Fund and Blue Chip Fund incurred charges of $252,185 and $101,110, respectively,
pursuant to the Plan. The Funds were advised that of this amount, the
Distributor retained $158,782 and $5,944 from the Aggressive Growth Fund and the
Blue Chip Fund, respectively, and affiliates of Bank of America retained $84,776
and $92,215, respectively. The Plan provides that if, in any month, the fees
paid to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess costs will not be carried forward beyond the end of the fiscal year
in which such excess costs were incurred. The Funds have adopted a Distribution
Plan and an Administrative and Shareholder Services Plan with respect to K
Shares of the Funds. Under the Distribution Plan, the Funds pay the Distributor
for expenses primarily intended to result in the sale of the Funds' K Shares.
Under the Distribution Plan, payments by the Funds for distribution expenses may
not exceed 0.75% (annualized) of the average daily net assets of each Fund's K
Shares. Payments for distribution expenses under the Distribution Plan are
subject to Rule 12b-1 under the Act. Under the Administrative and Shareholder
Ser-
FS-117
<PAGE> 403
vices Plan (the "Administrative Plan"), the Funds pay for expenses incurred in
connection with shareholder services provided by the Distributor and payments to
Service Organizations for the provision of support services with respect to
beneficial owners of K Shares. Under the Administrative Plan, payments for
shareholder services and administrative services may not exceed 0.25% and 0.75%
(annualized), respectively, of the average daily net assets of each Fund's K
Shares. The total of all payments under the Distribution Plan and the
Administrative and Shareholder Services Plan may not exceed, in the aggregate,
the annual rate of 1.00% of the average daily net assets of each Fund's K
Shares.
Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary of BISYS, serves the Company as transfer agent and dividend
disbursing agent. In this capacity, BISYS Fund Services, Inc., earned $172,779
and $34,379 from the Aggressive Growth Fund and the Blue Chip Fund respectively,
for the six months ended August 31, 1996. Prior to December 11, 1995 an
unrelated party provided these services.
For the six months ended August 31, 1996, the Aggressive Growth Fund and the
Blue Chip Fund incurred legal charges totalling $1,090 and $5,068 respectively,
which were earned by a law firm, a partner of which serves as Secretary of the
Company. Certain officers of the Company are "affiliated persons" (as defined in
the Act) of BISYS.
NOTE 4 -- DIRECTORS' COMPENSATION
Each Director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the Director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives an annual retainer
of $1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former President and Chairman of the Company receives an additional $40,000
per year through February 28, 1997, in consideration of his years of service.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. In addition, the amount
payable each year to a Director who dies or resigns shall be increased by $1,000
for each year of service
FS-118
<PAGE> 404
that the Director served as Chairman of the Board. Each Director may receive any
benefits payable under the Retirement Plan, at his or her election, either in
one lump sum payment or ten annual instalments. A Director's years of service
for the purpose of calculating the payments described above shall be based upon
service as a Director or Chairman after February 28, 1994. Aggregate costs to
the Aggressive Growth Fund and Blue Chip Fund pursuant to the Retirement Plan
amounted to $624 and $22 respectively, for the six months ended August 31, 1996.
NOTE 5 -- PURCHASES AND SALES OF SECURITIES
For the year ended August 31, 1996 the cost of purchases and the proceeds
from sales of the Aggressive Growth Fund portfolio securities (excluding
short-term investments) amounted to $125,403,206 and $130,169,162, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
At August 31, 1996, there were 200 billion shares of the Funds $0.001 par
value capital stock authorized, of which 1,050 million were classified as Class
D Common Stock (Aggressive Growth Fund) and 150 million shares were classified
as Class N Common stock (Blue Chip Fund).
Transactions in shares of common stock of the Aggressive Growth Fund and the
Blue Chip Fund are summarized below:
FS-119
<PAGE> 405
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
----------------------------
YEAR ENDED
SIX MONTHS ENDED FEBRUARY
AUGUST 31, 1996 29,
---------------------------- 1996
A SHARES K SHARES(a) (000)
------------ ----------- -----------
<S> <C> <C> <C>
Net proceeds from shares subscribed.... $336,890,484 $ 1,055 $ 344,733
Net asset value of shares issued to
shareholders in reinvestment of
dividends............................ 6,930,867 -- 32,628
Cost of shares redeemed................ (330,859,078) -- (348,868)
------------ ------ ---------
Net increase........................... $ 12,962,273 $ 1,055 $ 28,493
============ ======= =========
Shares sold............................ 13,482,179 43 15,721
Shares issued in reinvestment of
distributions........................ 287,162 -- 1,418
Shares redeemed........................ (13,150,819) -- (15,862)
------------ ------- ---------
Net increase........................... 618,522 43 1,277
============ ======= =========
</TABLE>
<TABLE>
<CAPTION>
BLUE CHIP FUND
----------------------------
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29,
---------------------------- 1996
A SHARES K SHARES(a) (000)
------------ ----------- ------------
<S> <C> <C> <C>
Net proceeds from shares subscribed... $ 34,596,243 $ 1,028 $ 59,881
Net asset value of shares issued to
shareholders in reinvestment of
dividends........................... 397,673 -- 904
Cost of shares redeemed............... (8,337,712) -- (6,848)
------------ ------- ----------
Net increase.......................... $ 26,656,204 $ 1,028 $ 53,937
============ ======= ==========
Shares sold........................... 1,641,124 49 3,204
Shares issued in reinvestment of
distributions....................... 18,829 -- 47
Shares redeemed....................... (389,445) -- (371)
------------ ------- ----------
Net increase.......................... 1,270,508 49 2,880
============ ======= ==========
</TABLE>
- ---------------
(a) For the period from July 22, 1996 (commencement of operations) through
August 31, 1996.
FS-120
<PAGE> 406
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights(a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED
AUGUST 31, -----------------------------------------------------------
1996(C) FEBRUARY FEBRUARY FEBRUARY FEBRUARY
(UNAUDITED) 29, 1996 28, 1995 28, 1994 28, 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
A SHARES
Net asset value per share, beginning
of year............................ $ 23.49 $ 20.61 $ 25.70 $ 24.68 $ 27.93
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment loss................ (0.16) (0.27) (0.22) (0.37) (0.26)
Net realized and unrealized gains
(losses) on securities........... 2.19 8.35 (0.95) 3.02 (2.26)
------- ------- ------- ------- -------
Total income (loss) from investment
operations......................... 2.03 8.08 (1.17) 2.65 (2.52)
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net realized gains
on securities.................... (0.88) (5.20) (3.92) (1.63) (0.73)
------- ------- ------- ------- -------
Net change in net asset value per
share.............................. 1.15 2.88 (5.09) 1.02 (3.25)
------- ------- ------- ------- -------
Net asset value per share, end of
period............................. $ 24.64 $ 23.49 $ 20.61 $ 25.70 $ 24.68
======= ======= ======= ======= =======
Total return (excludes sales
charge)............................ 8.80%++ 40.88% (3.59%) 10.54% (8.76%)
Ratios/Supplemental Data:
Net assets, end of period (000).... $ 204,375 $ 180,347 $ 131,879 $ 158,091 $ 159,517
Ratio of expenses to average net
assets........................... 1.42%+ 1.51% 1.46% 1.52% 1.49%
Ratio of net investment income
(loss) to average net assets..... (1.29%)+ (1.35%) 1.04% 1.20% 1.15%
Ratio of expenses to average net
assets*.......................... (b) (b) (b) (b) 1.51%
Ratio of net investment income to
average net assets*.............. (b) (b) (b) (b) 1.13%
Portfolio turnover rate............ 66% 93% 92% 43% 43%
Average commission rate paid (d)... $ 0.0239 -- -- -- --
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced and/or reimbursed. If such
voluntary fee reductions and/or reimbursements had not occurred, the ratios would have been
as indicated.
** There were no waivers or reimbursements during the period. During the year ended February
29, 1996, and six months ended August 31, 1996, the Portfolio received credits from its
Custodian for interest earned on uninvested cash balances which were used to offset
custodian fees and expenses. If such credits had not occurred, the expense ratio would have
been as indicated. The ratio of net investment loss was not affected.
+ Annualized.
++ Not annualized.
(a) Security Pacific National Bank served as Investment Adviser through April 21, 1992. Bank of
America National Trust and Savings Association served as Investment Adviser commencing
April 22, 1992.
(b) There were no waivers or reimbursements during the period.
(c) As of July 22, 1996, the Portfolio designated the existing series of shares as "A" Shares.
(d) Represents the dollar amount of commissions paid on Portfolio transactions divided by the
total number of shares purchased or sold for which commissions were charged and is
calculated on the basis of the Portfolio as a whole without distinguishing between the
classes of shares issued. Disclosure not required for prior periods.
</TABLE>
See Notes to Financial Statements.
FS-121
<PAGE> 407
PACIFIC HORIZON AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1996 (a)
(UNAUDITED)
--------------
<S> <C>
K SHARES
Net asset value per share, beginning of year........................ $ 23.68
--------
Income from Investment Operations:
Net investment loss............................................... (0.05)
Net realized and unrealized gains (losses) on securities.......... 1.88
--------
Total income (loss) from investment operations...................... 1.83
--------
Less dividends and distributions:
Dividends from net realized gains on securities transactions...... (0.89)
--------
Net change in net asset value per share............................. 0.94
--------
Net asset value per share, end of year.............................. $ 24.62
========
Total return........................................................ 8.71%++
Ratios/Supplemental Data:
Net assets, end of period......................................... $ 1,055
Ratio of expenses to average net assets........................... 1.96%+
Ratio of net investment loss to average net assets................ (1.81%)
Ratio of expenses to average net assets........................... (b)
Ratio of net investment income to average net assets.............. (b)
Portfolio turnover rate........................................... 66%
Average commission rate paid (c).................................. $ 0.0239
</TABLE>
- ---------------
<TABLE>
<S> <C>
+ Annualized.
++ Represents total return for A Shares from March 1, 1996 to July 21, 1996 plus the total
return for the K Shares for the period July 22, 1996 to August 31, 1996. A share performance
does not include deduction of the maximum 4.50% sales charge. K share performance will be
lower than A share performance due to the K shares' additional 0.50% distribution or
shareholder services fee.
(a) For the period July 22, 1996 (commencement of operations) through August 31, 1996.
(b) There were no waivers or reimbursements during the period.
(c) Represents the dollar amount of commissions paid on Portfolio transactions divided by the
total number of shares purchased or sold for which commissions were charged and is
calculated on the basis of the Portfolio as a whole without distinguishing between the
classes of shares issued.
</TABLE>
See Notes to Financial Statements.
FS-122
<PAGE> 408
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED PERIOD
AUGUST 31, ----------------------------- ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED)(a) 1996 1995 1994*
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
A SHARES
Net asset value per share, beginning
of period.......................... $ 20.53 $ 15.81 $ 14.97 $ 15.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income.............. 0.11 0.26 0.31 0.02
Net realized and unrealized gains
(losses) on securities........... 0.48 4.96 0.80 (0.05)
-------- -------- -------- --------
Total income (loss) from investment
operations....................... 0.59 5.22 1.11 (0.03)
-------- -------- -------- --------
Less Dividends and Distributions:
Dividends to shareholders from net
investment income................ (0.11) (0.28) (0.27) --
Distributions to shareholders from
net realized gains on
securities....................... -- (0.22) -- --
-------- -------- -------- --------
Total Dividends and Distributions... (0.11) (0.50) (0.27) --
-------- -------- -------- --------
Net change in net asset value per
share.............................. 0.48 4.72 0.84 (0.03)
-------- -------- -------- --------
Net asset value per share, end of
period............................. $ 21.01 $ 20.53 $ 15.81 $ 14.97
======== ======== ======== ========
Total return++...................... 2.88% 33.39% 7.60% (0.20)%
Ratios/Supplemental Data:
Net assets, end of period (000).... $ 95,163 $ 66,933 $ 6,002 $ 1,180
Ratio of expenses to average net
assets**......................... 1.27%+ 0.83% 0.00% 0.00%+
Ratio of net investment income to
average net assets**............. 2.28%+ 1.63% 2.46% 2.92%+
</TABLE>
- ---------------
* For the period January 13, 1994 (commencement of operations) through February
28, 1994.
** Reflects the Blue Chip Fund's proportionate share of the Portfolio's
expenses, the Portfolio's fee waivers and expense reimbursements by the
Portfolio's Investment Adviser and Administrator and fee waivers and expense
reimbursements by the Fund's Administrator and Distributor. Such fee waivers
and expense reimbursements 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 0.48%, 1.45%, 6.32% and 55.00% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
+ Annualized.
++ The total returns listed are not annualized for the period ended August 31,
1996 and February 28, 1994 and do not include the effect of the maximum
4.50% sales charge.
(a) As of July 22, 1996 the Portfolio designated the existing series of shares
as "A" Shares.
See Notes to Financial Statements.
FS-123
<PAGE> 409
PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1996
(UNAUDITED)(a)
--------------
<S> <C>
K SHARES
Net asset value per share, beginning of period...................... $20.38
------
Income from Investment Operations:
Net investment income............................................. 0.05
Net realized and unrealized gains on securities................... 0.56
------
Total income from investment operations........................... 0.61
------
Net change in net asset value per share............................. 0.61
------
Net asset value per share, end of period............................ $20.99
======
Total return++...................................................... 2.79%
Ratios/Supplemental Data:
Net assets, end of period......................................... $1,028
Ratio of expenses to average net assets*.......................... 1.77%+
Ratio of net investment income to average net assets*............. 1.83%+
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Reflects the Blue Chip Fund's proportionate share of the Portfolio's expenses, the
Portfolio's fee waivers and expense reimbursements by the Portfolio's Investment Adviser and
Administrator and fee waivers and expense reimbursements by the Fund's Administrator and
Distributor. Such fee waivers and expense reimbursements 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 (0.48%).
+ Annualized.
++ Represents total return for K Shares from March 1, 1996 to July 21, 1996 plus the total
return for the K Shares for the period July 22, 1996 to August 31, 1996. A share performance
does not include deduction of the maximum 4.50% sales charge. K share performance will be
lower than A share performance due to the K shares' additional 0.50% distribution or
shareholder services fee.
(a) For the period July 22, 1996 (commencement of operations) through August 31, 1996.
</TABLE>
See Notes to Financial Statements.
FS-124
<PAGE> 410
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE -- 3.55%
Lockheed Martin Corp. .............................................. 43,100 $ 3,625,788
Rockwell International ............................................. 60,900 3,166,800
United Technologies Corp. .......................................... 46,500 5,242,875
------------
12,035,463
------------
AIRLINES -- 0.38%
AMR Corp. .......................................................... 15,900 1,303,800
------------
APPAREL -- 0.85%
Nike, Inc. ......................................................... 26,700 2,883,600
------------
AUTOMOBILES -- 2.02%
Chrysler Corp. ..................................................... 115,800 3,372,675
Ford ............................................................... 103,700 3,473,950
------------
6,846,625
------------
AUTOMOBILE PARTS -- 0.51%
Goodyear ........................................................... 38,200 1,742,875
------------
BANKS -- 7.21%
Bank of Boston Corp. ............................................... 89,600 4,726,400
Citicorp ........................................................... 82,200 6,843,150
Comerica ........................................................... 77,200 3,763,500
First Union Corp. .................................................. 73,200 4,675,650
NationsBank Corp. .................................................. 52,200 4,443,525
------------
24,452,225
------------
BEVERAGES -- SOFT DRINKS -- 3.77%
Coca-Cola Co. ...................................................... 178,600 8,930,000
Pepsico ............................................................ 133,600 3,841,000
------------
12,771,000
------------
CHEMICALS -- 3.45%
E.I. Du Pont de Nemours ............................................ 70,200 5,765,175
Monsanto ........................................................... 146,400 4,703,100
Morton International ............................................... 32,900 1,221,413
------------
11,689,688
------------
COMPUTER HARDWARE -- 2.09%
Compaq Computer Corp ............................................... 50,700 2,870,888
Sun Microsystems, Inc. ............................................. 36,100 1,962,938
Xerox Corporation .................................................. 40,900 2,244,388
------------
7,078,214
------------
COMPUTER SOFTWARE -- 5.21%
Computer Associates ................................................ 49,350 2,590,875
Cisco Systems ...................................................... 90,500 4,773,875
Cabletron Systems .................................................. 20,700 1,262,700
Microsoft Corp. .................................................... 47,800 5,855,500
Oracle ............................................................. 90,450 3,188,363
------------
17,671,313
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-125
<PAGE> 411
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COSMETICS/TOILETRIES -- 1.30%
Avon Products ...................................................... 91,900 $ 4,399,713
------------
ELECTRICAL EQUIPMENT -- 2.50%
General Electric Co. ............................................... 102,100 8,487,063
------------
FINANCIAL SERVICES -- 2.91%
Merrill Lynch ...................................................... 56,500 3,460,625
Morgan, J.P. ....................................................... 37,300 3,268,413
Morgan Stanley ..................................................... 65,800 3,141,950
------------
9,870,988
------------
FOODS -- 2.53%
Conagra, Inc. ...................................................... 71,800 3,024,575
Hershey Foods Corp. ................................................ 30,500 2,657,313
Sara Lee Corp. ..................................................... 92,100 2,901,150
------------
8,583,038
------------
FOREST PRODUCTS AND PAPER -- 1.02%
Bemis Co. .......................................................... 39,400 1,177,075
Mead, Inc. ......................................................... 5,300 211,825
Temple Inland, Inc. ................................................ 40,100 2,068,813
------------
3,457,713
------------
HOUSEHOLD PRODUCTS -- GENERAL -- 2.12%
Clorox ............................................................. 45,400 4,250,575
Procter & Gamble ................................................... 33,000 2,932,875
------------
7,183,450
------------
INSURANCE -- 3.20%
Aetna, Inc. ........................................................ 8,422 556,905
Allstate ........................................................... 67,197 2,998,666
American General ................................................... 92,300 3,368,950
Cigna .............................................................. 23,100 2,682,488
General re Corp. ................................................... 8,500 1,231,438
------------
10,838,447
------------
LEISURE -- 1.40%
Walt Disney Co. .................................................... 66,178 3,772,146
King World Productions, Inc. ....................................... 27,600 972,900
------------
4,745,046
------------
MACHINERY & EQUIPMENT -- 1.05%
Caterpillar, Inc. .................................................. 27,400 1,887,175
Ingersoll Rand Co. ................................................. 39,500 1,688,625
------------
3,575,800
------------
MANUFACTURING -- 0.45%
Armstrong World Industries ......................................... 24,700 1,528,313
------------
MEDIA -- PUBLISHING -- 1.07%
New York Times Co. ................................................. 66,500 2,078,125
Times Mirror ....................................................... 35,700 1,548,488
------------
3,626,613
------------
MEDICAL -- HOSPITAL MANAGEMENT SERVICES -- 0.84%
Columbia Healthcare Corp. (HCA) ................................... 50,400 2,841,300
------------
METALS -- 1.05%
Phelps Dodge ....................................................... 45,800 2,770,900
USX -- Steel ....................................................... 36,000 775,500
------------
3,546,400
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-126
<PAGE> 412
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
MULTI -- INDUSTRY -- 2.11%
Honeywell, Inc. .................................................... 74,000 $ 4,301,250
Textron ............................................................ 33,400 2,851,525
------------
7,152,775
------------
OIL/GAS -- DOMESTIC -- 2.06%
Atlantic Richfield Co. ............................................. 20,300 2,370,025
Phillips Petroleum Co. ............................................. 59,000 2,389,500
Unocal Corp. ....................................................... 64,700 2,215,975
------------
6,975,500
------------
OIL/GAS -- INTERNATIONAL -- 5.55%
Exxon Corp. ........................................................ 67,200 5,468,400
Mobil Corp. ........................................................ 42,000 4,735,500
Royal Dutch Pete Co. ............................................... 23,800 3,555,125
Texaco, Inc. ....................................................... 57,100 5,067,625
------------
18,826,650
------------
OIL/GAS -- PRODUCTION SERVICES -- 1.04%
Tidewater .......................................................... 91,500 3,511,313
------------
PHARMACEUTICALS -- 9.10%
Abbott Labs ........................................................ 83,000 3,745,375
Bristol-Meyers ..................................................... 49,200 4,317,300
Johnson & Johnson .................................................. 135,700 6,683,225
Merck & Co., Inc. .................................................. 125,700 8,249,063
Pfizer, Inc. ....................................................... 67,300 4,778,300
Schering Plough Corp. .............................................. 55,400 3,095,475
------------
30,868,738
------------
PHOTOGRAPHY -- 0.76%
Eastman Kodak ...................................................... 35,400 2,566,500
------------
RAILROAD -- 1.14%
Norfolk Southern Corp. ............................................. 46,300 3,860,263
------------
RESTAURANTS/LODGING -- 1.22%
Hospitality Franchise .............................................. 25,200 1,508,850
Marriott International, Inc. ....................................... 47,800 2,623,025
------------
4,131,875
------------
RETAIL -- 4.86%
American Stores Co. ................................................ 98,500 4,050,813
Dayton Hudson ...................................................... 75,900 2,618,550
Gap, Inc. .......................................................... 135,000 4,725,000
Home Depot, Inc. ................................................... 46,100 2,449,063
TJX Cos, Inc. ...................................................... 82,200 2,630,400
------------
16,473,826
------------
SEMICONDUCTORS -- 2.23%
Intel Corp. ........................................................ 94,800 7,566,225
------------
TELECOMMUNICATIONS EQUIPMENT -- 0.77%
Harris Corp. ....................................................... 42,600 2,619,900
------------
TOBACCO -- 1.84%
Phillip Morris, Inc. ............................................... 69,500 6,237,625
------------
TOYS -- 0.46%
Hasbro, Inc. ....................................................... 42,300 1,554,525
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-127
<PAGE> 413
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
UTILITIES -- ELECTRIC -- 3.09%
Edison International ............................................... 232,200 $ 4,034,475
FPL Group, Inc. .................................................... 51,400 2,274,450
General Public Utilities ........................................... 132,400 4,170,600
------------
10,479,525
------------
UTILITIES -- GAS -- 0.86%
Pacific Enterprises ................................................ 97,700 2,918,788
------------
UTILITIES -- TELECOMMUNICATIONS -- 6.82%
Ameritech Corp. .................................................... 68,300 3,525,988
AT&T ............................................................... 70,700 3,711,750
Bellsouth Corp. .................................................... 125,200 4,538,500
GTE Corp. .......................................................... 79,600 3,134,250
Nynex Corp. ........................................................ 62,300 2,686,687
Sprint Corp. ....................................................... 136,300 5,537,188
------------
23,134,363
------------
Total Common Stocks -- 94.36%
(Cost $320,232,223) ................................................ 320,037,067
------------
PREFERRED STOCK -- 0.06%
Aetna Services ..................................................... 2,808 195,156
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
---- -------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 5.40%
U.S. Treasury Bill............................... 5.06%* 09/19/96 368 $ 367,017
U.S. Treasury Bill............................... 5.15%* 10/17/96 22 21,847
U.S. Treasury Bill............................... 5.03%* 10/24/96 2,196 2,179,494
U.S. Treasury Bill............................... 4.99%* 10/24/96 2,730 2,709,481
U.S. Treasury Bill............................... 4.97%* 10/24/96 1,213 1,203,883
U.S. Treasury Bill............................... 5.06%* 10/31/96 734 727,654
U.S. Treasury Bill............................... 5.00%* 11/07/96 493 488,247
U.S. Treasury Bill............................... 5.10%* 11/07/96 663 656,607
U.S. Treasury Bill............................... 5.02%* 11/07/96 940 930,937
U.S. Treasury Bill............................... 5.04%* 11/14/96 687 679,676
U.S. Treasury Bill............................... 4.97%* 11/14/96 434 429,373
U.S. Treasury Bill............................... 4.98%* 11/14/96 687 679,676
U.S. Treasury Bill............................... 4.97%* 11/14/96 947 936,904
U.S. Treasury Bill............................... 5.02%* 11/14/96 261 258,217
U.S. Treasury Bill............................... 5.03%* 11/14/96 108 106,849
U.S. Treasury Bill............................... 5.07%* 11/14/96 5,677 5,616,476
U.S. Treasury Bill............................... 5.07%* 11/14/96 337 333,407
------------
18,325,745
------------
Total U.S. Government Obligations (cost $18,293,401).................................. 18,325,745
------------
TOTAL INVESTMENT
(COST $298,146,861) -- 99.83%........................................................ 338,557,968
Other Assets In Excess of Liabilities -- 0.17%........................................ 593,428
------------
NET ASSETS -- 100%.................................................................... $339,151,396
============
</TABLE>
- ---------------
* Effective Yield
See Notes to Financial Statements.
FS-128
<PAGE> 414
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $298,146,861).............. $338,557,968
Cash................................................................ 312
Receivable for investment securities sold........................... 6,218,257
Contribution receivable............................................. 746,059
Dividends receivable................................................ 755,213
Interest receivable................................................. --
Deferred organization costs and prepaid expenses.................... 29,161
------------
Total assets.......................................................... 346,306,970
------------
LIABILITIES:
Withdrawal payable.................................................. 75,952
Payable for investment securities purchased......................... 6,761,707
Advisor fees payable................................................ 153,367
Accrued audit fees.................................................. 13,990
Accrued legal fees.................................................. 19,951
Accrued accounting fees............................................. 14,060
Accrued custody fees................................................ 19,343
Administration fees payable......................................... 10,227
Other accrued expenses.............................................. 86,977
------------
Total liabilities..................................................... 7,155,574
------------
NET ASSETS............................................................ $339,151,396
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-129
<PAGE> 415
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................ $ 302,621
Dividends............................................... 3,372,255
-----------
3,674,876
-----------
EXPENSES:
Advisory fees........................................... 1,156,068
Administration fees..................................... 77,071
Fund accounting fees and expenses....................... 93,231
Audit fees.............................................. 14,552
Custodian fees and expenses............................. 33,283
Legal fees.............................................. 24,867
Trustees fees........................................... 15,048
Amortization of organization costs...................... 6,970
Other operating expenses................................ 6,200
----------
1,427,290
Less: Fee waivers and expense reimbursements............ (484,008) 943,282
---------- -----------
Net Investment Income..................................... 2,731,594
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on securities transactions............ 12,400,049
Net change in unrealized appreciation (depreciation) on
investments........................................... (5,968,861)
-----------
Net Gain on Investments................................... 6,431,188
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $ 9,162,782
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-130
<PAGE> 416
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 2,731,594 $ 4,528,400
Net realized gains on securities transactions.......... 12,400,049 21,310,546
Net change in unrealized appreciation (depreciation) on
investments.......................................... (5,968,861) 34,689,746
------------ ------------
Net increase in net assets resulting from operations..... 9,162,782 60,528,692
------------ ------------
Trust Share Transactions:
Contributions.......................................... 78,154,310 96,776,148
Withdrawals............................................ (23,687,970) (39,120,232)
------------ ------------
Net increase in net assets resulting from Trust share
transactions......................................... 54,466,340 57,655,916
------------ ------------
Total Increase........................................... 63,629,122 118,184,608
NET ASSETS
Beginning of period...................................... 275,522,274 157,337,666
------------ ------------
End of period............................................ $339,151,396 $275,522,274
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-131
<PAGE> 417
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act")
as an open-end management investment company. At August 31, 1996, the Trust
consisted of five portfolios. The accompanying financial statements and notes
are those of the Blue Chip Portfolio (the "Portfolio") only.
The investment objective of the Portfolio is long-term capital appreciation
through investments in blue chip stocks.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolio's
investment adviser.
Concord Holding Corporation ("Concord") serves as the Portfolio's
administrator through BISYS Fund Services (Ireland) Ltd., a wholly owned
subsidiary of Concord. Effective March 29, 1995, Concord became a wholly owned
subsidiary of The BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation or, if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. Securities that are primarily traded on the NASDAQ national
securities market are valued at the last reported sales price on the date of
valuation or, if none is available, at the last quoted bid price on the date of
valuation. The Portfolio may use an independent pricing service, approved by the
Board of Trustees, to value certain of its securities. Such prices reflect
market values which may be established through the use of electronic data
processing techniques and matrix systems. Restricted securities and securities
for which market quotations are not readily available, if any, are valued at
fair value using methods approved by the Board of Trustees. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its
FS-132
<PAGE> 418
cost on the date of purchase or, in the case of securities purchased with more
than 60 days until maturity, at their market value each day until the 61st day
prior to maturity, and thereafter assuming a constant amortization to maturity
of the difference between the principal amount due at maturity and such
valuation.
B) SECURITIES TRANSACTIONS AND
INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recorded on the ex-dividend date.
C) EXPENSES:
Expenses directly attributable to the Portfolio are charged to the Portfolio
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.
D) FEDERAL INCOME TAXES:
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio has an Advisory Agreement with Bank of America and an
Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.75% of the average
daily net assets of the Portfolio. For the period ended August 31, 1996, Bank of
America waived $453,755 in fees as Adviser of the Portfolio.
As Administrator, Concord assists in supervising the operations of the
Portfolio. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.05% of the Portfolio's average daily net
assets. For the period ended August 31, 1996, Concord waived $30,254 in fees as
Administrator of the Portfolio.
For services provided to all five of the portfolios constituting the Trust,
each Trustee receives an annual fee of $3,000 and a meeting fee of $500. For the
period ended August 31, 1996, the Portfolio incurred legal expenses of $24,867,
which were earned by a law firm, a partner of which serves as Secretary of the
Trust. Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS.
FS-133
<PAGE> 419
NOTE 4 -- PURCHASES AND SALES OF SECURITIES
The following table summarizes the securities transactions effected by the
Portfolio, excluding short-term securities, for the period ended August 31,
1996.
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Common
Stocks....... $157,989,151 $116,133,810
</TABLE>
At August 31, 1996, the cost of the securities of the Portfolio for federal
income tax purposes was substantially the same as for financial reporting
purposes. Accordingly, net unrealized appreciation of investments amounted to
$40,411,107, consisting of gross unrealized appreciation of $42,366,519, and
gross unrealized depreciation of $1,955,412.
FS-134
<PAGE> 420
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX
MONTHS ENDED YEAR YEAR PERIOD
AUGUST 31, ENDED ENDED ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to average
net assets**.............. 0.61%*** 0.31% 0.17% 0.27%***
Ratio of net investment
income to average
net assets**.............. 1.77%*** 2.16% 2.30% 1.97%***
Portfolio Turnover.......... 40% 108% 44% 86%
Average commission rate
paid(a)................... $ 0.0012
</TABLE>
- ---------------
* For the period December 6, 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 0.32%, 0.59%, 0.80%, 0.80% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
*** Annualized.
(a) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased or sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure not required for prior periods.
See Notes to Financial Statements.
FS-135
<PAGE> 421
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS -- 13.7%
BANKS -- 3.5%
Barnett Banks, Inc.................................................. 37,736 $ 2,476,425
Fifth Third Bancorp................................................. 49,626 2,630,178
Wells Fargo Co...................................................... 16,666 4,145,667
------------
9,252,270
------------
COSMETICS & TOILETRIES -- 0.9%
Avon Products, Inc.................................................. 50,000 2,393,750
------------
FINANCIAL SERVICES -- 1.0%
RCSB Financial, Inc................................................. 98,437 2,645,494
------------
HOUSEHOLD-GENERAL PRODUCTS -- 0.9%
Colgate-Palmolive................................................... 30,000 2,437,500
------------
PHARMACEUTICALS -- 4.7%
American Home Products Corp......................................... 40,000 2,370,000
Bristol-Myers Squibb Co............................................. 25,000 2,193,750
Pharmacia & Upjohn Inc.............................................. 50,000 2,100,000
Schering-Plough..................................................... 47,000 2,626,125
Warner-Lambert Co................................................... 52,000 3,094,000
------------
12,383,875
------------
RETAIL -- 1.0%
Penney (J.C.) Co.................................................... 50,000 2,643,750
------------
UTILITIES -- ELECTRIC -- 1.7%
Duke Power Co....................................................... 25,000 1,168,750
Northern States Power Co............................................ 25,000 1,140,625
PacifiCorp.......................................................... 50,000 1,006,250
Southern Co......................................................... 50,000 1,131,250
------------
4,446,875
------------
Total Common Stocks
(cost $39,064,343).................................................. 36,203,514
------------
PREFERRED STOCKS -- 5.0%
AUTOMOBILE PARTS -- 0.9%
Federal-Mogul Corp.................................................. 40,000 2,240,000
------------
ENERGY PRODUCTION -- 1.1%
California Energy Co................................................ 50,000 2,937,500
------------
HOUSEHOLD-GENERAL PRODUCTS -- 0.8%
AJL Peps Trust...................................................... 110,000 2,076,250
------------
MEDIA -- 1.0%
SFX Broadcasting.................................................... 49,700 2,745,925
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-136
<PAGE> 422
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
RETAIL -- 1.2%
Tyco Toys, Inc...................................................... 524,720 $ 3,148,320
------------
Total Preferred Stocks
(cost $12,618,054).................................................. 13,147,995
------------
CONVERTIBLE PREFERRED STOCKS -- 29.5%
BANKS -- 2.9%
Ahmanson (H.F.), Series D........................................... 56,300 3,335,775
First Chicago, Series B............................................. 25,000 1,793,750
Sovereign Bancorp, Series B......................................... 45,000 2,638,125
------------
7,767,650
------------
FINANCIAL SERVICES -- 5.3%
American General, Delaware.......................................... 30,000 1,575,000
Great Western Financial Co.......................................... 35,000 2,126,250
Integon Corp........................................................ 40,000 2,360,000
Merrill Lynch Co.................................................... 55,000 3,293,125
PennCorp Financial Group, Inc....................................... 50,000 2,731,250
St. Paul Capital, Series M.......................................... 40,000 2,110,000
------------
14,195,625
------------
FOREST & PAPER PRODUCTS -- 0.7%
James River Co...................................................... 80,000 1,990,000
------------
HOUSEHOLD GOODS -- 1.1%
Corning, Inc........................................................ 50,000 2,775,000
------------
INDUSTRIAL & COMMERCIAL SERVICES -- 0.3%
Triathlon Broadcasting.............................................. 90,000 900,000
------------
INDUSTRIAL GOODS & EQUIPMENT -- 1.6%
Elsag Bailey Corp................................................... 55,000 2,461,250
McDermott International............................................. 50,000 2,012,500
------------
4,473,750
------------
INSURANCE -- 4.1%
Aetna, Inc., Class C................................................ 42,000 2,919,000
Allstate Corp....................................................... 62,000 2,728,000
American Bankers Insurance Group, Inc............................... 58,000 3,291,500
American General Corp............................................... 50,000 1,881,250
------------
10,819,750
------------
METALS -- 0.4%
Cyprus Amax, Series A............................................... 19,950 1,027,425
------------
MINING -- 2.7%
Amax Gold, Inc., Series B........................................... 40,000 2,095,000
Freeport McMoran.................................................... 125,000 3,296,875
Inco Limited........................................................ 30,000 1,575,000
------------
6,966,875
------------
OIL & GAS -- 5.7%
Ashland Oil Co...................................................... 45,000 2,714,062
MCN Corp............................................................ 100,000 2,775,000
Occidental Petroleum Co............................................. 40,000 2,440,000
Reading & Bates..................................................... 50,000 3,562,500
Unocal Corp......................................................... 60,000 3,472,500
------------
14,964,062
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-137
<PAGE> 423
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
RETAIL -- 0.8%
K-Mart, Inc......................................................... 42,100 $ 2,120,787
------------
UTILITIES -- ELECTRIC -- 2.3%
Citizens Utilities Co............................................... 60,000 2,910,000
NoRam Financing..................................................... 50,000 3,100,000
------------
6,010,000
------------
UTILITIES -- TELECOMMUNICATIONS -- 1.6%
Philippine Long Distance............................................ 35,000 1,955,625
Sprint Corp......................................................... 64,000 2,304,000
------------
4,259,625
------------
Total Convertible Preferred Stock
(cost $70,508,291).................................................. 78,270,549
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C>
CORPORATE CONVERTIBLE BONDS -- 47.4%
APPAREL -- 1.4%
Nine West Group, Inc........................... 5.50% 7/15/03 $ 3,500 $ 3,675,000
------------
AIRLINES -- 1.0%
Alaska Air Group............................... 6.88% 6/15/14 2,800 2,583,000
------------
AUTOMOBILE PARTS -- 1.2%
Magna International............................ 5.00% 10/15/02 31,000 3,309,250
------------
COMMERCIAL SERVICES -- 1.3%
Career Horizons................................ 7.00% 11/01/02 1,550 3,322,813
------------
COMPUTERS -- 3.4%
Apple Computer, Inc............................ 6.00% 6/01/01 2,750 2,839,375
Conner Peripherals, Inc........................ 6.75% 3/01/01 3,000 3,030,000
Danka Business Systems......................... 6.75% 4/01/02 2,000 2,330,000
Unisys Corp.................................... 8.25% 3/15/06 900 1,008,000
------------
9,207,375
------------
ELECTRONICS -- 5.6%
Altera Corp.................................... 5.75% 6/15/02 2,250 2,415,938
Analog Devices................................. 3.50% 12/01/00 2,100 2,310,000
Donatron International, 144A................... 6.00% 10/15/02 2,400 2,508,000
Motorola, Inc.................................. 0.00% 9/27/13 2,500 1,837,500
SCI Systems, Inc............................... 5.00% 5/01/06 2,730 3,074,662
3COM Corp...................................... 10.25% 11/01/11 1,600 2,572,000
------------
14,718,100
------------
ENVIRONMENTAL & POLLUTION CONTROL -- 1.8%
Sanifill, Inc.................................. 5.00% 3/01/06 3,000 3,423,750
Air & Water Technologies....................... 8.00% 5/15/15 1,500 1,318,125
------------
4,741,875
------------
FINANCIAL SERVICES -- 3.3%
ADT Operations................................. 7/06/10 5,950 3,391,500
American Travelers Corp........................ 6.50% 10/01/05 1,500 3,086,250
USF&G Corp..................................... 3/03/09 3,500 2,095,625
------------
8,573,375
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-138
<PAGE> 424
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C>
FOOD -- 2.5%
Grand Metropolitan............................. 6.50% 1/31/00 $ 2,400 $ 2,790,000
Starbucks Corp................................. 4.25% 11/01/02 2,600 3,828,500
------------
6,618,500
------------
HEALTH CARE -- 5.1%
Careline, Inc.................................. 8.00% 5/01/01 1,975 2,095,969
PHP Healthcare Corp............................ 6.50% 12/15/02 1,500 1,616,250
PhyCor, Inc.................................... 4.50% 2/15/03 1,500 1,569,375
Rotech Medical Corp............................ 5.25% 6/01/03 3,000 2,595,000
Tenet Healthcare Corp.......................... 6.00% 12/01/05 2,800 2,884,000
TheraTx, Inc................................... 8.00% 2/01/02 3,000 2,861,250
------------
13,621,844
------------
INDUSTRIAL GOODS & EQUIPMENT -- 4.4%
Cooper Industries, Inc......................... 7.05% 1/01/15 4,086 4,229,010
General Signal Corp............................ 5.75% 6/01/02 1,450 1,567,813
Hanson America, Inc............................ 2.39% 3/01/01 2,500 2,162,500
U.S. Filter Corp............................... 6.00% 9/18/05 2,500 3,800,000
------------
11,759,323
------------
LEISURE -- 1.8%
HFS, Inc....................................... 4.75% 3/01/03 1,500 1,710,000
Hilton Hotels Corp............................. 5.00% 5/15/06 2,780 2,894,675
------------
4,604,675
------------
MINING -- 1.7%
Agnico Eagle Mines............................. 3.50% 1/27/04 2,000 2,085,000
Horsham Corp................................... 3.00% 1/29/21 2,500 2,387,500
------------
4,472,500
------------
OIL & GAS -- 6.2%
Baker Hughes, Inc.............................. 0.00% 5/05/08 4,500 3,082,500
Nabors Industries, Inc......................... 5.00% 5/15/06 2,900 3,103,000
Noble Affiliates............................... 4.25% 11/01/03 3,250 3,733,438
Pennzoil Co.................................... 4.75% 10/01/03 2,700 2,862,000
Pride Petroleum................................ 6.25% 2/15/06 2,700 3,631,500
------------
16,412,438
------------
PHARMACEUTICALS -- 4.8%
Alza Corp...................................... 5.00% 5/01/06 2,800 2,765,000
McKesson Corp.................................. 4.50% 3/01/04 2,500 2,175,000
MedUSA Corp.................................... 6.00% 11/15/03 1,500 1,541,250
Nabi, Inc., 144A............................... 6.50% 2/01/03 1,550 1,528,687
Roche Holdings................................. 0.00% 4/20/10 3,000 1,316,250
Sandoz Capital Ltd............................. 2.00% 10/06/02 3,000 3,330,000
------------
12,656,187
------------
RETAIL -- 0.9%
Price Co....................................... 5.50% 2/28/12 2,300 2,366,125
------------
WASTE CONTROL -- 1.0%
United Waste Systems, Inc...................... 4.50% 6/01/01 2,575 2,784,219
------------
Total Convertible Bonds
(cost $114,578,407)............................ 125,426,599
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-139
<PAGE> 425
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION YIELD DATE (000) (NOTE 2)
- ------------------------------------------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 3.0%
U.S. Treasury Bills*........................... 0.00% 9/05/96 $ 2,000 $ 1,998,600
U.S. Treasury Bills*........................... 0.00% 10/03/96 2,000 1,991,223
U.S. Treasury Bills*........................... 0.00% 11/07/96 2,000 1,981,908
U.S. Treasury Bills*........................... 0.00% 11/21/96 2,000 1,977,836
------------
Total U.S. Treasury Annual Obligations
(cost $7,948,256).............................. 7,949,567
------------
TOTAL INVESTMENTS -- 98.6%
(COST $244,717,351)(A)......................... 260,998,224
Other Assets In Excess Of Liabilities -- 1.4%... 3,741,246
------------
NET ASSETS -- 100.0%............................ $264,739,470
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $264,739,470.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................. $22,037,131
Unrealized depreciation................................. (5,756,258)
-----------
Net unrealized appreciation............................. $16,280,873
===========
</TABLE>
* Discounted Securities.
144a -- Security which is restricted as to resale only to qualified
institutional investors.
See Notes to Financial Statements.
FS-140
<PAGE> 426
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $244,717,351)........................... $260,998,224
Cash............................................................................. 3,781,890
Receivable for Portfolio shares sold............................................. 1,502,612
Dividends receivable............................................................. 2,022,156
Receivable for investment securities sold........................................ 619,379
Prepaid expenses................................................................. 61,216
------------
Total assets...................................................................... 268,985,477
------------
LIABILITIES:
Payable for investment securities purchased...................................... 3,594,116
Payable for Portfolio shares redeemed............................................ 390,060
Advisory fees payable............................................................ 98,594
Administration fees payable...................................................... 43,820
Shareholder Service fees payable (A Shares)...................................... 54,774
Other accrued expenses........................................................... 64,643
------------
Total liabilities................................................................. 4,246,007
------------
NET ASSETS........................................................................ $264,739,470
============
Net Assets:
A Shares......................................................................... $264,738,426
K Shares......................................................................... 1,044
------------
$264,739,470
============
Shares Outstanding ($0.001 par value, 300 million shares authorized):
A Shares......................................................................... 15,600,211
K Shares......................................................................... 61
------------
15,600,272
============
CALCULATION OF MAXIMUM OFFERING PRICE -- A SHARES:
Net asset value and redemption price per share................................... $16.97
Sales charge -- 4.50% of public offering price................................... 0.80
Maximum Offering Price........................................................... $17.77
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -- K SHARES:....... $16.97
COMPOSITION OF NET ASSETS:
Shares of common stock, at par................................................... $ 15,600
Additional paid-in capital....................................................... 228,175,491
Accumulated net realized gains................................................... 18,781,009
Net unrealized appreciation of investments....................................... 16,280,873
Accumulated undistributed net investment income.................................. 1,486,497
------------
NET ASSETS, AUGUST 31, 1996....................................................... $264,739,470
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-141
<PAGE> 427
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................... $ 3,036,811
Dividends.............................................. 2,729,872
------------
5,766,683
EXPENSES:
Advisory fees.......................................... $ 573,105
Administration fees.................................... 254,714
Shareholder service fees (A Shares).................... 318,391
Transfer agent fees and expenses....................... 190,944
Custodian fees and expenses............................ 28,402
Audit fees............................................. 16,289
Reports to shareholders................................ 46,132
Legal fees............................................. 4,468
Directors' fees........................................ 3,583
Insurance expense...................................... 3,458
Registration fees...................................... 31,397
Other expenses......................................... 32,557
----------
Total expenses......................................... 1,503,440
Less: Expenses paid by third parties................. (7,551) 1,495,889
---------- ------------
Net Investment Income.................................... 4,270,794
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains on securities transactions.......... 22,243,139
Net change in unrealized appreciation of investments... (13,977,984)
------------
Net Gain on Investments.................................. 8,265,155
------------
Net Increase in Net Assets Resulting from Operations..... $ 12,535,949
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-142
<PAGE> 428
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 4,270,794 $ 8,945,405
Net realized gain on securities transactions........... 22,243,139 2,680,964
Net change in unrealized appreciation (depreciation) of
investments.......................................... (13,977,984) 38,907,177
------------ ------------
Net increase in net assets resulting from operations... 12,535,949 50,533,546
------------ ------------
Dividends and distributions to shareholders -- A Shares:
Dividends to shareholders from net investment income... (4,174,064) (10,020,414)
------------ ------------
Total dividends and distributions to shareholders........ (4,174,064) (10,020,414)
------------ ------------
Portfolio Share Transactions:
Net proceeds from shares subscribed.................... 32,396,807 264,083,620
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions.......... 3,987,131 9,525,718
Cost of shares redeemed................................ (26,752,152) (265,627,625)
------------ ------------
Net increase in net assets from Portfolio share
transactions......................................... 9,631,786 7,981,713
------------ ------------
Total Increase........................................... 17,993,671 48,494,845
NET ASSETS:
Beginning of period.................................... 246,745,799 198,250,954
------------ ------------
End of period (including undistributed net income of
$1,486,497, and $1,389,768).......................... $264,739,470 $246,745,799
============ ============
</TABLE>
See Notes to Financial Statements.
FS-143
<PAGE> 429
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Asset Allocation
Portfolio, at value................................................ $26,336,658
Deferred organization costs and prepaid expenses..................... 29,591
-----------
Total assets........................................................... 26,366,249
-----------
LIABILITIES:
Accrued reports to shareholders expense.............................. 23,576
Accrued fund accounting fees and expenses............................ 9,331
Accrued audit fee.................................................... 8,068
Other accrued expenses............................................... 5,088
-----------
Total liabilities...................................................... 46,063
-----------
NET ASSETS............................................................. $26,320,186
===========
Net Assets:
A shares............................................................. $26,319,168
K shares............................................................. 1,018
-----------
26,320,186
===========
Shares Outstanding ($0.001 par value, 150 million shares authorized):
A shares............................................................. 1,498,834
K shares............................................................. 58
-----------
1,498,892
===========
CALCULATION OF MAXIMUM OFFERING PRICE -- A SHARES:
Net asset value per share............................................ $17.56
Sales charge -- 4.50% of public offering price....................... 0.83
Maximum Offering Price............................................... $18.39
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -- K
SHARES:.............................................................. $17.55
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 1,499
Additional paid-in capital........................................... 24,551,205
Accumulated net realized gains....................................... 984,223
Net unrealized appreciation on investments........................... 657,602
Accumulated undistributed net investment income...................... 125,657
-----------
NET ASSETS, AUGUST 31, 1996............................................ $26,320,186
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-144
<PAGE> 430
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Asset Allocation Portfolio:
Interest................................................... $ 340,291
Dividends.................................................. 137,394
----------
477,685
----------
Expenses................................................... $ 122,384
Less: Fee waivers and expense reimbursements............... (53,208) 69,176
--------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio............................ 408,509
EXPENSES:
Shareholder service fees (A Shares)........................ 30,894
Administration fees........................................ 18,433
Registration fees and expenses............................. 18,272
Reports to shareholders expense............................ 13,560
Fund accounting fees and expenses.......................... 12,675
Transfer agent fees and expenses........................... 11,204
Amortization of organization costs......................... 8,547
Audit fees................................................. 2,837
Legal fees................................................. 2,448
Directors' fees............................................ 181
Other operating expenses................................... 849
---------
119,900
Less: Fee waivers and expense reimbursements............... (35,277) 84,623
--------- ----------
Net Investment Income........................................ 323,886
----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS FROM
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO:
Net realized gain on securities transactions............... 691,887
Net change in unrealized depreciation on investments....... (673,872)
----------
Net Gain on Investments from Master Investment Trust, Series
I -- Asset Allocation Portfolio............................ 18,015
----------
Net Increase in Net Assets Resulting from Operations......... $ 341,901
=========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-145
<PAGE> 431
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............................. $ 323,886 $ 464,352
Net realized gain on securities transactions....... 691,887 920,161
Net change in unrealized appreciation
(depreciation) of investments.................... (673,872) 1,078,509
----------- -----------
Net increase in net assets resulting from
operations....................................... 341,901 2,463,022
----------- -----------
Dividends and distributions to shareholders -- A
Shares:
Dividends to shareholders from net investment
income........................................... (310,689) (387,903)
Distributions in excess of net investment income... -- (544,588)
----------- ----------
(310,689) (932,491)
----------- ----------
Portfolio Share Transactions:
Net proceeds from shares subscribed................ 6,366,630 17,093,597
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions...... 299,015 903,640
Cost of shares redeemed............................ (2,731,344) (2,866,740)
----------- -----------
Net increase in net assets from Portfolio share
transactions..................................... 3,934,301 15,130,497
----------- -----------
Total Increase....................................... 3,965,513 16,661,028
NET ASSETS:
Beginning of Period................................ 22,354,673 5,693,645
----------- -----------
End of Period (including undistributed net
investment income of $125,657 and $112,461,
respectively).................................... $26,320,186 $22,354,673
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-146
<PAGE> 432
PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At August 31, 1996, the Company
operated as a series company comprising seventeen portfolios. The accompanying
financial statements and notes are those of the Pacific Horizon Capital Income
Fund (the "Capital Income Fund") and Pacific Horizon Asset Allocation Fund (the
"Asset Allocation Fund") (collectively, the "Funds") only.
The Capital Income Fund seeks to provide investors with a total investment
return, comprised of current income and capital appreciation, consistent with
prudent investment risk. The Asset Allocation Fund seeks to achieve its
investment objective by investing substantially all of its assets in the Asset
Allocation Portfolio of Master Investment Trust, Series I (the "Portfolio"), an
open-end management investment company that has the same investment objective as
that of the Asset Allocation Fund. The value of the Asset Allocation Fund's
investment in the Portfolio included in the accompanying Statement of Assets and
Liabilities reflects the Fund's proportionate beneficial interest in the net
assets of the Portfolio (14.48% as of August 31, 1996). The financial statements
of the Portfolio, including its portfolio of investments, are included elsewhere
within this report and should be read in conjunction with the Asset Allocation
Fund's financial statements.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Capital Income Fund's
investment adviser. Concord Holding Corporation ("Concord") serves as the Funds'
administrator and Concord Financial Group, Inc. (the "Distributor"), a wholly
owned subsidiary of Concord, serves as the distributor of the Company's shares.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The BISYS
Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A) PORTFOLIO VALUATIONS:
The securities of the Capital Income Fund for which market quotations are
readily available (other than debt securities with remaining maturities of 60
days or
FS-147
<PAGE> 433
less) are valued at the last reported sale price on the date of valuation or (if
none is available) at the mean between the current quoted bid and asked prices
on the date of valuation as provided by investment dealers.
Debt securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase or, in the case
of securities purchased with more than 60 days to maturity, at their market
value each day until the 61st day prior to maturity, and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and such valuation.
The valuation of securities of the Asset Allocation Fund's investment in the
Portfolio is discussed in Note 2 of the Portfolio's financial statements.
B) SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND REALIZED AND
UNREALIZED GAINS AND LOSSES:
The Capital Income Fund records security transactions on a trade day basis.
Realized gains and losses from securities transactions are recorded on the
identified cost basis. Interest income, including accretion of discount and
amortization of premium, is accrued daily. Dividend income is recognized on the
ex-dividend date.
The Asset Allocation Fund records its share of the investment income,
expenses and realized and unrealized gains and losses recorded by the Portfolio
on a daily basis. The investment income, expenses and realized and unrealized
gains and losses are allocated daily to investors in the Portfolio based upon
the value of their investments in the Portfolio. Such investments are adjusted
on a daily basis. The valuation of securities by the Portfolio is discussed in
Note 2 of the Portfolio's financial statements.
Expenses directly attributable to the Capital Income Fund and the Asset
Allocation Fund are charged directly to the Capital Income Fund and the Asset
Allocation Fund, respectively, while Company expenses attributable to more than
one fund of the Company are allocated among the respective funds.
C) DIVIDENDS AND DISTRIBUTIONS:
The Funds' net investment income is declared as a dividend, quarterly, to
shareholders of record at the close of business day on record date. Net realized
gains on portfolio securities, if any, will be distributed at least annually.
However, to the extent that net realized gains of the Funds can be offset by
capital loss carryovers of the Funds, such gains will not be distributed.
Dividends and distributions are recorded by the Funds on the ex-dividend date.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To
FS-148
<PAGE> 434
the extent these differences are permanent in nature, such amounts are
reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
D) FEDERAL INCOME TAXES:
It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
At February 29, 1996, the Capital Income Fund had capital loss carryovers of
approximately $2,300,000 and $600,000 which will expire in fiscal 2003 and 2004,
respectively. To the extent provided by regulations in the Code, these capital
loss carryovers will be used to offset future net realized gains on security
transactions. As such, it is probable that the gains so offset will not be
distributed to shareholders. Capital losses incurred after October 31, 1995 and
within the fiscal year are deemed to arise on the first business day of the
following fiscal year. The Capital Income Fund incurred and elected to defer
such losses of approximately $500,000.
E) OTHER:
The Asset Allocation Fund incurred certain costs in connection with its
organization. Such costs have been deferred and are being amortized on a
straight line basis over five years.
The Capital Income Fund maintains a cash balance with its custodian and
receives a reduction of its custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting purposes for
the six months ended August 31, 1996, custodian fees and expenses paid by third
parties were increased by $7,551. There was no effect on net investment income.
The Fund could have invested such cash amounts in an income producing asset if
it had not agreed to a reduction of fees or expenses under the expense offset
arrangement with its custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Capital Income Fund and the Portfolio have Investment Advisory
Agreements with Bank of America and the Funds have an Administration Agreement
with Concord and a Distribution Agreement with the Distributor.
Pursuant to the terms of the Capital Income Fund's Investment Advisory
Agreement, Bank of America is entitled to a fee from the Capital Income Fund,
which is accrued daily and payable monthly, at an annual rate of 0.45% of the
Capital Income
FS-149
<PAGE> 435
Fund's average net assets. Pursuant to the terms of the Administration agreement
Concord is entitled to a fee from the Capital Income Fund and the Asset
Allocation Fund, which is accrued daily and payable monthly, at an annual rate
of 0.20% and 0.15%, respectively, of each Fund's average net assets. For the six
months ended August 31, 1996 Concord agreed to waive its entire fee as
Administrator for the Asset Allocation Fund.
The Investment Advisory and Administration Agreements provide that if, in
any fiscal year, the operating expenses of any Fund (generally excluding
interest, taxes, brokerage commissions and extraordinary expenses) exceed the
most restrictive expense limitation of any state having jurisdiction over the
Fund, then Bank of America and Concord will reimburse the Fund for any such
excess expenses. At August 31, 1996, the most restrictive expense limitation is
believed to limit expenses to 2.5% of the first $30 million of each Fund's
average daily net assets, plus 2.0% of the next $70 million of such assets, plus
1.5% of such assets in excess of $100 million. These agreements provide such
reimbursement will be estimated and paid on a monthly basis. For the six months
ended August 31, 1996, the Administrator reimbursed $16,844 of operating
expenses of the Asset Allocation Fund.
For the six months ended August 31, 1996, the Distributor advised the Funds
that it retained $115,686 and $34,818 from commissions earned on sales of the
Capital Income Fund and the Asset Allocation Funds' shares, respectively. For
the same period, Bank of America and its affiliates advised the Funds that they
retained $921,208 and $191,504 from commissions earned on sales of the Funds'
shares from the Capital Income Fund and the Asset Allocation Fund, respectively.
The Funds have adopted a Shareholder Service Plan (the "Plan") under which
each Fund pays for shareholder servicing expenses related to each Fund's A
Shares. Under the Plan, payments by each Fund for shareholder servicing expenses
may not exceed 0.25% (annualized) of each Fund's average daily net assets. For
the six months ended August 31, 1996, the Capital Income Fund and the Asset
Allocation Fund incurred charges of $318,391 and $30,894, respectively, pursuant
to the Plan. The Capital Income Fund and the Asset Allocation Fund were advised
that of this amount, the Distributor retained $25,913 and $1,215 respectively
and affiliates of Bank of America retained $279,462 and $29,594 respectively.
The Plan provides that if, in any month, the fees paid to the Distributor are
less than the costs incurred by the Distributor, the excess costs will be
included in future computations of the fee, provided that any excess costs will
not be carried forward beyond the end of the fiscal year in which such excess
costs were incurred.
The Funds have adopted a Distribution Plan and an Administrative and
Shareholder Services Plan with respect to K Shares of the Funds. Under the
Distribution Plan, the Funds pay the Distributor for expenses primarily intended
to result in the sale of the Funds' K Shares. Under the
FS-150
<PAGE> 436
Distribution Plan, payments by the Funds for distribution expenses may not
exceed 0.75% (annualized) of the average daily net assets of each Fund's K
Shares. Payments for distribution expenses under the Distribution Plan are
subject to Rule 12b-1 under the Act. Under the Administrative and Shareholder
Services Plan (the "Administrative Plan"), the Funds pay for expenses incurred
in connection with shareholder services provided by the Distributor and payments
to Service Organizations for the provision of support services with respect to
beneficial owners of K Shares. Under the Administrative Plan, payments for
shareholder services and administrative services may not exceed 0.25% and 0.75%
(annualized), respectively, of the average daily net assets of each Fund's K
Shares. The total of all payments under the Distribution Plan and the
Administrative and Shareholder Services Plan may not exceed, in the aggregate,
the annual rate of 1.00% of the average daily net assets of each Fund's K
Shares.
Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary of BISYS, served the Capital Income Fund and Asset Allocation Fund as
transfer agent and dividend disbursing agent. In this capacity, BISYS Fund
Services, Inc. earned $190,944 and $11,204 from the Capital Income Fund and the
Asset Allocation Fund respectively for the six months ended August 31, 1996.
Prior to December 11, 1995 an unrelated party provided these services.
For the six months ended August 31, 1996, the Capital Income Fund and the
Asset Allocation Fund incurred legal charges totaling $4,468 and $2,448
respectively, which were earned by a law firm, a partner of which serves as
Secretary of the Company. Certain officers of the Company are "affiliated
persons" (as defined in the Act) of BISYS.
NOTE 4 -- DIRECTORS' COMPENSATION
Each director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives a retainer of
$1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former president and chairman of the Company receives an additional $40,000
per year through February 28, 1997 in consideration of his years of services.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that
FS-151
<PAGE> 437
Director's death or resignation, or (ii) 100% of the annual Director's retainer
then in effect for Directors of the Company during the year of such payment. In
addition, the amount payable each year to a Director who dies or resigns shall
be increased by $1,000 for each year of service that the Director served as
Chairman of the Board. Each Director may receive any benefits payable under the
Retirement Plan, at his or her election, either in one lump sum payment or ten
annual installments. A Director's years of service for the purpose of
calculating the payments described above shall be based upon service as a
Director or Chairman after February 28, 1994. Aggregate costs pursuant to the
Retirement plan amounted to $1,104 and $20 for the Capital Income Fund and the
Asset Allocation Fund respectively, for the six months ended August 31, 1996.
NOTE 5 -- SECURITIES TRANSACTIONS
For the six months ended August 31, 1996 the cost of purchases and the
proceeds from sales of Capital Income Fund's securities (excluding short-term
investments) amounted to $3,594,116 and $1,502,612 respectively.
At August 31, 1996, the cost of Capital Income Fund's securities for federal
income tax purposes was substantially the same as for financial reporting
purposes. According, net unrealized appreciation of investments amounted to
$16,280,873 consisting of gross unrealized depreciation of $5,756,258 and gross
unrealized appreciation of $22,037,131.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
At August 31, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 300 million shares were classified
as Class F Common Stock (Capital Income Fund) and 150 million shares were
classified as Class O Common Stock (Asset Allocation Fund).
FS-152
<PAGE> 438
Transactions in shares of common stock of the Funds are summarized below:
<TABLE>
<CAPTION>
CAPITAL INCOME FUND
-----------------------------------------
SIX MONTHS ENDED AUGUST
31, 1996 YEAR
(UNAUDITED) ENDED
-------------------------- FEBRUARY 29,
A SHARES K SHARES(a) 1996 (000)
------------ ----------- ------------
<S> <C> <C> <C>
Net proceeds from shares subscribed...................... $ 32,395,763 $ 1,044 $ 264,084
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 3,987,131 -- 9,526
Cost of shares redeemed.................................. (26,752,152) -- (265,628)
------------ ------- ----------
Net increase............................................. $ 9,630,742 $ 1,044 $ 7,982
============ ======= ==========
Shares sold.............................................. 1,937,881 61 18,026
Shares issued in reinvestment of distributions........... 238,491 -- 639
Shares redeemed.......................................... (1,603,702) -- (18,167)
------------ ------- ----------
Net increase............................................. 572,670 61 498
============ ======= ==========
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
-----------------------------------------
SIX MONTHS ENDED AUGUST
31, 1996 YEAR
(UNAUDITED) ENDED
-------------------------- FEBRUARY 29,
A SHARES K SHARES(a) 1996 (000)
------------ ----------- ------------
<S> <C> <C> <C>
Net proceeds from shares subscribed...................... $ 6,365,612 $ 1,018 $ 17,093
Net asset value of shares issued to shareholders in
reinvestment of dividends............................... 299,015 -- 904
Cost of shares redeemed.................................. (2,731,344) -- (2,867)
------------ ------- ---------
Net increase............................................. $ 3,933,283 $ 1,018 $ 15,130
============ ======= =========
Shares sold.............................................. 360,850 58 1,016
Shares issued in reinvestment of distributions........... 16,975 -- 53
Shares redeemed.......................................... (154,871) -- (169)
------------ ------- ---------
Net increase............................................. 222,954 58 900
============ ======= =========
</TABLE>
- ---------------
(a) For the period from July 22, 1996 (commencement of operations) through
August 31, 1996.
FS-153
<PAGE> 439
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights (a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, ---------------------------------------------------------
1996(b) FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994 1993
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
Net asset value per share, beginning
of period........................... $ 16.42 $ 13.65 $ 15.42 $ 13.32 $ 12.01
-------- -------- -------- -------- -------
Income from Investment Operations:
Net investment income............... 0.28 0.62 0.57 0.50 0.56
Net realized and unrealized gains
(losses) on securities............ 0.55 2.84 (1.43) 2.36 1.79
-------- -------- -------- -------- -------
Total income (loss) from investment
operations.......................... 0.83 3.46 (0.86) 2.86 2.35
-------- -------- -------- -------- -------
Less Dividends and Distributions:
Dividends from net investment
income............................ (0.28) (0.69) (0.54) (0.48) (0.60)
Distributions from net realized
gains on securities
transactions...................... -- -- (0.37) (0.28) (0.44)
-------- -------- -------- -------- -------
Total dividends and distributions.... (0.28) (0.69) (0.91) (0.76) (1.04)
-------- -------- -------- -------- -------
Net change in net asset value per
share............................... 0.55 2.77 (1.77) 2.10 1.31
-------- -------- -------- -------- -------
Net asset value per share, end of
period.............................. $ 16.97 $ 16.42 $ 13.65 $ 15.42 $ 13.32
======== ======== ======== ======== =======
Total return (excludes sales
charge)............................. 5.09%++ 25.96% (5.61)% 21.85% 20.62%
Ratios/Supplemental Data:
Net assets, end of period (000)..... $ 264,738 $246,746 $198,251 $191,491 $ 19,613
Ratio of expenses to average net
assets............................ 1.18%+ 1.23% 0.97% 0.46% 0.07%
Ratio of net investment income to
average net assets................ 3.36%+ 4.05% 4.48% 4.19% 5.00%
Ratio of expenses to average net
assets*........................... (c) 1.26%** 1.14% 1.20% 3.34%
Ratio of net investment income to
average net assets*............... (c) (c) 4.31% 3.45% 1.73%
Portfolio turnover rate............. 78% 57% 94% 103% 216%
Average commission rate paid (d).... $ 0.0163
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the year ended February 29, 1996, the Portfolio received credits from
its custodian for interest earned on uninvested balances which were used to
offset custodian fees and expenses. If such credits had not occurred, the
expense ratio would have been as indicated. The ratio of net investment
income was not affected.
+ Annualized.
++ Not annualized.
(a) Security Pacific National Bank served as Investment Adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
Investment Adviser commencing April 22, 1992.
(b) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.
(c) There were no waivers or reimbursements during the period.
(d) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased or sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure not required for prior periods.
See Notes to Financial Statements.
FS-154
<PAGE> 440
PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1996(a)
(UNAUDITED)
------------
<S> <C>
K SHARES
Net asset value per share, beginning of period........................ $ 16.14
------
Income from Investment Operations:
Net investment income............................................... 0.05
Net realized and unrealized gains on securities..................... 0.78
------
Total income from investment operations............................... 0.83
------
Net change in net asset value per share............................... 0.83
------
Net asset value per share, end of period.............................. $ 16.97
======
Total return.......................................................... 5.09%++
Ratios/Supplemental Data:
Net assets, end of period........................................... $ 1,044
Ratio of expenses to average net assets............................. 1.82%+
Ratio of net investment income to average net assets................ 2.69%+
Ratio of expenses to average net assets............................. (b)
Ratio of net investment income to average net assets................ (b)
Portfolio turnover rate............................................. 78%
Average commission rate paid (c).................................... $ 0.0163
</TABLE>
- ---------------
<TABLE>
<C> <S>
+ Annualized.
++ Represents total return for A Shares from March 1, 1996 to July 21, 1996 plus
the total return for the K Shares for the period July 22, 1996 to August 31,
1996. A share performance does not include deduction of the maximum 4.50% sales
charge. K share performance will be lower than A share performance due to the K
shares' additional 0.50% distribution or shareholder fee.
(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.
(b) There were no waivers or reimbursements during the period.
(c) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased or sold for which commissions
were charged and is calculated on the basis of the Portfolio as a whole without
distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
FS-155
<PAGE> 441
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, --------------------------- PERIOD ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED)(a) 1996 1995 1994*
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
A SHARES
Net asset value per share,
beginning of period.......... $ 17.52 $ 15.15 $ 14.84 $ 15.00
--------------- ------------ ------------ -------------
Income from Investment
Operations:
Net investment income........ 0.14 0.52 0.48 0.03
Net realized and unrealized
gain (loss) on
securities................. 0.03 2.86 0.24 (0.19)
--------------- ------------ ------------ -------------
Total income (loss) from
investment operations........ 0.17 3.38 0.72 (0.16)
--------------- ------------ ------------ -------------
Less Dividends and
Distributions:
Dividends to shareholders
from net investment
income..................... (0.13) (0.53) (0.41) --
Distributions to shareholders
from net realized gains on
securities................. -- (0.48) -- --
--------------- ------------ ------------ -------------
Total dividends and
distributions................ (0.13) (1.01) (0.41) --
--------------- ------------ ------------ -------------
Net change in net asset value
per share.................... 0.04 2.37 0.31 (0.16)
--------------- ------------ ------------ -------------
Net asset value per share, end
of period.................... $ 17.56 $ 17.52 $ 15.15 $ 14.84
============== ========== ========== ===========
Total Return++................. 1.55% 22.80% 5.03% (1.07)%
Ratios/Supplemental Data:
Net assets, end of period
(000).................... $26,319 $ 22,355 $ 5,694 $ 666
Ratio of expenses to
average net assets**..... 1.25%+ 0.62% 0.00% 0.00%+
Ratio of net investment
income to average net
assets**................. 2.62%+ 3.49% 4.25% 4.20%+
</TABLE>
- ---------------
* For the period January 18, 1994 (commencement of operations) through
February 28, 1994.
** Reflects the Fund's proportionate share of the fee waivers and expense
reimbursements by the Portfolio's Investment Adviser and Administrator and
the Fund's Administrator and Distributor. Such fee waivers and expense
reimbursements 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 0.71%, 2.30%, 7.89% and 83.95% (annualized) for the periods ended
August 31, 1996 February 29, 1996, February 28, 1995, and February 28, 1994,
respectively.
+ Annualized.
++ The total returns listed are not annualized for the periods ending August
31, 1996 and February 28, 1994 and do not include the effect of the maximum
4.50% sales charge.
(a) As of July 22, 1996 the Portfolio designated the existing series of shares
as "A" Shares.
See Notes to Financial Statements.
FS-156
<PAGE> 442
PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1996
(UNAUDITED)*
------------
<S> <C>
K SHARES
Net asset value per share, beginning of period....................... $17.23
------
Income from Investment Operations:
Net investment income.............................................. 0.04
Net realized and unrealized gain (loss) on securities.............. 0.28
------
Total income (loss) from investment operations....................... 0.32
------
Net change in net asset value per share.............................. 0.32
------
Net asset value per share, end of period............................. $17.55
======
Total Return......................................................... 1.49%++
Ratios/Supplemental Data:
Net assets, end of period.......................................... $1,018
Ratio of expenses to average net assets**.......................... 1.75%+
Ratio of net investment income to average net assets**............. 2.12%+
</TABLE>
- ---------------
* For the period July 22, 1996 (commencement of operations) through August 31,
1996.
** Reflects the Fund's proportionate share of the fee waivers and expense
reimbursements by the Portfolio's Investment Adviser and Administrator and
the Fund's Administrator and Distributor. Such fee waivers and expense
reimbursements 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 0.71%, for the period ended August 31, 1996.
+ Annualized.
++ Represents total return for A Shares from March 1, 1996 to July 21, 1996 plus
the total return for the K Shares for the period July 22, 1996 to August 31,
1996. A share performance does not include deduction of the maximum 4.50%
sales charge. K share performance will be lower than A share performance due
to the K shares' additional 0.50% distribution or shareholder fee.
See Notes to Financial Statements.
FS-157
<PAGE> 443
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE -- 0.9%
Boeing Co........................................................... 17,500 $ 1,583,750
------------
AIRLINES -- 0.2%
AMR Corp............................................................ 4,500 369,000
------------
ALUMINUM -- 0.3%
Aluminum Co of America.............................................. 9,400 583,975
------------
AUTOMOBILES -- 1.0%
Ford Motor.......................................................... 10,000 335,000
General Motors Corp................................................. 28,200 1,402,950
------------
1,737,950
------------
AUTOMOBILE PARTS -- 0.2%
Cooper Tire & Rubber................................................ 16,500 321,750
------------
BANKS -- 3.6%
BankOne Corp........................................................ 47,000 1,803,625
Chase Manhattan Corp................................................ 19,800 1,472,625
CitiCorp............................................................ 16,700 1,390,275
Wells Fargo Company................................................. 7,533 1,873,834
------------
6,540,359
------------
BEVERAGES, ALCOHOLIC -- 0.6%
Anheuser-Busch Companies............................................ 14,900 1,128,675
------------
CHEMICALS -- 2.1%
Corning, Inc........................................................ 12,400 461,900
Dow Chemical Co. ................................................... 10,800 845,350
E.I. Du Pont De Nemours & Co........................................ 13,000 1,067,625
Monsanto Corp....................................................... 46,000 1,477,750
------------
3,852,625
------------
COMMERICAL SERVICES -- 0.1%
Dun & Bradstreet Corp............................................... 3,300 190,162
------------
COMPUTER SOFTWARE -- 2.0%
Automatic Data Processing, Inc...................................... 16,800 899,300
Microsoft Corp...................................................... 18,400 2,254,000
Silicon Graphics.................................................... 29,700 690,525
------------
3,643,825
------------
COMPUTER HARDWARE -- 2.8%
Hewlett Packard Co.................................................. 24,000 1,050,000
IBM................................................................. 14,500 1,658,438
Seagate Technology.................................................. 23,700 1,137,600
Cisco Systems....................................................... 24,600 1,297,650
------------
5,143,688
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-158
<PAGE> 444
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
ELECTRICAL PRODUCTS -- 2.8%
Emerson Electric Co................................................. 15,900 $ 1,331,625
General Electric Co................................................. 44,700 3,715,688
------------
5,047,313
------------
FINANCIAL SERVICES -- 2.7%
American Express.................................................... 44,500 1,946,875
Household International, Inc........................................ 16,800 1,331,400
Dean Witter Discover Co............................................. 32,800 1,640,000
------------
4,918,275
------------
FOOD -- 1.4%
Conagra, Inc........................................................ 20,000 842,500
Ralston Purina Co................................................... 15,300 956,250
Sara Lee Corp....................................................... 23,000 724,500
------------
2,523,250
------------
HEALTHCARE PRODUCTS -- 0.8%
Baxter International................................................ 21,200 946,050
Medtronic Inc....................................................... 8,100 421,200
------------
1,367,250
------------
HOUSEHOLD, GENERAL PRODUCTS -- 1.9%
Colgate-Palmolive Co................................................ 4,600 373,750
Gillette Co......................................................... 14,800 943,500
Newell Co........................................................... 18,000 560,250
Proctor & Gamble.................................................... 18,700 1,661,963
------------
3,539,463
------------
INSURANCE -- LIFE -- 0.5%
Providian Corp...................................................... 21,800 901,975
------------
INSURANCE -- PROPERTY AND CASUALTY -- 1.0%
American Intl Group, Inc............................................ 12,750 1,211,250
Chubb Corp.......................................................... 13,800 612,375
------------
1,823,625
------------
LEISURE -- 0.7%
Disney Walt Co...................................................... 15,497 883,329
Hilton Hotels Corp.................................................. 3,900 416,813
------------
1,300,142
------------
MACHINERY -- 1.0%
General Signal Corp................................................. 17,500 702,188
Illinois Tool Works, Inc............................................ 17,100 1,182,038
------------
1,884,226
------------
MANUFACTURING -- BUILDING MATERIALS -- 0.4%
Armstrong World Ind................................................. 10,200 631,125
------------
MEDIA, PUBLISHING -- 0.8%
Gannett, Inc........................................................ 4,100 274,700
McGraw Hill Companies............................................... 9,400 385,400
Time Warner, Inc.................................................... 9,600 320,400
Tribune Co.......................................................... 6,300 452,813
------------
1,433,313
------------
MEDIA -- BROADCASTING -- 0.8%
TeleCommunications, Inc............................................. 8,300 123,463
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-159
<PAGE> 445
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
METALS -- 0.3%
Newmont Mining Corp................................................. 10,500 $ 555,188
------------
MULTI INDUSTRIES -- 3.0%
Alco Standard Corp.................................................. 36,900 1,609,763
Tenneco, Inc........................................................ 18,800 935,300
TRW, Inc............................................................ 15,400 1,424,500
Tyco, Int........................................................... 34,600 1,461,850
------------
5,431,413
------------
OIL & GAS INTERNATIONAL -- 2.3%
Chevron Corp........................................................ 12,300 724,163
Exxon Corp.......................................................... 19,600 1,594,950
Mobil Oil........................................................... 9,200 1,037,300
Texaco, Inc......................................................... 9,000 798,750
------------
4,155,163
------------
OIL & GAS PRODUCTION/SERVICES -- 2.3%
Coastal Corp........................................................ 20,100 796,453
Panenergy Corp...................................................... 20,500 679,063
Halliburton Co...................................................... 12,700 668,338
Schlumberger Ltd.................................................... 6,900 582,188
Williams Co......................................................... 17,700 882,788
USX Marathon Group.................................................. 24,100 503,088
------------
4,111,928
------------
PAPER PRODUCTS -- 1.2%
Champion International.............................................. 27,100 1,165,300
International Paper Co.............................................. 11,300 452,000
Willamette Inds..................................................... 8,200 506,350
------------
2,123,650
------------
PHARMACEUTICALS -- 5.4%
American Home Products.............................................. 21,000 1,244,2590
Amgen Inc........................................................... 10,000 582,500
Bristol-Meyers...................................................... 15,800 1,386,450
Lilly Eli & Co...................................................... 19,800 1,133,550
Abbot Laboratories.................................................. 39,000 1,759,875
Merck & Co., Inc.................................................... 18,200 1,194,375
Pfizer, Inc......................................................... 16,600 1,178,600
Schering Plough Corp................................................ 10,400 581,100
Warner Lambert Co................................................... 5,400 321,300
Johnson & Johnson................................................... 8,000 394,000
------------
9,776,000
------------
PHOTOGRAPHY -- 0.3%
Eastman Kodak Co.................................................... 6,900 500,250
------------
RAILROAD -- 0.8%
Burlington Northern Santa Fe........................................ 8,400 672,000
Union Pacific Corp.................................................. 9,600 699,600
------------
1,371,600
------------
RETAIL -- 3.3%
Home Depot.......................................................... 28,300 1,503,438
May Dept Stores..................................................... 24,000 1,092,000
Wal-Mart Stores, Inc................................................ 80,400 2,130,600
Nordstrom, Inc...................................................... 18,100 705,900
Price/Costco, Inc................................................... 29,500 586,313
------------
6,018,251
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-160
<PAGE> 446
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
SEMICONDUCTORS -- 2.4%
Intel Corp.......................................................... 36,000 $ 2,873,250
National Semiconductor.............................................. 44,700 821,363
Motorola, Inc....................................................... 12,700 677,863
------------
4,372,476
------------
SOFT DRINKS, BEVERAGES -- 1.7%
Coca-Cola Co........................................................ 38,700 1,935,000
Pepsico............................................................. 37,400 1,075,250
------------
3,010,250
------------
TELECOMMUNICATIONS EQUIPMENT -- 0.5%
3 Com Corp.......................................................... 18,000 841,500
------------
TELECOMMUNICATIONS SERVICES -- 3.1%
Airtouch Communications............................................. 13,000 357,500
AT&T................................................................ 25,900 1,359,750
GTE................................................................. 36,100 1,421,438
MCI Communications Corp............................................. 45,100 1,133,138
Pacific Telesis Group............................................... 13,700 443,524
Worldcom, Inc....................................................... 44,200 928,200
------------
5,643,550
------------
TOBACCO -- 1.6%
Philip Morris Cos., Inc............................................. 20,900 1,875,775
UST, Inc............................................................ 33,400 1,002,000
------------
2,877,775
------------
TOYS -- 0.1%
Mattel, Inc......................................................... 7,000 184,625
------------
UTILITIES/ELECTRIC -- 0.8%
Central & South West Corp........................................... 24,200 638,275
Duke Power Co....................................................... 15,900 743,325
------------
1,381,600
------------
UTILITIES -- GAS -- 0.8%
Noram Energy........................................................ 65,700 960,863
Pacific Enterprises................................................. 13,800 412,275
------------
1,373,138
------------
Total Common Stocks -- 57.2%
(cost $95,101,290).................................................. $104,317,536
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
U.S. TREASURY BONDS -- 7.5%
U.S. Treasury Bonds............................ 10.38% 11/15/12 $ 8,800 $ 10,954,680
U.S. Treasury Bonds............................ 8.13% 08/15/21 2,500 2,739,675
------------
13,694,355
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-161
<PAGE> 447
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES -- 2.0%
U.S. Treasury Notes............................ 5.00% 02/15/99 $ 2,250 $ 2,176,560
U.S. Treasury Notes............................ 6.63% 06/30/01 1,500 1,493,085
------------
3,669,645
------------
Total U.S. Government Obligations -- 9.5%
(cost $18,085,133)............................. 17,364,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 13.4%
Federal Home Loan Mortgage Corporation
Pool #G10304................................. 6.50% 04/01/09 887 851,594
Federal Home Loan Mortgage Corporation
Pool #E60891................................. 6.50% 07/01/10 3,066 2,942,527
Federal Home Loan Mortgage Corporation
Pool #297505................................. 8.00% 06/01/17 12 12,216
Federal Home Loan Mortgage Corporation
Pool #533301................................. 10.50% 04/01/19 32 35,199
Federal Home Loan Mortgage Corporation
Pool #544066................................. 8.00% 12/01/19 13 13,416
FNCI Pool #325602.............................. 6.50% 10/01/10 578 554,414
FNCI Pool #329451.............................. 6.50% 03/01/11 992 951,578
FNCI Pool #338029.............................. 6.50% 03/01/11 421 403,518
FNCI Pool #338572.............................. 6.50% 03/01/11 673 644,942
FNCI Pool #340676.............................. 6.50% 03/01/11 999 958,542
FNCI Pool #340686.............................. 6.50% 03/01/11 1,270 1,218,180
Government National Mortgage Association
Pool #146301................................... 10.00% 02/15/16 90 97,715
GNSF Pool #318567.............................. 8.00% 01/15/22 15 15,442
GNSF Pool #317275.............................. 8.00% 02/15/22 16 15,713
GNSF Pool #321799.............................. 8.00% 04/15/22 487 487,542
GNSF Pool #323085.............................. 8.00% 05/15/22 976 976,437
GNSF Pool #342065.............................. 8.00% 11/15/22 434 434,379
FGLMC Pool #D66935............................. 7.50% 01/01/26 409 399,871
FGLMC Pool #D66969............................. 7.50% 01/01/26 876 856,854
FGLMC Pool #D68671............................. 7.50% 02/01/26 599 585,388
FGLMC Pool #D69671............................. 7.50% 03/01/26 33 32,571
FGLMC Pool #D70402............................. 7.50% 03/01/26 107 104,693
FGLMC Pool #D69839............................. 7.50% 04/01/26 540 528,441
FGLMC Pool #D69930............................. 7.50% 04/01/26 468 457,378
FGLMC Pool #D70086............................. 7.50% 04/01/26 577 564,455
FGLMC Pool #D71116............................. 7.50% 05/01/26 98 95,773
FGLMC Pool #D71404............................. 7.50% 05/01/26 1,270 1,242,049
FGLMC TBA...................................... 8.00% 08/01/26 9,000 9,056,250
------------
Total U.S. Government Agency Obligations
(cost $24,942,940)............................. 24,537,077
------------
TAXABLE MUNICIPAL BONDS -- 0.4%
ILLINOIS --
Cook County, General Obligation Bond........... 5.00% 11/15/23 800 685,000
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-162
<PAGE> 448
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C>
EURO BONDS -- 1.4%
Republic of Italy Zero Coupon.................. 0.00% 01/10/01 $ 3,500 $ 2,559,375
------------
COMMERCIAL PAPER -- 4.2%
Nestle Capital Corp Cp**....................... 5.32% 09/10/96 3,800 3,798,344
AT&T CP**...................................... 5.32% 09/10/96 3,800 3,796,069
------------
7,594,413
------------
CORPORATE OBLIGATIONS -- 14.7%
CORPORATE BONDS -- 1.9%
Lehman Brothers................................ 5.75% 11/15/98 1,000 975,000
Hertz Corporation.............................. 7.00% 07/15/03 2,500 2,421,875
------------
3,396,875
------------
MEDIUM TERM NOTES -- 12.8%
Morgan Stanley Group MTN....................... 5.63% 03/01/99 1,500 1,456,875
Province of Quebec MTN......................... 7.98% 04/01/99 3,000 3,075,000
General Motors Accept Corp..................... 7.38% 05/26/99 2,000 2,022,500
Bank of Nova Scotia............................ 9.00% 10/01/99 1,400 1,477,000
GMAC........................................... 8.40% 10/15/99 1,345 1,398,800
Ford Motor..................................... 8.38% 01/15/00 3,000 3,112,500
International Lease Finance.................... 5.71% 02/01/00 1,600 1,536,000
Chrysler Financial Corp........................ 5.63% 02/16/01 2,500 2,346,875
NationsBank Credit Card Master................. 6.45% 04/15/03 3,500 3,455,168
The Money Storetrust 1996-B.................... 7.38% 05/15/17 3,500 3,494,112
------------
23,374,830
------------
Total Corporate Obligations
(cost $38,264,533)............................. 37,610,493
------------
TOTAL INVESTMENTS -- 100.7%
(COST $176,393,070)............................ 183,829,106
Other Liabilities in Excess of
Assets -- (0.7%)............................... (1,317,231)
------------
NET ASSETS -- 100%.............................. $182,511,875
============
</TABLE>
- ---------------
* Mortgage-backed pass-through obligations
** Discount Security
See Notes to Financial Statements.
FS-163
<PAGE> 449
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $176,393,070).............. $183,829,106
Cash................................................................ 73,400
Receivable for investment securities sold........................... 7,892,860
Contribution receivable............................................. 107,408
Dividends receivable................................................ 262,201
Interest receivable................................................. 876,103
Deferred organization costs and prepaid expenses.................... 32,592
------------
Total assets.......................................................... 193,073,670
------------
LIABILITIES:
Withdrawal payable.................................................. 15,811
Payable for investment securities purchased......................... 10,448,530
Advisor fees payable................................................ 30,460
Accrued audit fees.................................................. 20,068
Accrued Legal fees.................................................. 10,992
Accrued accounting fees............................................. 10,161
Accrued custody fees................................................ 7,320
Administration fees payable......................................... 2,768
Other accrued expenses.............................................. 15,685
------------
Total liabilities..................................................... 10,561,795
------------
NET ASSETS............................................................ $182,511,875
============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-164
<PAGE> 450
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................. $ 2,535,308
Dividends................................................ 1,020,836
-----------
3,556,144
-----------
EXPENSES:
Advisory fees............................................ 507,536
Administration fees...................................... 46,140
Fund accounting fees and expenses........................ 66,782
Audit fees............................................... 20,491
Custodian fees and expenses.............................. 15,125
Legal fees............................................... 12,307
Trustees fees............................................ 9,695
Amortization of organization costs....................... 6,982
Other operating expenses................................. 5,449
----------
690,507
Less: Fee waivers and expense reimbursements............. (396,867)
----------
293,640
-----------
Net Investment Income...................................... 3,262,504
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on securities transactions............. 8,726,909
Net change in unrealized appreciation (depreciation) on
investments............................................ (8,382,622)
-----------
Net Gain on Investments.................................... 344,287
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $ 3,606,791
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-165
<PAGE> 451
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income.................................. $ 3,262,504 $ 6,425,653
Net realized gain (loss) on securities transactions.... 8,726,909 19,223,012
Net change in unrealized appreciation (depreciation) on
investments.......................................... (8,382,622) 8,662,241
------------ ------------
Net increase in net assets resulting from operations... 3,606,791 34,310,906
------------ ------------
Trust Share Transactions:
Contributions.......................................... 13,790,000 31,372,458
Withdrawals............................................ (15,939,330) (35,499,213)
------------ ------------
Net decrease in net assets resulting from Trust share
transactions......................................... (2,149,330) (4,126,755)
------------ ------------
Total Increase........................................... 1,457,461 30,184,151
NET ASSETS:
Beginning of period.................................... 181,054,414 150,870,263
------------ ------------
End of period.......................................... $182,511,875 $181,054,414
============ ============
</TABLE>
See Notes to Financial Statements.
- ---------------
FS-166
<PAGE> 452
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act")
as an open-end management investment company. At August 31, 1996, the Trust
consisted of five portfolios. The accompanying financial statements and notes
are those of the Asset Allocation Portfolio (the "Portfolio") only.
The investment objective of the Portfolio is to obtain long term growth from
capital appreciation and dividend and interest income. The Portfolio seeks to
achieve its objective by actively allocating investments among the three major
asset categories: bonds, equity securities and cash equivalents.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolio's
investment adviser.
Concord Holding Corporation ("Concord") serves as the Portfolio's
administrator through BISYS Fund Services (Ireland) Ltd., a wholly owned
subsidiary of Concord. Effective March 29, 1995, Concord became a wholly owned
subsidiary of The BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation or, if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. Securities that are primarily traded on the NASDAQ national
securities market are valued at the last reported sales price on the date of
valuation or, if none is available, at the last quoted bid price on the date of
valuation. The Portfolio may use an independent pricing service, approved by the
Board of Trustees, to value certain of its securities. Such prices reflect
market values which may be established through the use of electronic data
processing techniques and matrix systems. Restricted securities and
FS-167
<PAGE> 453
securities for which market quotations are not readily available, if any, are
valued at fair value using methods approved by the Board of Trustees. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase or, in the case of
securities purchased with more than 60 days until maturity, at their market
value each day until the 61st day prior to maturity, and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and such valuation.
B)SECURITIES TRANSACTIONS AND
INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recorded on the ex-dividend date.
C) EXPENSES:
Expenses directly attributable to the Portfolio are charged to the Portfolio
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.
D) FEDERAL INCOME TAXES:
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on their share
of the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio has an Advisory Agreement with Bank of America and an
Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.55% of the average
daily net assets of the Portfolio. For the period ended August 31, 1996, Bank of
America waived $363,775 in fees as Adviser of the Portfolio.
As Administrator, Concord assists in supervising the operations of the
Portfolio. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.05% of the Portfolio's average daily net
assets. For the period ended August 31, 1996, Concord waived $33,092 in fees as
Administrator of the Portfolio.
For services provided to all five of the portfolios constituting the Trust,
each Trustee receives an annual fee of $3,000 and a meeting fee of $500. For the
period ended August 31, 1996, the Portfolio incurred legal expenses of $12,307,
which were earned by a law firm, a partner of which serves as Secretary of the
Trust.
FS-168
<PAGE> 454
Certain officers of the Trust are "affiliated persons" (as defined in the Act)
of BISYS.
NOTE 4 -- PURCHASES AND SALES OF SECURITIES
The following table summarizes the securities transactions effected by the
Portfolio, excluding short-term securities, for the period ended August 31,
1996.
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
U.S. Government...................... $ 6,776,406 $ 0
Other................................ 94,121,136 97,191,208
------------ -----------
$100,897,542 $97,191,208
============ ===========
</TABLE>
At August 31, 1996, the cost of the securities of the Portfolio for federal
income tax purposes was substantially the same as for financial reporting
purposes. Accordingly, net unrealized appreciation of investments amounted to
$7,436,036, consisting of gross unrealized appreciation of $12,044,215, and
gross unrealized depreciation of $4,608,179.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Portfolio had the following concentrations by industry sector at August
31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U.S.Treasury Bonds........... 7.4%
U.S.Treasury Notes........... 2.0%
U.S. Govt. Agency
Obligations................ 13.3%
Taxable Municipal Bonds...... 0.4%
Medium Term Notes............ 12.7%
Corporate Obligations........ 1.9%
Commercial Paper Discount.... 4.1%
Eurobonds.................... 1.4%
Aerospace/Defense............ 0.9%
Airlines..................... 0.2%
Aluminium.................... 0.3%
Automobiles/Automobile
parts...................... 1.1%
Banks........................ 3.6%
Beverages.................... 2.2%
Chemicals.................... 2.1%
Computer Hardware............ 2.8%
Computer Software............ 2.0%
Household, General Products.. 1.9%
Electrical Products.......... 2.8%
Semiconductors............... 2.4%
Financial Services........... 2.7%
Food......................... 1.4%
Health Care.................. 0.7%
Insurance Life............... 0.5%
Insurance -- Property and
Casualty................... 1.0%
Oil and Gas.................. 4.5%
Leisure...................... 0.7%
Manufacturing -- Building
Materials.................. 0.3%
Manufacturing -- Machinery... 1.0%
Media,
Publishing/Broadcasting.... 0.9%
Metals....................... 0.3%
Multi Industry............... 2.9%
Paper Products............... 1.2%
Pharmaceuticals.............. 5.3%
Photography.................. 0.3%
Railroads.................... 0.7%
Retail....................... 3.3%
Telecommunications
Equipment.................. 0.5%
Telecommunications........... 3.1%
Tobacco...................... 1.6%
Toys......................... 0.1%
Utilities -- Gas/Electric.... 1.4%
Commercial Services.......... 0.1%
-----
100.0%
=====
</TABLE>
FS-169
<PAGE> 455
MASTER INVESTMENT TRUST SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX
MONTHS ENDED YEAR YEAR PERIOD
AUGUST 31, ENDED ENDED ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of Expenses to average net assets+.... 0.32%++ 0.26% 0.17% 0.24%++
Ratio of investment income to average net
assets+................................... 3.54%++ 3.87% 4.01% 3.35%++
Portfolio Turnover.......................... 55% 157% 142% 67%
Average commission rate paid(a)............. $ 0.0010
</TABLE>
- ---------------
* For the period December 6, 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 0.43%, 0.47%, 0.60% and 0.03% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
++ Annualized
(a) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
See Notes to Financial Statements.
FS-170
<PAGE> 456
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE RANGE AMOUNT (000) (NOTE 2)
- ---------------------------------- ----- --------------------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 93.6%
Government National Mortgage
Assoc.*........................ 11.50% 2/15/98 to 2/15/00 $ 41 $ 43,472
Government National Mortgage
Assoc.*........................ 11.00% 2/15/98 to 9/20/19 924 994,285
Government National Mortgage
Assoc.*........................ 10.50% 12/15/97 to 5/10/32 3,407 3,632,637
Government National Mortgage
Assoc.*........................ 10.00% 10/15/98 to 3/15/21 1,305 1,395,215
Government National Mortgage
Assoc.*........................ 9.50 % 3/15/98 to 4/20/06 1,711 1,794,757
Government National Mortgage
Assoc.*........................ 9.00 % 6/15/01 to 6/15/07 366 382,568
Government National Mortgage
Assoc.*........................ 8.50 % 10/15/09 400 414,062
Government National Mortgage
Assoc.*........................ 8.00 % 1/15/20 to 7/15/26 16,169 16,184,167
Government National Mortgage
Assoc.*........................ 7.50 % 7/15/96 to 4/15/26 21,095 20,609,020
Government National Mortgage
Assoc.*........................ 7.00 % 12/15/08 to 8/15/25 27,539 26,823,936
Government National Mortgage
Assoc.*........................ 6.00 % 12/15/10 461 433,520
-----------
Total U.S. Government Agency
Obligations
(cost $73,973,919)............... 72,707,639
-----------
</TABLE>
<TABLE>
<CAPTION>
MATURITY DATE
---------------------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 6.1%
U.S. TREASURY NOTES -- 6.1%
U.S. Treasury Notes - Annual........... 6.88 % 5/15/96 4,800 4,777,536
-----------
Total U.S. Treasury Obligations
(cost $4,825,914)...................... 4,777,536
-----------
TOTAL INVESTMENTS
(COST $78,799,833) (a) -- 99.7%........ 77,485,175
Other Assets in excess of other
liabilities -- 0.3%.................... 198,527
-----------
NET ASSETS -- 100.0%.................... $77,683,702
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $77,683,702.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................................... $ 91,776
Unrealized depreciation...................................................... (1,406,434)
-----------
Net unrealized depreciation.................................................. $(1,314,658)
===========
</TABLE>
* Mortgage-backed pass-through obligation.
- ---------------
See Notes to Financial Statements.
FS-171
<PAGE> 457
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $78,799,833)............ $ 77,485,175
Cash............................................................. 66,325
Receivable for Portfolio shares sold............................. 45,859
Interest receivable.............................................. 570,115
Receivable for investment securities sold........................ 200,000
-----------
Total assets....................................................... 78,367,474
-----------
LIABILITIES:
Dividends payable................................................ 437,781
Payable for Portfolio shares redeemed............................ 143,377
Advisory fees payable............................................ 6,810
Administration fees payable...................................... 3,784
Shareholder service fees payable -- A Shares..................... 16,845
Other accrued expenses........................................... 75,175
-----------
Total liabilities.................................................. 683,772
-----------
NET ASSETS......................................................... $ 77,683,702
===========
Net Assets:
A Shares......................................................... $ 77,682,708
K Shares......................................................... 994
-----------
$ 77,683,702
===========
Shares Outstanding ($0.001 par value, 300 million shares
authorized):
A Shares......................................................... 8,491,665
K Shares......................................................... 109
-----------
8,491,774
===========
CALCULATION OF MAXIMUM OFFERING PRICE -- A SHARES:
Net asset value and redemption price per share................... $9.15
Sales charge -- 4.50% of public offering price................... 0.43
-----------
Maximum Offering Price........................................... $9.58
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -- K
SHARES........................................................... $9.15
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par................................... $ 8,492
Additional paid-in capital....................................... 89,418,195
Accumulated net realized losses on investment transactions....... (10,036,704)
Net unrealized depreciation of investments....................... (1,314,658)
Distributions in excess of net investment income................. (391,623)
-----------
NET ASSETS, AUGUST 31, 1996........................................ $ 77,683,702
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-172
<PAGE> 458
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................... $ 2,856,573
-----------
EXPENSES:
Advisory fees...................................... $ 147,396
Administration fees................................ 84,455
Shareholder service fees -- A Shares............... 105,387
Transfer agent fees and expenses................... 59,896
Custodian fees and expenses........................ 31,916
Audit fees......................................... 19,822
Reports to shareholders............................ 19,310
Legal fees......................................... 1,140
Directors' fees.................................... 951
Insurance expense.................................. 1,358
Registration fees.................................. 30,448
Other expenses..................................... 2,576
--------
504,655
Less: Fee waivers................................ (139,812)
Expenses paid by third parties............... (3,229) 361,614
-------- -----------
NET INVESTMENT INCOME................................ 2,494,959
-----------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS:
Net realized losses on securities transactions..... (1,711,617)
Net change in unrealized depreciation of
investments...................................... (774,664)
-----------
Net Loss on Investments.............................. (2,486,281)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $ 8,678
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-173
<PAGE> 459
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29, 1996
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............................. $ 2,494,959 $ 5,736,176
Net realized gains (losses) on securities
transactions..................................... (1,711,617) 2,942,308
Net change in unrealized depreciation of
investments...................................... (774,664) (1,443,927)
------------ -------------
Net increase (decrease) in net assets resulting
from operations.................................. 8,678 7,234,557
------------ -------------
Dividends and distributions to shareholders --
A Shares:
Dividends to shareholders from net
investment income................................ (2,668,698) (5,736,176)
Distributions in excess of net investment income... -- (70,303)
Tax return of capital distribution................. -- (295,885)
Dividends and distributions to shareholders --
K Shares:
Dividends to shareholders from net investment
income (a)....................................... (7) --
------------ -------------
Total Dividends and Distributions to Shareholders.... (2,668,705) (6,102,364)
------------ -------------
Fund Share Transactions:
Net proceeds from shares subscribed................ 3,884,331 117,170,124
Net asset value of shares issued to shareholders in
reinvestment of dividends........................ 1,850,907 4,090,811
Cost of shares redeemed............................ (14,882,440) (120,256,427)
------------ -------------
Net increase (decrease) in net assets from Fund
share transactions............................... (9,147,202) 1,004,508
------------ -------------
Total Increase (Decrease)............................ (11,807,229) 2,136,701
NET ASSETS:
Beginning of year.................................. 89,490,931 87,354,230
------------ -------------
End of year........................................ $ 77,683,702 $ 89,490,931
============ =============
</TABLE>
- ---------------
(a) For the period from July 22, 1996 (commencement of operations) through
August 31, 1996.
See Notes to Financial Statements.
FS-174
<PAGE> 460
PACIFIC HORIZON FUNDS
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE INTERMEDIATE
BOND FUND BOND FUND
----------- ------------
<S> <C> <C>
ASSETS:
Investment in Master Investment Trust, Series I --
Corporate Bond Portfolio and Investment Grade Bond
Portfolio, respectively, at value................ $29,751,836 $14,844,523
Receivable from Administrator...................... -- 13,402
Deferred organization costs and prepaid expenses..... 12,852 49,072
----------- -----------
Total assets........................................... 29,764,688 14,906,997
----------- -----------
LIABILITIES:
Dividend payable..................................... 150,441 65,379
Accrued accounting fees.............................. 7,811 10,041
Accrued reports to shareholders expenses............. 6,255 15,493
Accrued audit fees................................... 4,404 10,109
Other accrued expenses............................... 4,285 12,659
----------- -----------
Total liabilities...................................... 173,196 113,681
=========== ===========
NET ASSETS............................................. $29,591,492 $14,793,316
=========== ===========
Net Assets:
A Shares............................................. $29,590,501 $14,792,321
K Shares............................................. 991 995
----------- -----------
$29,591,492 $14,793,316
=========== ===========
Shares Outstanding ($0.001 par value, 150 million
shares authorized):
A Shares............................................. 1,920,521 1,560,106
K Shares............................................. 64 105
----------- -----------
1,920,585 1,560,211
=========== ===========
CALCULATION OF MAXIMUM OFFERING PRICE -- A SHARES:
Net asset value and redemption price per share....... $15.41 $9.48
Sales charge -- 4.50% of public offering price....... 0.73 0.45
----------- -----------
Maximum Offering Price............................... $16.14 $9.93
=========== ===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE -- K SHARES................................ $15.40 $9.48
=========== ===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par....................... $ 1,921 $ 1,560
Additional paid-in capital........................... 37,022,900 15,124,314
Accumulated net realized losses on investment
transactions....................................... (7,512,705) (59,269)
Distributions in excess of net investment income..... (66,324) --
Net unrealized appreciation/(depreciation) on
investments........................................ 145,700 (273,289)
----------- -----------
NET ASSETS, AUGUST 31, 1996............................ $29,591,492 $14,793,316
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-175
<PAGE> 461
PACIFIC HORIZON FUNDS
- --------------------------------------------------------------------------------
Statement of Operations
For the six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE INTERMEDIATE
BOND FUND BOND FUND
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust,
Series I -- Corporate Bond Portfolio and Investment
Grade Bond Portfolio, respectively:
Interest............................................. $1,124,596 $ 404,490
---------- ---------
Expenses............................................. 116,052 68,631
Less: Fee waivers and expense reimbursements......... (77,178) (48,964)
---------- ---------
38,874 19,667
---------- ---------
Net Investment Income from Master Investment Trust,
Series I -- Corporate Bond Portfolio and Investment
Grade Bond Portfolio, respectively................... 1,085,722 384,823
---------- ---------
EXPENSES:
Shareholder service fees -- A Shares................. 38,534 16,546
Administration fees.................................. 22,994 9,871
Transfer agent fees and expenses..................... 27,702 6,726
Registration fees.................................... 18,446 18,242
Reports to shareholders expenses..................... 20,452 11,304
Fund accounting fees and expenses.................... 17,983 12,619
Amortization of organization costs................... 7,190 10,004
Audit fees........................................... 3,893 1,795
Legal fees........................................... 7,688 1,376
Directors' fees...................................... 299 96
Other operating expenses............................. 7,334 639
---------- ---------
172,515 89,218
Less: Fee waivers and expense reimbursements......... (22,994) (59,277)
---------- ---------
149,521 29,941
---------- ---------
Net Investment Income.................................. 936,201 354,882
---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM MASTER INVESTMENT TRUST, SERIES I -- CORPORATE
BOND PORTFOLIO AND INVESTMENT GRADE BOND PORTFOLIO,
RESPECTIVELY:
Net realized gain (loss) on securities
transactions....................................... 42,292 (156,064)
Net change in unrealized appreciation (depreciation)
on investments..................................... (1,392,788) (232,004)
---------- ---------
Net Loss on Investments from Master Investment Trust,
Series I -- Corporate Bond Portfolio and Investment
Grade Bond Portfolio, respectively................... (1,350,496) (388,068)
---------- ---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS... $ (414,295) $ (33,186)
========== =========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-176
<PAGE> 462
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29, 1996
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 936,201 $ 1,964,098
Net realized gain on securities transactions...... 42,292 1,346,714
Net change in unrealized appreciation
(depreciation) of investments................... (1,392,788) 885,897
------------ -----------
Net increase (decrease) in net assets resulting
from operations................................. (414,295) 4,196,709
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS A
SHARES:
Dividends to shareholders from net
investment income............................... (936,197) (1,964,098)
Dividends to shareholders in excess of net
investment income............................... -- (95,000)
K SHARES(a):
Dividends to shareholders from net investment
income.......................................... (4) --
------------ -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS... (936,201) (2,059,098)
------------ -----------
FUND SHARE TRANSACTIONS:
Net proceeds from shares subscribed............... 2,133,887 4,789,390
Net asset value of shares issued to shareholders
in reinvestment of dividends.................... 288,919 566,762
Cost of shares redeemed........................... (3,868,232) (6,478,258)
------------ -----------
Net decrease in net assets from Fund share
transactions.................................... (1,445,426) (1,122,106)
------------ -----------
TOTAL INCREASE (DECREASE)........................... (2,795,922) 1,015,505
NET ASSETS:
Beginning of period............................... 32,387,414 31,371,909
------------ -----------
End of period..................................... $ 29,591,492 $32,387,414
============ ===========
</TABLE>
- ---------------
(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.
See Notes to Financial Statements.
FS-177
<PAGE> 463
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 1996 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 1996
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 354,882 $ 406,486
Net realized gain (loss) on securities
transactions.................................... (156,064) 154,841
Net change in unrealized appreciation
(depreciation) of investments................... (232,004) (58,037)
------------ -----------
Net increase (decrease) in net assets resulting
from operations................................. (33,186) 503,290
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
A SHARES:
Dividends to shareholders from net investment
income.......................................... (354,861) (406,485)
Distribution to shareholders from net realized
gains........................................... -- (26,279)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
K SHARES (a):
Dividends to shareholders from net investment
income.......................................... (21) --
------------ -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS... (354,882) (432,764)
------------ -----------
FUND SHARE TRANSACTIONS:
Net proceeds from shares subscribed............... 4,454,681 12,184,154
Net asset value of shares issued to shareholders
in reinvestment of dividends and
distributions................................... 189,140 273,214
Cost of shares redeemed........................... (2,641,836) (1,312,597)
------------ -----------
Net increase in net assets from Fund share
transactions.................................... 2,001,985 11,144,771
------------ -----------
Total Increase...................................... 1,613,917 11,215,297
NET ASSETS:
Beginning of period............................... 13,179,399 1,964,102
------------ -----------
End of period..................................... $ 14,793,316 $13,179,399
============ ===========
</TABLE>
- ---------------
(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.
See Notes to Financial Statements.
FS-178
<PAGE> 464
PACIFIC HORIZON FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At August 31, 1996, the Company
operated as a series company comprising seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon U.S. Government
Securities Fund (the "U.S. Government Securities Fund" ), the Pacific Horizon
Corporate Bond Fund (the "Corporate Bond Fund" ) and the Pacific Horizon
Intermediate Bond Fund (the "Intermediate Bond Fund") (collectively the "Funds")
only.
The U.S. Government Securities Fund seeks to provide investors with a high
level of current income, consistent with the preservation of capital. It does so
by investing primarily in instruments issued by the Government National Mortgage
Association. The Corporate Bond Fund and Intermediate Bond Fund seek to achieve
their investment objectives by investing substantially all of their assets in
the Corporate Bond and Investment Grade Bond Portfolios (collectively, the
"Portfolios"), which are operating portfolios of Master Investment Trust, Series
I (the "Trust"), open-ended management investment companies, that have the same
investment objectives as those of the Funds. The value of each Fund's investment
in the Portfolios included in the accompanying statements of assets and
liabilities reflects the Fund's proportionate beneficial interest in the net
assets of that Portfolio (100% and 16.13% for Corporate Bond and Intermediate
Bond Funds at August 31, 1996 respectively). The financial statements of the
Portfolios of the Trust, including the portfolios of investments, are included
elsewhere within this report and should be read in conjunction with the Funds'
financial statements.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the U.S. Government
Securities Fund's and the Portfolios' investment adviser. Concord Holding
Corporation ("Concord") serves as the Funds' administrator and Concord Financial
Group, Inc. (the "Distributor"), a wholly owned subsidiary of Concord, serves as
the distributor of the Funds' shares. Effective March 29, 1995, Concord became a
wholly owned subsidiary of The BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the
FS-179
<PAGE> 465
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A) PORTFOLIO VALUATIONS:
The U.S. Government Securities Fund's portfolio securities for which market
quotations are readily available (other than debt securities with remaining
maturities of 60 days or less), are valued at the last reported sale price on
the date of valuation or, if none is available, at the mean between the current
quoted and asked prices on the date of valuation as provided by investment
dealers.
Debt securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase or, in the case
of securities purchased with more than 60 days to maturity, at their market
value each day until the 61st day prior to maturity, and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and such valuation.
The valuation of securities of the Corporate Bond and Intermediate Bond
Funds' investment in the Portfolios is discussed in Note 2 to the Portfolios'
financial statements.
B) SECURITIES TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND REALIZED AND
UNREALIZED GAINS AND LOSSES:
The U.S. Government Securities Fund records security transactions on a trade
date basis. Realized gains and losses from security transactions are recorded on
an identified cost basis. Interest income, including accretion of discount and
amortization of premium, is accrued daily.
The Corporate Bond Fund and the Intermediate Bond Fund record their share of
the investment income, expenses and realized and unrealized gains and losses
recorded by their respective Portfolios on a daily basis. The investment income,
expenses and realized and unrealized gains and losses are allocated daily to
investors in each Portfolio based upon the value of their investments in the
Portfolio. Such investments are adjusted on a daily basis.
Expenses directly attributable to the U.S. Government Securities Fund, the
Corporate Bond Fund or the Intermediate Bond Fund, are charged directly to the
appropriate Fund, while Company expenses attributable to more than one Fund of
the Company are allocated among the respective Funds.
C) DIVIDENDS AND DISTRIBUTIONS:
The Funds declare dividends to shareholders of record on the day of
declaration from net investment income. Such dividends are declared daily and
paid monthly. Net realized gains, if any, will be distributed annually. However,
to the extent that net realized gains of the Funds can be offset by capital loss
carryovers of the Funds, such gains will not be distributed. Dividends and
distributions are recorded on the ex-dividend date.
The amounts of dividends from net investment income and of distributions
FS-180
<PAGE> 466
from net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital. Accordingly, the U.S. Government Securities Fund has
reclassified $295,885 from net investment income to additional paid in capital
relating to permanent differences arising from distributions to shareholders.
D) FEDERAL INCOME TAXES:
It is the policy of the Funds to meet the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies and to
distribute substantially all of their taxable income to shareholders. Therefore,
no federal income tax provision is required.
At February 29, 1996, the U.S. Government Securities Fund had capital loss
carryforwards of $8,325,087, which will expire in fiscal 2003. To the extent
provided by the regulations in the Code, these capital loss carryforwards will
be used to offset future net realized gains on securities transactions. As such
it is probable that the gains so offset will not be distributed to the
shareholders. Additionally, the Fund utilized $1,463,432 of capital loss
carryovers during the period ended February 29, 1996.
The Corporate Bond Fund had $7,554,997 capital loss carryovers which may be
used to offset any future realized gains on securities transactions to the
extent provided for in the Code. Any such unused capital loss carryovers will
expire as follows:
<TABLE>
<S> <C>
1997........................ $ 827,887
1998........................ 442,467
1999........................ 5,401,993
2003........................ 882,650
</TABLE>
It is anticipated that no distributions of future net realized gains on
investments will be made to shareholders until the capital loss carryovers are
offset by net realized gains or expire.
The Funds' account and report distributions to shareholders are in
accordance with AICPA Statement of Position 93-2: Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distribution by Investment Companies.
For the period ended February 29, 1996, the reclassification arising from
book/tax differences resulted in increases and decreases to the components of
net assets for the Corporate Bond Fund. The following table discloses the effect
of such differences reclassified between undistributed accumulated net
investment income, accumulated undistributed net
FS-181
<PAGE> 467
realized gain/loss on investments and paid-in capital:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET
INVESTMENT REALIZED PAID-IN
INCOME GAIN/(LOSS) CAPITAL
- ----------- ----------- -----------
<S> <C> <C>
$82,436 $1,532,208 $(1,643,570)
</TABLE>
E) OTHER:
The Intermediate Bond Fund incurred certain costs in connection with its
organization. Such costs have been deferred and are being amortized by the Fund
on a straight line basis over five years.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The U.S. Government Securities Fund has an Investment Advisory Agreement
with Bank of America and the Funds have an Administration Agreement with Concord
and a Distribution Agreement with the Distributor. Pursuant to the terms of the
Investment Advisory Agreement with the U.S. Government Securities Fund, Bank of
America is entitled to a fee which is accrued daily and payable monthly, at an
annual rate of 0.35% of the net assets of the U.S. Government Securities Fund.
Pursuant to the terms of the Administration Agreement, Concord is entitled to a
fee from the U.S. Government Securities Fund, the Corporate Bond Fund and the
Intermediate Bond Fund, which is accrued daily and paid monthly, at an annual
rate of 0.20%, 0.15% and 0.15% respectively, of each Fund's average net assets.
For the six months ended August 31, 1996 Concord agreed to waive its entire fee
as Administrator for the Corporate Bond Fund and the Intermediate Bond Fund.
The Investment Advisory Agreement for U.S. Government Securities Fund and
the Administration Agreements provide that if, in any fiscal year, the operating
expenses of any Fund (generally excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed the most restrictive expense limitation of
any state having jurisdiction over the Fund, then Bank of America and Concord
will reimburse the Fund for any such expenses. At August 31, 1996, the most
restrictive expense limitation is believed to limit expenses to 2.5% of the
first $30 million of each of the Fund's average daily net assets, plus 2.0% of
the next $70 million of such assets, plus 1.5% of such assets in excess of $100
million. These agreements provide that such reimbursements will be estimated and
paid on a monthly basis.
For the six months ended August 31, 1996, the Distributor advised that it
retained $4,076, $6,007 and $6,515 from commissions earned on sales of the U.S.
Government Securities Fund, the Corporate Bond Fund and the Intermediate Bond
Fund shares, respectively. For the same period, Bank of America and its
affiliates advised the Funds that they retained $102,317, $47,153 and $62,403
from commissions earned on sales of shares of the U.S. Government Securities
Fund, the Corporate Bond Fund and the Intermediate Bond Fund, respectively.
The Funds have adopted a Shareholder Service Plan (the "Plan") under which
each Fund pays for shareholder servicing expenses incurred in connection with A
Shares of each Fund. Under the Plan,
FS-182
<PAGE> 468
payments by each Fund for shareholder servicing expenses may not exceed 0.25%
(annualized) of the average daily net assets of each Fund's A Shares. For the
six months ended August 31, 1996, the U.S. Government Securities Fund, the
Corporate Bond Fund and the Intermediate Bond Fund incurred charges of $105,387,
$38,534 and $16,546, respectively, pursuant to the plan. The Funds were advised
that of these amounts, the Distributor retained $5,145, $29,470 and $472,
respectively, and affiliates of the Bank of America retained $95,842, $5,473 and
$15,887, respectively. The Plan provides that if, in any months, the fees paid
to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess costs will not be carried forward beyond the end of the fiscal year
in which such excess costs were incurred. The Funds have adopted a Distribution
Plan and an Administrative and Shareholder Services Plan with respect to K
Shares of the Funds. Under the Distribution Plan, the Funds pay the Distributor
for expenses primarily intended to result in the sale of the Funds' K Shares.
Under the Distribution Plan, payments by the Funds for distribution expenses may
not exceed 0.75% (annualized) of the average daily net assets of each Fund's K
Shares. Payments for distribution expenses under the Distribution Plan are
subject to Rule 12b-1 under the Act. Under the Administrative and Shareholder
Services Plan (the "Administrative Plan"), the Funds pay for expenses incurred
in connection with shareholder services provided by the Distributor and payments
to Service Organizations for the provision of support services with respect to
beneficial owners of K Shares. Under the Administrative Plan, payments for
shareholder services and administrative services may not exceed 0.25% and 0.75%
(annualized), respectively, of the average daily net assets of each Fund's K
Shares. The total of all payments under the Distribution Plan and the
Administrative and Shareholder Services Plan may not exceed, in the aggregate,
the annual rate of 1.00% of the average daily net assets of each Fund's K
Shares.
Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary of BISYS, serves the Funds as transfer agent and dividend disbursing
agent. In this capacity, BISYS Fund Services, Inc. earned $59,896, $21,702 and
$6,726 for the six months ended August 31, 1996 for the U.S. Government
Securities Fund, the Corporate Bond Fund and the Intermediate Bond Fund,
respectively.
For the six months ended August 31, 1996, the U.S. Government Securities
Fund, the Corporate Bond Fund and the Intermediate Bond Fund incurred legal
charges totaling $1,140, $3,688 and $1,376, respectively, which were earned by a
law firm, a partner of which serves as Secretary of the Company. Certain
officers of the Company are "affiliated persons" (as defined in the Act) of
BISYS.
NOTE 4 -- DIRECTORS' COMPENSATION
Each Director of the Company is entitled to an annual retainer of $25,000,
plus
FS-183
<PAGE> 469
$1,000 for each day the director
participates in all or part of a Board or Committee meeting and the Chairman of
each Committee receives an annual retainer of $1,000 for services as Chairman of
the Committee. In addition, the Company's President is entitled to an annual
salary of $20,000 for services as President. The former President and Chairman
of the Company receives an additional $40,000 per year through February 28, 1997
in consideration of his services.
The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. In addition, the
amount payable each year to a Director who dies or resigns shall be increased by
$1,000 for each year of service that the Director served as Chairman of the
Board. Each Director may receive any benefits payable under the Retirement Plan,
at his or her election, either in one lump sum payment or ten annual
installments. A Director's years of service for the purpose of calculating the
payments described above shall be based upon service as a Director or Chairman
after February 28, 1994. Aggregate costs to the U.S. Government Securities Fund,
the Corporate Bond Fund and the Intermediate Bond Fund pursuant to the
Retirement Plan amounted to $951, $0 and $7 respectively, for the six months
ended August 31, 1996.
NOTE 5 -- SECURITIES TRANSACTIONS
For the six months ended August 31, 1996 the cost of purchases and the
proceeds from sales of U.S. Government Securities Fund securities (excluding
short term investments) amounted to $49,111,012 and $56,372,475 respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
At August 31, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 300 million shares were classified
as Class E Common Stock (U.S. Government Securities Fund ), 150 million shares
were classified as Class W Common Stock, (Corporate Bond Fund) and 150 million
shares were classified as Class M Common Stock, (Intermediate Bond Fund).
FS-184
<PAGE> 470
Transactions in shares of common stock of the Portfolios are summarized
below:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SECURITIES FUND
SIX MONTHS ENDED
AUGUST 31, 1996
(UNAUDITED) YEAR ENDED
--------------------- FEBRUARY 29,
A SHARES K SHARES 1996 (000)
----------- -------- ------------
<S> <C> <C> <C>
Net proceeds from shares
subscribed................... $ 3,604,361 $994 $ 117,170
Net asset value of shares
issued to shareholders in
reinvestment of dividends.... 1,850,943 -- 4,091
Cost of shares redeemed....... (14,911,282) -- (120,256)
----------- ---- ----------
Net increase (decrease)....... $(9,455,978) $994 $ 1,005
=========== ==== ==========
Shares sold................... 418,528 108 11,393
Shares issued in reinvestment
of distributions............. 199,642 -- 433
Shares redeemed............... (1,613,162) -- (11,722)
----------- ---- ----------
Net increase (decrease)...... (994,992) -- 104
=========== ==== ==========
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
BOND FUND
SIX MONTHS ENDED
AUGUST 31, 1996
(UNAUDITED) YEAR ENDED
--------------------- FEBRUARY 29,
A SHARES K SHARES 1996 (000)
----------- -------- ------------
<S> <C> <C> <C>
Net proceeds from shares
subscribed................... $ 2,132,887 $1,000 $ 4,789
Net asset value of shares
issued to shareholders in
reinvestment of dividends.... 288,919 -- 567
Cost of shares redeemed....... (3,868,232) -- (6,478)
----------- ------ --------
Net increase (decrease)....... $(1,446,426) $1,000 $ (1,122)
=========== ====== ========
Shares sold................... 136,213 64 299
Shares issued in reinvestment
of distributions............. 18,447 -- 33
Shares redeemed............... (247,090) -- (406)
----------- ------ --------
Net increase (decrease)...... (92,430) 64 (74)
=========== ====== ========
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE
BOND FUND
SIX MONTHS ENDED
AUGUST 31, 1996
(UNAUDITED) YEAR ENDED
--------------------- FEBRUARY 29,
A SHARES K SHARES 1996 (000)
----------- -------- ------------
<S> <C> <C> <C>
Net proceeds from shares
subscribed................... $ 4,453,681 $1,000 $ 12,184
Net asset value of shares
issued to shareholders in
reinvestment of dividends.... 189,140 -- 273
Cost of shares redeemed....... (2,641,836) -- (1,312)
----------- ------ --------
Net increase.................. $ 2,000,985 $1,000 $ 11,145
=========== ====== ========
Shares sold................... 465,390 105 1,249
Shares issued in reinvestment
of distributions............. 19,786 -- 28
Shares redeemed............... (276,229) -- (134)
----------- ------ -------
Net increase................. 208,947 105 1,143
=========== ====== =======
</TABLE>
- ---------------
(a) For the period from July 22, 1996 (commencement of operations) through
August 31, 1996.
NOTE 7 -- SUBSEQUENT EVENT
Effective September 1, 1996, the Board of Directors of the Company decided
to withdraw the Corporate Bond Fund's investment in the Corporate Bond Portfolio
of the Trust and to engage Bank of America to manage directly the assets of the
Corporate Bond Fund in accordance with its investment objective, policies and
limitations (the "Reorganization"). Accordingly, the Corporate Bond Fund will
now seek its objective by investing directly in portfolio securities.
NOTE 8 -- CHANGE OF NAME
Prior to June 30, 1996, the Intermediate Bond Fund was known as the Flexible
Bond Fund.
FS-185
<PAGE> 471
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights(a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUGUST 31, -----------------------------------------------------------
1996(b) FEBRUARY FEBRUARY FEBRUARY FEBRUARY
(UNAUDITED) 29, 1996 28, 1995 28, 1994 28, 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
A SHARES
Net asset value per share, beginning
of period.......................... $ 9.43 $ 9.31 $ 9.85 $ 10.21 $ 10.22
---------- ----------- ----------- ----------- -----------
Income from Investment Operations:
Net investment income.............. 0.24 0.61 0.55 0.45 0.70
Net realized and unrealized gains
(losses) on securities........... (0.26) 0.16 (0.54) (0.11) 0.37
---------- ----------- ----------- ----------- -----------
Total income from investment
operations......................... (0.02) 0.74 0.01 0.34 1.07
---------- ----------- ----------- ----------- -----------
Less Dividends and Distributions:
Dividends from net investment
income........................... (0.26) (0.61) (0.52) (0.45) (0.70)
Distributions from net realized
gains on securities.............. -- (0.01) -- (0.16) (0.38)
Tax return of capital.............. -- (0.03) (0.03) (0.09) --
---------- ----------- ----------- ----------- -----------
Total dividends and distributions... (0.26) (0.65) (0.55) (0.70) (1.08)
---------- ----------- ----------- ----------- -----------
Net change in net asset value per
share.............................. (0.28) 0.12 (0.54) (0.36) (0.01)
---------- ----------- ----------- ----------- -----------
Net asset value per share, end of
period............................. $ 9.15 $ 9.43 $ 9.31 $ 9.85 $ 10.21
---------- ----------- ----------- ----------- -----------
Total return (excludes sales
charge)............................ 0.18%++ 8.47% 0.30% 3.40% 10.92%
Ratios/Supplemental Data:
Net assets, end of period (000).... $ 77,683 $ 89,491 $ 87,354 $ 157,984 $ 119,127
Ratio of expenses to average net
assets........................... 0.86%+ 1.15% 1.15% 0.96% 0.51%
Ratio of net investment income to
average net assets............... 5.94%+ 6.36% 5.57% 4.45% 6.80%
Ratio of expenses to average net
assets*.......................... 1.19%+ 1.26%++ (a) 1.00% 1.10%
Ratio of net investment income to
average net assets*.............. 5.61%+ 6.28% (a) 4.41% 6.21%
Portfolio turnover rate............. 59% 137% 189% 255% 252%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not annualized. A share performance does not include deduction of the
maximum 4.50% sales charge. K share performance will be lower than A share
performance due to the K shares' additional 0.50% distribution or
shareholder services fee.
(a) Security Pacific National Bank served as Investment Adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
Investment Adviser commencing April 22, 1992.
(b) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.
See Notes to Financial Statements.
FS-186
<PAGE> 472
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
ENDED
AUGUST 31,
1996(a)
(UNAUDITED)
-----------
<S> <C>
K SHARES
Net asset value per share, beginning of period......................... $ 9.19
-------
Income from Investment Operations:
Net investment income................................................ 0.10
Net realized and unrealized gains (losses) on securities............. (0.04)
-------
Total income from investment operations................................ 0.06
-------
Less Dividends and Distributions:
Dividends from net investment income................................. (0.10)
Distributions from net realized gains on securities.................. --
Tax return of capital................................................ --
-------
Total dividends and distributions...................................... (0.10)
-------
Net change in net asset value per share................................ (0.04)
-------
Net asset value per share, end of period............................... $ 9.15
=======
Total return........................................................... (0.25)++
Ratios/Supplemental Data:
Net assets, end of period............................................ $ 994
Ratio of expenses to average net assets.............................. 1.22%+
Ratio of net investment income to average net assets................. 6.14%+
Ratio of expenses to average net assets*............................. 1.68%+
Ratio of net investment income to average net assets*................ 5.68%+
Portfolio turnover rate................................................ 59%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not annualized. Represents total return for A Shares from March 1, 1996 to
July 21, 1996 plus the total return for the K Shares for the period July 22,
1996 to August 31, 1996. A share performance does not include deduction of
the maximum 4.50% sales charge. K share performance will be lower than A
share performance due to the K shares' additional 0.50% distribution or
shareholder services fee.
(a) Class "K" Shares commenced offering July 22, 1996.
See Notes to Financial Statements.
FS-187
<PAGE> 473
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
AUGUST 31,
1996
(UNAUDITED)(a)
--------------
<S> <C>
A SHARES
Net asset value per share, beginning of period................ $ 16.09
--------
Income from Investment Operations:
Net investment income....................................... 0.47
Net realized and unrealized gain (loss) on securities....... (0.68)
--------
Total income (loss) from investment operations................ (0.21)
--------
Less Dividends and Distributions:
Dividends from net investment income........................ (0.47)
Distributions from net realized gains on securities......... --
--------
Total dividends and distributions............................. (0.47)
--------
Net change in net asset value per share....................... (0.68)
--------
Net asset value per share, end of period...................... $ 15.41
========
Total return+................................................. (1.29%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)........................... $ 29,591
Ratio of expenses to average net assets**................... 1.35%***
Ratio of net investment income to average net assets**...... 6.07%***
Portfolio Turnover............................................ N/A
</TABLE>
- ---------------
+ The total return figures do not include the effect of the maximum 4.50%
sales charge.
++ The financial highlights for the years ended September 30, 1993 and 1992 are
for the Bunker Hill Income Securities Inc., a closed-end fund.
* Includes the results of operations of Bunker Hill Income Securities, Inc.
and the Fund.
** Reflects the Corporate Bond Fund's proportionate share of the Trust's
expenses and fee waivers and expense reimbursements by the Trust's
Investment Advisor and Administrator and the Corporate Bond Fund's
Administrator and Distributor. Such fee waivers and expense reimbursements
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 0.65%
(annualized), 0.90%, 0.90% (annualized) for the periods ended August 31,
1996, February 29, 1996 and February 28, 1995 and 0.16% for the period ended
February 28, 1994 respectively.
*** Annualized.
N/A Not applicable.
(a) As of July 22, 1996 the Portfolio designated the existing series of shares
as "A" shares.
(b) Not annualized.
See Notes to Financial Statements.
FS-188
<PAGE> 474
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
YEAR ENDED OCT. 1, 1994 YEAR ENDED SEPTEMBER 30,
FEBRUARY 29, THROUGH -------------------------------------------
1996 FEB. 28, 1995 1994* 1993++ 1992++
--------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 15.03 $ 14.86 $ 16.94 $ 16.12 $ 15.22
------- ------- ------- ------- -------
0.98 0.45 1.58 1.34 1.48
1.11 0.17 (2.06) 0.82 0.95
------- ------- ------- ------- -------
2.09 0.62 (0.48) 2.16 2.43
------- ------- ------- ------- -------
(0.98) (0.45) (1.58) (1.34) (1.53)
(0.05) -- (0.02) -- --
------- ------- ------- ------- -------
(1.03) (0.45) (1.60) 1.34 (1.53)
------- ------- ------- ------- -------
1.06 0.17 (2.08) 0.82 0.90
------- ------- ------- ------- -------
$ 16.09 $ 15.03 $ 14.86 $ 16.94 $ 16.12
======= ======= ======= ======= =======
14.12% 4.26%(b) (2.29%) 7.05% 13.36%
$32,387 $31,372 $33,046 $46,999 $44,642
1.33% 1.04%*** 0.91% 1.02% 1.09%
6.12% 7.32%*** 7.85% 8.14% 9.42%
N/A N/A N/A 154.34% 251.97%
</TABLE>
See Notes to Financial Statements.
FS-189
<PAGE> 475
PACIFIC HORIZON CORPORATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1996
(UNAUDITED)(a)
--------------
<S> <C>
K SHARES
Net asset value per share, beginning of period...................... $15.52
------
Income from Investment Operations:
Net investment income............................................. 0.08
Net realized and unrealized gain (loss) on securities............. (0.12)
------
Total income (loss) from investment operations...................... (0.04)
------
Less Dividends and Distributions:
Dividends from net investment income.............................. (0.08)
------
Net change in net asset value per share............................. (0.12)
------
Net asset value per share, end of period............................ $15.40
======
Total return++...................................................... (1.35%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period......................................... $ 991
Ratio of expenses to average net assets*.......................... 1.85%+
Ratio of net investment income to average net assets*............. 5.57%+
</TABLE>
- ---------------
+ Annualized.
++ Not annualized. Represents total return for A Shares from March 1, 1996 to
July 21, 1996 plus the total return for the K Shares for the period July 22,
1996 to August 31, 1996. A share performance does not include deduction of
the maximum 4.50% sales charge. K share performance will be lower than A
share performance due to the K shares' additional 0.50% distribution or
shareholder services fee.
* Reflects the Corporate Bond Fund's proportionate share of the Trust's
expenses and fee waivers and expense reimbursements by the Trust's
Investment Advisor and Administrator and the Corporate Bond Fund's
Administrator and Distributor. Such fee waivers and expense reimbursements
had the effect of reducing the ratio of expenses to average net assets in
increasing the ratio of net investment income to average net assets by 0.65%
for the period ended August 31, 1996.
(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.
See Notes to Financial Statements.
FS-190
<PAGE> 476
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX
MONTHS ENDED YEAR ENDED PERIOD
AUGUST 31, ----------------------------- ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED)(a) 1996 1995 1994*
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
A SHARES
Net asset value per share, beginning
of period.......................... $ 9.75 $ 9.44 $ 9.81 $ 10.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income.............. 0.26 0.59 0.59 0.08
Net realized and unrealized gain
(loss) on securities............. (0.27) 0.33 (0.37) (0.19)
-------- -------- -------- --------
Total income (loss) from investment
operations......................... (0.01) 0.92 0.22 (0.11)
-------- -------- -------- --------
Less dividends and distribution:
Dividends to shareholders from net
investment income................ (0.26) (0.59) (0.59) (0.08)
Distributions to shareholders from
net realized gains on
securities....................... -- (0.02) -- --
-------- -------- -------- --------
Total dividends and distributions... (0.26) (0.61) (0.59) (0.08)
-------- -------- -------- --------
Net change in net asset value per
share.............................. (0.27) 0.31 (0.37) (0.19)
-------- -------- -------- --------
Net asset value per share, end of
period............................. $ 9.48 $ 9.75 $ 9.44 $ 9.81
======== ======== ======== ========
Total return (excludes sales
charge)............................ (0.10%)++ 10.45% 2.27% (1.10%)++
Ratios/Supplemental Data:
Net assets, end of period (000).... $ 14,792 $ 13,179 $ 1,964 $ 356
Ratio of expenses to average net
assets**......................... 0.75%+ 0.27% 0.00% 0.00%+
Ratio of net investment income to
average net assets**............. 5.36%+ 6.13% 6.43% 5.70%+
</TABLE>
- ---------------
* For the period January 24, 1994 (commencement of operations) through February
28, 1994.
** Reflects the Intermediate Bond Fund's proportionate share of the Trust's
expenses and fee waivers and expense reimbursements by the Trust's
Investment Adviser and Administrator and the Intermediate Bond Fund's
Administrator and Distributor. Such fee waivers and expense reimbursements
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
1.64%, 4.73%, 17.95% and 160.20% (annualized) for the periods ended August
31, 1996, February 29, 1996 , February 28, 1995 and February 28, 1994
respectively.
+ Annualized.
++ Not annualized.
(a) As of July 22, 1996 the Portfolio designated the existing shares as "A"
Shares.
See Notes to Financial Statements.
FS-191
<PAGE> 477
PACIFIC HORIZON INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31,
1996
(UNAUDITED)(a)
--------------
<S> <C>
K SHARES
Net asset value per share, beginning of period...................... $ 9.53
------
Income from Investment Operations:
Net investment income............................................. 0.05
Net realized and unrealized gain (loss) on securities............. (0.05)
------
Total income (loss) from investment operations.................... 0.00
------
Less dividends and distributions:
Dividends from net investment income.............................. (0.05)
Distributions from net realized gains on securities............... --
------
Total Dividends and Distributions................................... (0.05)
------
Net change in net asset value per share............................. (0.05)
------
Net asset value per share, end of period............................ $ 9.48
======
Total return........................................................ (1.35%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period......................................... $ 995
Ratio of expenses to average net assets*.......................... 1.25%+
Ratio of net investment income to average net assets*............. 4.86%+
</TABLE>
- ---------------
* Reflects the Intermediate Bond Fund's proportionate share of the Trust's
expenses and fee waivers and expense reimbursements by the Trust's
Investment Advisor and Administrator and the Intermediate Bond Fund's
Administrator and Distributor. Such fee waivers and expense reimbursements
had the effect of reducing the ratio of expenses to average net assets in
increasing the ratio of net investment income to average net assets by 1.64%
for the period ended August 31, 1996.
+ Annualized.
++ Not annualized. Represents total return for A Shares from March 1, 1996 to
July 21, 1996 plus the total return for the K Shares for the period July 22,
1996 to August 31, 1996. A share performance does not include deduction of
the maximum 4.50% sales charge. K share performance will be lower than A
share performance due to the K shares' additional 0.50% distribution or
shareholder services fee.
(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.
See Notes to Financial Statements.
FS-192
<PAGE> 478
MASTER INVESTMENT TRUST, SERIES I --
CORPORATE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S/P MOODY'S PRINCIPAL
RATING MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE 000'S (NOTE 2)
- ------------------------------------- ------------- ------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 63.70%
Allied Signal Corp.................. A2/A 9.50% 06/01/16 $ 719 $ 844,384
Anheuser Busch...................... A1/A+ 7.00% 12/01/25 1,000 899,916
Commercial Credit................... A1/A+ 7.88% 02/01/05 1,000 1,048,327
Conagra............................. Baa2/BBB- 9.75% 03/01/21 1,500 1,736,263
Walt Disney & Co.................... A2/A 6.75% 03/30/06 1,000 951,592
Midland Bank PLC.................... A1/A+ 6.95% 03/15/11 1,000 926,250
News America Holdings............... Baa3/BBB 12.00% 12/15/01 1,300 1,397,015
Tele-Communications Inc............. Ba1/ 9.88% 06/15/22 1,400 1,452,718
Chase Manhattan Corp................ A2/A- 8.13% 06/15/02 1,000 1,038,658
ABN-AMRO............................ Aa2/AA- 7.75% 05/15/23 1,350 1,327,652
Comerica Bank....................... A2/A 8.38% 07/15/24 1,000 1,010,830
Merrill Lynch & Co, Inc............. A1/A+ 7.00% 03/15/06 1,500 1,439,142
Goldman Sachs Group................. A1/A+ 7.13% 03/01/03 1,500 1,470,741
Lehman Bros Holdings, Inc........... Baa1/A 5.75% 11/15/98 1,000 976,767
International Lease Finance......... A2/A 6.20% 05/01/00 1,500 1,458,058
Hertz Corp.......................... Baa2/BBB- 7.00% 07/15/03 1,000 974,514
-----------
18,952,827
-----------
MEDIUM TERM NOTES -- 21.73%
General Motors Accpt Corp,.......... A3/A 7.38% 05/26/99 1,500 1,517,533
Associates Corp..................... Aa3/AA- 6.95% 18/01/02 1,000 987,140
JC Penney & Co...................... A1/A+ 6.50% 12/15/07 1,000 908,310
Sears............................... A2/A 8.53% 03/01/02 1,100 1,163,431
Countrywide Funding................. Baa1/A 6.54% 04/14/00 1,000 978,976
UNUM Corp........................... A1/A+ 5.88% 10/15/03 1,000 908,653
-----------
6,464,043
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.01%
Prudential Mortgage Cap............. Aaa/AAA 11.58% 12/15/13 4 3,870
-----------
ASSET BACKED SECURITIES--HOME EQUITY LOANS -- 4.35%
The Money Store 1996-B.............. Aaa/AAA 7.38% 05/15/17 1,300 1,294,951
-----------
MUNICIPAL BONDS -- 3.45%
New York City G.O................... BAA1/A 10.25% 06/01/97 1,000 1,024,989
-----------
COMMERCIAL PAPER -- 4.70%
Nestle Capital Corp................. A1/P1 5.23% 09/06/96 1,400 1,399,390
-----------
TOTAL INVESTMENTS
(COSTS $28,994,371) -- 97.94%....... 29,140,070
Other assets in excess
of liabilities -- 2.06%............. 611,917
-----------
NET ASSETS -- 100%................... $29,751,987
===========
</TABLE>
FS-193
<PAGE> 479
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- --------------------------------------------------- ------- --------- ---------- -----------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES--CREDIT CARDS -- 5.70%
Standard Credit Card Master Trust................. 7.85% 02/07/02 $ 2,500 $ 2,577,250
NationsBank Credit Card Master Trust.............. 6.45% 04/15/03 2,700 2,665,415
-----------
5,242,665
-----------
ASSET BACKED SECURITIES--HOME EQUITY LOANS -- 1.08%
The Money StoreTrust 1996 - B..................... 7.38% 03/15/17 1,000 998,318
-----------
COMMERCIAL PAPER -- 2.39%
Nestle Capital Corp............................... 5.23% 09/06/96 2,200 2,199,041
-----------
CORPORATE OBLIGATIONS -- 8.58%
General Motors.................................... 8.40% 10/15/99 1,000 1,040,000
Household International BV........................ 5.25% 10/15/98 2,000 1,945,000
Texas Instruments, Inc............................ 6.88% 07/15/00 2,500 2,484,375
Hertz Corp........................................ 7.00% 07/15/03 2,500 2,421,875
-----------
7,891,250
-----------
EURO BONDS -- 2.62%
Republic of Italy................................. 0.00% 01/10/01 3,300 2,413,177
-----------
MEDIUM TERM NOTES -- 18.96%
International Lease Finance....................... 6.27% 02/10/99 2,500 2,471,875
Sears Roebuck Co.................................. 6.58% 06/15/00 2,000 1,965,000
General Motors Acceptance Corp.................... 7.38% 05/26/99 2,000 2,022,500
Caterpillar Finance............................... 6.77% 02/01/99 2,000 1,995,000
Associates Corp................................... 6.35% 06/29/00 3,000 2,932,500
Morgan Stanley Group.............................. 6.25% 03/01/99 2,000 1,942,500
USL Capital Corp.................................. 8.13% 02/15/00 4,000 4,115,000
-----------
17,444,375
-----------
U.S. GOVERNMENT AGENCY NOTES -- 4.44%
Federal Home Loan Mortgage Corp. Pool #303528..... 6.00% 06/01/01 2,293 2,192,433
Federal Home Loan Mortgage Corp. Pool #131579..... 6.50% 06/01/01 181 166,900
Federal Home Loan Mortgage Corp. Pool #286087..... 8.00% 06/01/24 773 772,447
Government National Mortgage Assoc. Pool
#136688......................................... 10.00% 06/01/15 36 39,341
Government National Mortgage Assoc. Pool
#166744......................................... 10.00% 06/01/16 358 391,083
Government National Mortgage Assoc. Pool
#209480......................................... 10.00% 07/15/17 80 87,622
Government National Mortgage Assoc. Pool
#227082......................................... 10.00% 08/15/17 114 124,052
Federal Home Loan Mortgage Corp. Pool #160034..... 8.50% 12/01/07 69 69,841
Federal Home Loan Mortgage Corp. Pool #549837..... 8.00% 07/01/10 216 216,198
Federal Home Loan Mortgage Corp. Pool #284343..... 8.00% 12/01/16 13 13,076
Federal Home Loan Mortgage Corp. Pool #297505..... 8.00% 06/01/17 18 18,043
-----------
4,091,036
-----------
U.S TREASURY BONDS -- 4.98%
U.S. Treasury Bonds............................... 10.38% 11/15/09 3,800 4,578,848
-----------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-194
<PAGE> 480
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- --------------------------------------------------- ------- --------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES -- 49.34%
U.S. Treasury Notes............................... 5.12% 11/30/98 $ 6,900 $ 6,716,804
U.S. Treasury Notes............................... 6.38% 05/15/99 12,000 11,958,958
U.S. Treasury Notes............................... 6.88% 08/31/99 2,000 2,017,400
U.S. Treasury Notes............................... 7.75% 11/30/99 7,500 7,749,075
U.S. Treasury Notes............................... 7.75% 01/21/00 2,500 2,584,775
U.S. Treasury Notes............................... 5.63% 11/30/00 1,500 1,440,720
.................................................. 6.63% 06/30/01 13,000 12,940,070
-----------
45,407,802
-----------
TOTAL INVESTMENTS -- 98.09%
(Cost $91,680,545)................................ 90,266,512
Other Assets in Excess of Liabilities -- 1.91%..... 1,755,100
-----------
NET ASSETS -- 100%................................. $92,021,612
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-195
<PAGE> 481
MASTER INVESTMENT TRUST, SERIES I --
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE INVESTMENT
BOND GRADE BOND
PORTFOLIO PORTFOLIO
----------- -----------
<S> <C> <C>
ASSETS:
Investments in securities at value (cost $28,994,371 and
$91,680,545 respectively).............................. $29,140,070 $90,266,512
Cash..................................................... 47,946 54,240
Contribution receivable.................................. -- 400,274
Interest receivable...................................... 639,098 1,343,225
Deferred organization costs and prepaid expenses......... 1,008 31,653
------------ -----------
Total assets............................................... 29,828,122 92,095,904
------------ -----------
LIABILITIES:
Withdrawal payable....................................... 30,096 13,753
Advisor fees payable..................................... -- 16,510
Administration fees payable.............................. -- 17,705
Accrued audit fees....................................... 10,928 4,363
Accrued legal fees....................................... 5,863 3,410
Accrued accounting fees.................................. 12,032 3,770
Accrued custody fees..................................... 1,620 1,832
Other accrued expenses................................... 15,596 12,949
------------ -----------
Total liabilities.......................................... 76,135 74,292
------------ -----------
NET ASSETS................................................. $29,751,987 $92,021,612
============ ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-196
<PAGE> 482
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE INVESTMENT
BOND GRADE BOND
PORTFOLIO PORTFOLIO
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................................. $ 1,124,641 $ 2,274,374
----------- -----------
EXPENSES:
Advisory fees......................................... 69,539 167,152
Administration fees................................... 7,727 18,572
Fund accounting fees and expenses..................... 13,106 24,759
Audit fees............................................ 8,178 9,922
Custodian fees and expenses........................... 10,685 7,471
Legal fees............................................ 2,607 4,107
Trustees fees......................................... 1,427 3,523
Amortization of organization costs.................... -- 6,982
Other operating expenses.............................. 2,902 3,120
----------- -----------
116,171 245,608
Less: Fee waivers and expense reimbursements.......... (77,266) (161,500)
----------- -----------
38,905 84,108
----------- -----------
Net Investment Income................................... 1,085,736 2,190,266
----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on securities transactions... 42,290 (643,236)
Net change in unrealized appreciation (depreciation)
on investments...................................... (1,392,839) (1,413,251)
----------- -----------
Net Gain (Loss) on Investments.......................... (1,350,549) (2,056,487)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS....................................... $ (264,813) $ 133,779
=========== ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-197
<PAGE> 483
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE BOND PORTFOLIO
----------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1996 FOR THE YEAR ENDED
(UNAUDITED) FEBRUARY 29, 1996
---------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................... $ 1,085,736 $ 2,304,694
Net realized gain on securities
transactions............................ 42,290 1,346,761
Net change in unrealized appreciation
(depreciation) of investments........... (1,392,839) 885,929
------------ ------------
Net increase (decrease) in net assets
resulting from operations............... (264,813) 4,537,384
------------ ------------
Trust Share Transactions:
Contributions............................. 2,337,452 4,797,630
Withdrawals............................... (4,700,473) (8,234,630)
------------ ------------
Net decrease in net assets resulting from
Trust share transactions................ (2,363,021) (3,437,000)
------------ ------------
Total Increase (Decrease)................... (2,627,834) 1,100,384
NET ASSETS:
Beginning of period....................... 32,379,821 31,279,437
------------ ------------
End of period............................. $ 29,751,987 $ 32,379,821
============ ============
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT GRADE BOND PORTFOLIO
----------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1996 FOR THE YEAR ENDED
(UNAUDITED) FEBRUARY 29, 1996
---------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................... $ 2,190,266 $ 3,879,980
Net realized gain (loss) on securities
transactions............................ (643,236) 2,336,008
Net change in unrealized appreciation
(depreciation) on investments........... (1,413,251) (247,652)
------------ ------------
Net increase in net assets resulting from
operations.............................. 133,779 5,968,336
------------ ------------
Trust Share Transactions:
Contributions............................. 35,810,542 21,358,278
Withdrawals............................... (10,212,284) (18,755,421)
------------ ------------
Net increase in net assets resulting from
Trust share transactions................ 25,598,258 2,602,857
------------ ------------
Total Increase.............................. 25,732,037 8,571,193
NET ASSETS:
Beginning of period....................... 66,289,575 57,718,382
------------ ------------
End of period............................. $ 92,021,612 $ 66,289,575
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-198
<PAGE> 484
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940 as amended (the "Act"),
as an open-end management investment company. At August 31, 1996, the Trust
consisted of five portfolios. The accompanying financial statements and notes
are those of the Investment Grade Bond Portfolio and the Corporate Bond
Portfolio (the "Portfolios") only.
The investment objective of the Investment Grade Bond Portfolio is to obtain
interest income and capital appreciation by investing in investment grade
intermediate and longer term bonds, including corporate and governmental fixed
income obligations and mortgaged backed securities. The investment objective of
the Corporate Bond Portfolio is to provide investors with high current income
consistent with reasonable investment risk. The Portfolio seeks its objective
through investment grade corporate debt securities although it may invest a
portion of its assets in other types of securities and money market instruments.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolios'
investment adviser. Concord Holding Corporation ("Concord") serves as the
Portfolios' administrator through BISYS Fund Services (Ireland) Ltd., a wholly
owned subsidiary of Concord.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The
BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation, or if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. Securities that are primarily traded on the NASDAQ national
securities market are valued at the last reported sales price on the date of
valuation or, if none of available, at the last quoted bid price on the date of
valuation. The Portfolio may use an independent pricing service, approved by the
Board of Trustees, to value certain of their securities. Such prices reflect
market values which may be established through the use of electronic data
processing techniques
FS-199
<PAGE> 485
and matrix systems. Restricted securities
and securities for which market quotations are not readily available, if any,
are valued at fair value using methods approved by the Board of Trustees. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase or, in the case of
securities purchased with more than 60 days until maturity, at their market
value each day until the 61st day prior to maturity, and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and such valuation.
B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily.
C) EXPENSES:
Expenses directly attributable to each Portfolio are charged to each
individual Portfolio while Trust expenses attributable to more than one
portfolio of the Trust and general Trust expenses are allocated among the
respective portfolios of the Trust.
D) FEDERAL INCOME TAXES:
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, any investor in either Portfolio will be taxed on its share
of that Portfolio's ordinary income and capital gains. It is intended that the
Portfolios will be managed in such a way that an investor will be able to
satisfy the requirements of the Internal Revenue Code applicable to regulated
investment companies.
NOTE 3 -- AGREEMENTS AND OTHER
TRANSACTIONS WITH AFFILIATES
The Portfolios have an Investment Advisory Agreement with Bank of America
and an Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of each Portfolio in conformity with the stated objectives and
policies of each Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.45% of the average
daily net assets of each Portfolio. For the period ended August 31, 1996, Bank
of America waived $145,347 in fees as an Adviser of the Investment Grade Bond
Portfolio. For the Corporate Bond Portfolio Bank of America waived its entire
fee as adviser for the same period.
As Administrator, Concord assists in supervising the operations of the
Portfolios. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.05% of the Portfolios' average daily net
assets. For the period ended August 31, 1996, Concord waived $16,153 in fees as
an Administrator of the Investment Grade Bond Portfolio. For the Corporate Bond
Portfolio Concord waived its entire fee as administrator for the same period.
For services provided to all five of the portfolios constituting the Trust,
each
FS-200
<PAGE> 486
Trustee receives an annual fee of $3,000 and a meeting fee of $500 per meeting.
For the period ended August 31, 1996, the Investment Grade Bond and the
Corporate Bond Portfolios incurred legal expenses of $4,107 and $2,607
respectively, which were earned by a law firm, a partner of which serves as
Secretary of the Trust. Certain officers of the Trust are "affiliated persons"
(as defined in the Act) of BISYS.
NOTE 4 -- PURCHASES AND SALES
OF SECURITIES
The following table summarizes the securities transactions effected by the
Portfolios, excluding short-term securities, for the period ended August 31,
1996:
INVESTMENT GRADE BOND PORTFOLIO:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
U.S. Government
Securities......... $34,247,132 $ 9,163,594
Other Securities.... 15,119,716 12,925,931
----------- -----------
$49,366,848 $22,089,525
=========== ===========
</TABLE>
CORPORATE BOND PORTFOLIO:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
U.S. Government
Securities......... $ 1,299,797 $ 2,182,598
Other Securities.... 8,741,170 8,998,314
----------- -----------
$10,040,967 $11,180,912
=========== ===========
</TABLE>
At August 31, 1996, the cost of securities of the Portfolios for federal
income tax purposes was substantially the same as for financial reporting
purposes. Accordingly for the Investment Grade Bond Portfolio net unrealized
depreciation of investments amounted to $1,414,033 consisting of gross
unrealized appreciation of $179,252 and gross unrealized depreciation of
$1,593,285. For the Corporate Bond Portfolio net unrealized appreciation of
investments amounted to $145,699 consisting of gross unrealized appreciation of
$593,391 and gross unrealized depreciation of $447,692.
NOTE 5 -- CONCENTRATION OF
CREDIT RISK
The Investment Grade Bond Portfolio had the following concentrations by
security type at August 31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U.S. Treasury Notes................. 50.3%
Medium Term Notes................... 19.3%
U.S. Treasury Bonds................. 5.1%
Asset Backed Securities............. 6.9%
U.S. Government Agency Notes........ 4.5%
Commercial Paper Discount........... 2.7%
Corporate Obligations............... 8.7%
Euro Bonds.......................... 2.5%
-----
100.0%
=====
</TABLE>
The Corporate Bond Portfolio had the following concentrations by security
type at August 31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
Medium Term Notes................... 22.2%
Asset Backed Securities............. 4.5%
Commercial Paper Discount........... 4.8%
Corporate Obligations............... 65.0%
Municipal Bonds..................... 3.5%
-----
100.0%
=====
</TABLE>
FS-201
<PAGE> 487
MASTER INVESTMENT TRUST, SERIES I --
CORPORATE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD FOR THE PERIOD
ENDED OCTOBER 1, 1994 APRIL 25, 1994*
AUGUST 31, 1996 YEAR ENDED THROUGH THROUGH
(UNAUDITED) FEBRUARY 29, 1996 FEBRUARY 24, 1995 SEPTEMBER 30, 1994
--------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets**..... 0.25%+ 0.27% 0.31%+ 0.39%+
Ratio of net investment
income to average net
assets**................. 7.03%+ 7.19% 8.03%+ 8.55%+
Portfolio Turnover........ 34.00% 96.00% 124.00% 51.00%
</TABLE>
- ---------------
* Date of Reorganization.
** 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 .09% for the six months ended August 31, 1996,.73% for
the year ended February 29, 1996 and by 0.50% for the periods of October 1,
1994 through February 28, 1995 and April 25, 1994 through September 30, 1994.
+ Annualized.
See Notes to Financial Statements.
FS-202
<PAGE> 488
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, 1996 YEAR ENDED YEAR ENDED PERIOD ENDED
(UNAUDITED) FEBRUARY 29, 1996 FEBRUARY 28, 1995 FEBRUARY 28, 1994
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets**...... 0.23% 0.18% 0.25% 0.41%***
Ratio of net investment
income to average
assets**.................. 5.90% 6.47% 6.22% 4.93%***
Portfolio Turnover......... 32% 172% 240% 32%
</TABLE>
- ---------------
* For the period December 6, 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%, 0.50%, 0.50% and 0.50% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1996 and
February 28, 1994, respectively.
*** Annualized.
See Notes to Financial Statements.
FS-203
<PAGE> 489
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (in thousands)
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP
FUND FUND BOND FUND
---------- ---------- ---------
<S> <C> <C> <C>
ASSETS:
Investment in Master Investment Trust,
Series I -- Asset Allocation Portfolio,
Blue Chip Portfolio and Investment Grade
Bond Portfolio, at value................ $ 156,044 $ 221,159 $ 42,116
Receivable from Administrator............. 6 70 --
Deferred organization costs, prepaid
expenses and other receivables.......... 23 36 21
--------- --------- --------
Total assets................................ 156,073 221,265 42,137
--------- --------- --------
LIABILITIES:
Dividends Payable......................... 454 -- 189
Accrued reports to shareholders expense... 44 52 33
Administration fees payable............... 39 55 2
Accrued shareholder service fees.......... 34 48 9
Custody fees.............................. 4 6 1
Accrued audit fees........................ 8 6 6
Accrued legal fees........................ 4 7 1
Other accrued expenses.................... 13 9 8
--------- --------- --------
Total liabilities........................... 600 183 249
--------- --------- --------
NET ASSETS.................................. $ 155,473 $ 221,082 $ 41,888
========= ========= ========
Shares Outstanding (no par value, unlimited
number of shares authorized).............. 10,371 10,232 3,966
--------- --------- --------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE................ $14.99 $21.61 $10.56
========= ========= ========
COMPOSITION OF NET ASSETS:
Paid-in capital........................... $ 137,030 $ 169,872 $ 45,018
Accumulated net realized gains (losses)... 11,520 16,460 (2,403)
Undistributed net investment income....... -- 588 --
Net unrealized appreciation (depreciation)
on investments.......................... 6,923 34,162 (727)
--------- --------- --------
NET ASSETS, AUGUST 31, 1996................. $ 155,473 $ 221,082 $ 41,888
========= ========= ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-204
<PAGE> 490
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations (in thousands)
For the six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP
FUND FUND BOND FUND
---------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio, Blue Chip Portfolio and
Investment Grade Bond Portfolio, respectively:
Interest.................................................. $ 2,191 $ 215 $ 1,358
Dividends................................................. 882 2,410 --
-------- ------- --------
3,073 2,625 1,358
-------- ------- --------
EXPENSES..................................................... 597 1,014 147
Less: Fee waivers and expense reimbursements................ (344) (347) (99)
-------- ------- --------
253 667 48
-------- ------- --------
Net Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio, Blue Chip Portfolio and
Investment Grade Bond Portfolio, respectively............... 2,820 1,958 1,310
-------- ------- --------
EXPENSES:
Administration fees......................................... 231 318 65
Shareholder service fees.................................... 199 274 56
Custodian fees and expenses................................. 24 33 7
Legal fees.................................................. 18 24 5
Registration fees and expenses.............................. 13 16 13
Reports to shareholders expense............................. 12 10 19
Audit fees.................................................. 9 12 4
Trustees fees............................................... 5 6 1
Amortization of organization costs.......................... 4 4 3
Other operating expenses.................................... 7 10 3
-------- ------- --------
522 707 176
Less: Fee waivers and expense reimbursements................. (19) (333) (12)
-------- ------- --------
503 374 164
-------- ------- --------
Net Investment Income........................................ 2,317 1,584 1,146
-------- ------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM
MASTER INVESTMENT TRUST, SERIES I -- ASSET ALLOCATION
PORTFOLIO, BLUE CHIP PORTFOLIO AND INVESTMENT GRADE BOND
PORTFOLIO, RESPECTIVELY
Net realized gain (loss) on securities transactions......... 8,029 10,613 (415)
Net change in unrealized appreciation (depreciation) on
investments............................................... (7,702) (5,743) (870)
-------- ------- --------
Net gain (loss) on Investments from Master Investment Trust,
Series I -- Asset Allocation Portfolio, Blue Chip Portfolio
and Investment Grade Bond Portfolio, respectively........... 327 4,870 (1,285)
-------- ------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.................................................. $ 2,644 $ 6,454 ($ 139)
======== ======= ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-205
<PAGE> 491
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
-----------------------------
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................. $ 2,317 $ 4,869
Net realized gain on securities transactions.......... 8,029 18,289
Net change in unrealized appreciation (depreciation)
of investments...................................... (7,702) 7,580
--------- --------
Net increase in net assets resulting from
operations.......................................... 2,644 30,738
--------- --------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment
income.............................................. (2,317) (4,869)
Distributions to shareholders from net realized
gains............................................... -- (10,103)
--------- --------
Total Dividends and Distributions to Shareholders... (2,317) (14,972)
--------- --------
Fund Share Transactions:
Net proceeds from shares subscribed................... 7,355 14,252
Net asset value of shares issued to shareholders in
reinvestment of dividends........................... 1,863 14,972
Shares redeemed....................................... (12,557) (31,637)
--------- --------
Net decrease in net assets resulting from Fund share
transactions........................................ (3,339) (2,413)
--------- --------
Total Increase (Decrease)............................... (3,012) 13,353
NET ASSETS:
Beginning of period................................... 158,485 145,132
--------- --------
End of period......................................... $ 155,473 $158,485
========= ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-206
<PAGE> 492
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP FUND
------------------------------
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
-------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................ $ 1,584 $ 2,742
Net realized gain on securities transactions......... 10,613 19,935
Net change in unrealized appreciation (depreciation)
of investments..................................... (5,743) 28,575
-------- --------
Net increase in net assets resulting from
operations......................................... 6,454 51,252
-------- --------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment
income............................................. (1,476) (2,736)
Distributions to shareholders from net realized
gains.............................................. -- (14,510)
-------- --------
Total Dividends and Distributions to
Shareholders..................................... (1,476) (17,246)
-------- --------
Fund Share Transactions:
Net proceeds from shares subscribed.................. 23,021 34,754
Net asset value of shares issued to shareholders in
reinvestment of dividends.......................... 1,476 17,246
Shares redeemed...................................... (14,613) (31,053)
-------- --------
Net increase in net assets resulting from Fund share
transactions....................................... 9,884 20,947
-------- --------
Total Increase......................................... 14,862 54,953
NET ASSETS:
Beginning of period.................................. 206,220 151,267
-------- --------
End of period (including undistributed net investment
income of $587,805, and $479,371, respectively).... $221,082 $206,220
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-207
<PAGE> 493
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND FUND
------------------------------
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
-------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................ $ 1,146 $ 2,970
Net realized gain (loss) on securities
transactions....................................... (415) 2,153
Net change in unrealized appreciation (depreciation)
of investments..................................... (870) (139)
-------- --------
Net increase (decrease) in net assets resulting from
operations......................................... (139) 4,984
-------- --------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment
income............................................. (1,146) (2,970)
Distributions to shareholders from net realized
gains.............................................. -- --
-------- --------
Total Dividends and Distributions to
Shareholders..................................... (1,146) (2,970)
-------- --------
Fund Share Transactions:
Net proceeds from shares subscribed.................. 1,268 3,242
Net asset value of shares issued to shareholders in
reinvestment of dividends.......................... 957 2,970
Shares redeemed...................................... (6,114) (16,954)
-------- --------
Net decrease in net assets resulting from Fund share
transactions....................................... (3,889) (10,742)
-------- --------
Total Decrease......................................... (5,174) (8,728)
NET ASSETS:
Beginning of period.................................. 47,062 55,790
-------- --------
End of period........................................ $ 41,888 $ 47,062
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-208
<PAGE> 494
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Seafirst Retirement Funds (the "Company"), a Delaware business trust, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At August 31, 1996, the Company
consisted of three funds -- the Asset Allocation Fund, the Blue Chip Fund and
the Bond Fund (collectively, the "SRF Funds").
Each SRF Fund seeks to achieve its investment objective by investing
substantially all of its assets in the corresponding portfolio of the Master
Investment Trust, Series I, (collectively the "Portfolios"), that has the same
investment objectives as that of the SRF Fund. The value of each SRF Fund's
investment in each Portfolio included in the accompanying statements of assets
and liabilities reflects each SRF Fund's proportionate beneficial interest in
the net assets of that Portfolio. At August 31, 1996, the SRF Funds held
proportionate interests in the corresponding Portfolios in the following
amounts:
<TABLE>
<S> <C>
Asset Allocation Fund....................................................... 85.5%
Blue Chip Fund.............................................................. 65.1%
Bond Fund................................................................... 45.8%
</TABLE>
The financial statements of each Portfolio, including its portfolio of
investments, are included elsewhere within this report and should be read in
conjunction with each SRF Fund's financial statements.
Seattle-First National Bank ("Seafirst") serves as the Company's
administrator and Concord Financial Group, Inc. (the "Distributor"), a wholly
owned subsidiary of Concord Holding Corp. ("Concord"), serves as the distributor
of the Company's shares.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The
BISYS Group, Inc. ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the SRF Funds in the preparation of their financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation of
financial statements, in accordance with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A)INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:
The SRF Funds record their proportionate share of the investment income,
expenses and realized and unrealized gains and losses recorded by the
corresponding Portfolio on a daily basis. The investment income, expenses and
realized and unrealized gains and losses are
FS-209
<PAGE> 495
allocated daily to investors in each Portfolio based upon their investments in
each Portfolio. Such investments are adjusted on a daily basis. The valuation of
securities by each of the Portfolios is discussed in Note 2 to the financial
statements of the Portfolios.
B) FEDERAL INCOME TAXES:
It is the policy of the SRF Funds to meet the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies and to
distribute substantially all of their taxable income to shareholders. Therefore,
no federal income tax provision is required.
C) DIVIDENDS AND DISTRIBUTIONS:
The SRF Funds declare dividends to shareholders of record on the day of
declaration from net investment income. Such dividends are paid quarterly by the
Blue Chip Fund and monthly by the Asset Allocation Fund and the Bond Fund. Net
realized gains, if any, will be distributed at least annually. However, to the
extent that net realized gains of an SRF Fund can be reduced by capital loss
carryovers, such gains will not be distributed. Dividends and distributions are
recorded on the ex-dividend date.
Dividends from net investment income and distributions from net realized
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions to shareholders which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or net
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
D) OTHER:
The SRF Funds incurred certain costs in connection with their organization.
Such costs have been deferred and are being amortized on a straight-line basis
over five years.
Expenses directly attributable to each SRF Fund are charged to that SRF
Fund, while Company expenses attributed to more than one SRF Fund of the Company
are allocated among the respective SRF Funds.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The SRF Funds have an Administration Agreement with Seafirst and a
Distribution Agreement with the Distributor. In addition, Seafirst has entered
into a Sub-Administration Agreement with Concord.
As Administrator, Seafirst assists in supervising the operations of the SRF
Funds. For its services, Seafirst is entitled to a fee, accrued daily and
payable monthly, at an annual rate of
FS-210
<PAGE> 496
0.29% of each SRF Fund's average daily net assets. As Sub-Administrator, Concord
has agreed to provide officers and certain administrative and compliance
monitoring services to the SRF Funds. For its services, Concord is entitled to a
fee, from Seafirst, at an annual rate of 0.06% of each SRF Fund's average daily
net assets. The Distributor is not entitled to a fee under the Distribution
Agreement.
Seafirst has agreed to waive fees payable to it to the extent any SRF Fund's
expenses exceed an annual rate of 0.95% of average daily net assets. For the
period ended August 31, 1996, Seafirst waived the following fees so that the
Funds could meet this expense limitation:
<TABLE>
<S> <C>
Asset Allocation Fund.................................................... $ 18,594
Blue Chip Fund........................................................... 332,655
Bond Fund................................................................ 11,584
</TABLE>
The SRF Funds have adopted a Shareholder Service Plan (the "Plan") under
which the SRF Funds pay for non-distribution shareholder servicing expenses
incurred in connection with shares of the SRF Funds. Under the Plan, payments by
the SRF Funds may not exceed an annual rate of 0.25% of each Fund's average
daily net assets. For the period ended August 31, 1996, the SRF Funds paid the
following amounts to Seafirst in connection with the Plan:
<TABLE>
<S> <C>
Asset Allocation Fund.................................................... $ 199,465
Blue Chip Fund........................................................... 273,775
Bond Fund................................................................ 55,683
</TABLE>
For services provided to all three of the SRF Funds constituting the
Company, each Trustee receives an annual fee of $4,000. For the period ended
August 31, 1996 the SRF Funds incurred the following legal charges which were
earned by a law firm, a partner of which serves as Secretary of the Company:
<TABLE>
<S> <C>
Asset Allocation Fund..................................................... $ 18,146
Blue Chip Fund............................................................ 23,661
Bond Fund................................................................. 5,378
</TABLE>
Certain officers of the Company are "affiliated persons" (as defined in the
Act) of BISYS.
NOTE 4 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the SRF Funds for the period ended August 31, 1996
are summarized below:
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP BOND
---------- --------- --------
<S> <C> <C> <C>
Shares subscribed............................... 489,708 1,067,035 118,393
Shares issued to shareholders in reinvestment of
dividends..................................... 123,605 68,172 89,885
Shares redeemed................................. (834,031) (682,094) (572,283)
-------- -------- --------
Net increase (decrease)......................... (220,718) 453,113 (364,005)
======== ======== ========
</TABLE>
FS-211
<PAGE> 497
Transactions in shares of the SRF Funds for the year ended February 29, 1996
are summarized below:
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP BOND
---------- ---------- ----------
<S> <C> <C> <C>
Shares subscribed............................ 977,718 1,773,483 300,687
Shares issued to shareholders in reinvestment
of dividends............................... 1,016,950 862,906 275,066
Shares redeemed.............................. (2,171,336) (1,575,254) (1,570,679)
---------- ---------- ----------
Net increase (decrease)...................... (176,668) 1,061,135 (994,926)
========== ========== ==========
</TABLE>
NOTE 5 -- FEDERAL INCOME TAX STATUS
At February 29, 1996, the Bond Fund had $1,966,470 of capital loss
carryovers which may be used to offset future realized gains on securities
transactions to the extent provided for in the Code. Any such unused capital
loss carryovers will expire as follows:
2001..................................................................$1,996,470
It is anticipated that no distributions of future net realized gains on
investments will be made to shareholders until the capital loss carryovers are
offset by net realized gains or expire.
FS-212
<PAGE> 498
SEAFIRST RETIREMENT FUNDS -- ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD
PERIOD DEC. 6, JAN. 1,
ENDED YEAR YEAR 1993 1993
AUG. 31, ENDED ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31,
1996 FEB. 29, FEB. 28, FEB. 28, DEC. 5, ------------------------------
(UNAUDITED) 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1)
------------ -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period............. $ 14.96 $ 13.48 $ 13.94 $ 13.86 $ 12.99 $ 12.75 $11.30 $11.47
------------ -------- -------- -------- -------- -------- ------- -------
Income from
Operations:
Net investment
income........... 0.24 0.47 0.46 0.05 0.43 0.46 0.56 0.62
Net realized and
unrealized gain
(loss) on
investments...... 0.03 2.49 0.12 0.08 0.87 0.24 1.45 (0.17 )
------------ -------- -------- -------- -------- -------- ------- -------
Total income from
investment
operations......... 0.27 2.96 0.58 0.13 1.30 0.70 2.01 0.45
------------ -------- -------- -------- -------- -------- ------- -------
Less Dividends and
Distributions:
Dividends to
shareholders from
net investment
income........... (0.24) (0.47) (0.46) (0.05) (0.43) (0.46) (0.56 ) (0.62 )
Distributions to
shareholders from
capital gains.... -- (1.01) (0.58) -- -- -- -- --
------------ -------- -------- -------- -------- -------- ------- -------
Total dividends and
distributions...... (0.24) (1.48) (1.04) (0.05) (0.43) (0.46) (0.56 ) (0.62 )
------------ -------- -------- -------- -------- -------- ------- -------
Net asset value per
share, end of
period............. $ 14.99 $ 14.96 $ 13.48 $ 13.94 $ 13.86 $ 12.99 $12.75 $11.30
=========== ======== ======== ======== ======== ======== ======== ========
Total Return........ 1.70%** 22.44% 4.49% 0.94%** 10.15%** 5.62% 18.11 % 4.21 %
Ratios/Supplemental
Data:
Net assets, end of
period (000)..... $155,473 $158,485 $145,132 $156,955 $149,719 $106,822 $47,825 $23,608
Ratio of expenses
to average net
assets........... 0.95%*+ 0.94%* 0.78%* 0.95%+* 0.95%+ 0.95% 0.95 % 0.58 %
Ratio of net
investment income
to average net
assets........... 2.90%*+ 3.19%* 3.40%* 2.64%+* 3.47%+ 3.68% 4.72 % 5.58 %
Portfolio turnover
rate............... NA NA NA NA 79% 171% 124 % 121 %
</TABLE>
- ---------------
* Reflects the Fund's proportionate share of the corresponding Portfolio's
expenses and fee waivers and expense reimbursements by the Portfolio's
Investment Adviser and Administrator and the Fund's Administrator and
Distributor. Such fee waivers and expense reimbursements 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 0.46%, 0.48%, 0.60%, and
0.69% (annualized) for the periods ended August 31, 1996, February 29, 1996,
February 28, 1995 and February 28, 1994, respectively.
** For the period indicated, not annualized.
+ Annualized.
(1) Represents activity of the Fund prior to its reorganization from the Asset
Allocation Fund of Collective Investment Trust for Seafirst Retirement
Accounts. Since the operation and organization of the Fund was changed upon
reorganization, this activity may not be reflective of activity after the
reorganization.
NA -- Not applicable.
See Notes to Financial Statements.
FS-213
<PAGE> 499
SEAFIRST RETIREMENT FUNDS -- BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD
PERIOD DEC. 6, JAN. 1,
ENDED YEAR YEAR 1993 1993
AUG. 31, ENDED ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31,
1996 FEB. 29, FEB. 28, FEB. 28, DEC. 5, ------------------------------
(UNAUDITED) 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1)
----------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period.............. $ 21.09 $ 17.35 $ 17.75 $ 17.34 $ 15.65 $ 15.17 $12.68 $13.35
--------- -------- -------- -------- -------- -------- ------ ------
Income from
Operations:
Net investment
income............ 0.15 0.31 0.28 0.05 0.29 0.30 0.33 0.44
Net realized and
unrealized gain
(loss) on
investments....... 0.52 5.35 0.88 0.37 1.69 0.48 2.49 (0.67 )
--------- -------- -------- -------- -------- -------- ------ ------
Total income from
investment
operations.......... 0.67 5.66 1.16 0.42 1.98 0.78 2.82 (0.23 )
--------- -------- -------- -------- -------- -------- ------ ------
Less Dividends and
Distributions:
Dividends to
shareholders from
net investment
income............ (0.15) (0.31) (0.26) (0.01) (0.29) (0.30) (0.33 ) (0.44 )
Distributions to
shareholders from
capital gains..... -- (1.61) (1.30) -- -- -- -- --
--------- -------- -------- -------- -------- -------- ------ ------
Total dividends and
distributions....... (0.15) (1.92) (1.56) (0.01) (0.29) (0.30) (0.33 ) (0.44 )
--------- -------- -------- -------- -------- -------- ------ ------
Net asset value per
share, end of
period.............. 21.61 $ 21.09 $ 17.35 $ 17.75 $ 17.34 $ 15.65 $15.17 $12.68
========= ======== ======== ======== ======== ======== ====== ======
Total Return......... 3.02%** 33.37% 6.95% 2.42%** 12.74%** 5.16% 22.52 % -1.79 %
Ratios/Supplemental
Data:
Net assets, end of
period (000)...... $ 221,082 $206,220 $151,267 $132,916 $123,257 $ 96,206 $49,838 $24,727
Ratio of expenses to
average net
assets............ 0.95%*+ 0.95%* 0.82%* 0.95%+* 0.95%+ 0.95% 0.95 % 0.57 %
Ratio of net
investment income
to average net
assets............ 1.45%*+ 1.53%* 1.64%* 1.28%+* 1.91%+ 2.08% 2.37 % 3.40 %
Portfolio turnover
rate................ NA NA NA NA 4% 27% 16 % 22 %
</TABLE>
- ---------------
* Reflects the Fund's proportionate share of the corresponding Portfolio's
expenses and fee waivers and expense reimbursements by the Portfolio's
Investment Adviser and Administrator and the Fund's Administrator and
Distributor. Such fee waivers and expense reimbursements 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 0.62%, 0.59%, 0.80%, and
0.93% (annualized) for the periods ended August 31, 1996, February 29, 1996,
February 28, 1995 and February 28, 1994, respectively.
** For the period indicated, not annualized.
+ Annualized.
(1) Represents activity of the Fund prior to its reorganization from the Blue
Chip Fund of Collective Investment Trust for Seafirst Retirement Accounts.
Since the operation and organization of the Fund was changed upon
reorganization, this activity may not be reflective of activity after the
reorganization.
NA -- Not applicable.
See Notes to Financial Statements.
FS-214
<PAGE> 500
SEAFIRST RETIREMENT FUNDS -- BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD
PERIOD DEC. 6, JAN. 1,
ENDED YEAR YEAR 1993 1993
AUG. 31, ENDED ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31,
1996 FEB. 29, FEB. 28, FEB. 28, DEC. 5, -----------------------------
(UNAUDITED) 1996 1995 1994 1993(1) 1992(1) 1991(1) 1990(1)
----------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period.................. $ 10.87 $ 10.48 $ 11.00 $ 11.14 $ 10.99 $11.01 $10.40 $10.30
------- -------- -------- -------- -------- ------ ------ ------
Income from Investment
Operations:
Net investment income... 0.29 0.64 0.61 0.12 0.58 0.67 0.72 0.82
Net realized and
unrealized gain (loss)
on securities......... (0.31) 0.39 (0.46) (0.14) 0.15 (0.02) 0.61 0.10
------- -------- -------- -------- -------- ------ ------ ------
Total income (loss) from
investment operations... (0.02) 1.03 0.15 (0.02) 0.73 0.65 1.33 0.92
------- -------- -------- -------- -------- ------ ------ ------
Less Dividends and
Distributions:
Dividends to
shareholders from net
investment income..... (0.29) (0.64) (0.61) (0.12) (0.58) (0.67) (0.72) (0.82)
Distributions to
shareholders from
capital gains........... -- -- (0.06) -- -- -- -- --
Total dividends and
distributions........... (0.29) (0.64) (0.67) (0.12) (0.58) (0.67) (0.72) (0.82)
------- -------- -------- -------- -------- ------ ------ ------
Net asset value per
share, end of period.... $ 10.56 $ 10.87 $ 10.48 $ 11.00 $ 11.14 $10.99 $11.01 $10.40
======= ======== ======== ======== ======== ====== ====== ======
Total Return............. (0.24%)** 9.90% 1.57% (0.23)%** 6.80%** 6.04 % 13.28 % 9.43 %
Ratios/Supplemental Data:
Net assets, end of
period (000).......... $41,888 $ 47,062 $ 55,791 $ 76,773 $ 82,970 $73,826 $53,469 $9,445
Ratio of expenses to
average net assets.... 0.95%*+ 0.95%* 0.83%* 0.95%+* 0.95%+ 0.95 % 0.66 % 0.00 %
Ratio of net investment
income to average net
assets................ 5.14%*+ 5.74%* 5.64%* 4.38%+* 5.60%+ 6.15 % 7.13 % 8.31 %
Portfolio turnover
rate.................... NA NA NA NA 95% 154 % 197 % 113 %
</TABLE>
- ---------------
* Reflects the Fund's proportionate share of the corresponding Portfolio's
expenses and fee waivers and expense reimbursements by the Portfolio's
Investment Adviser and Administrator and the Fund's Administrator and
Distributor. Such fee waivers and expense reimbursements 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 0.49%, 0.61%, 0.58% and
0.84%(annualized) for the periods ended August 31, 1996, February 29, 1996,
February 28, 1995 and February 28, 1994, respectively.
** For the period indicated, not annualized.
+ Annualized.
(1) Represents activity of the Fund prior to its reorganization from the Bond
Fund of Collective Investment Trust for Seafirst Retirement Accounts. Since
the operation and organization of the Fund was changed upon reorganization,
this activity may not be reflective of activity after the reorganization.
NA -- Not applicable.
See Notes to Financial Statements.
FS-215
<PAGE> 501
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE -- 0.9%
Boeing Co. ......................................................... 17,500 $ 1,583,750
------------
AIRLINES -- 0.2%
AMR Corp. .......................................................... 4,500 369,000
------------
ALUMINUM -- 0.3%
Aluminum Co of America.............................................. 9,400 583,975
------------
AUTOMOBILES -- 0.9%
Ford Motor.......................................................... 10,000 335,000
General Motors Corp. ............................................... 28,200 1,402,950
------------
1,737,950
------------
AUTOMOBILE PARTS -- 1.0%
Cooper Tire & Rubber................................................ 16,500 321,750
------------
BANKS -- 3.6%
BankOne Corp. ...................................................... 47,000 1,803,625
Chase Manhattan Corp. .............................................. 19,800 1,472,625
CitiCorp............................................................ 16,700 1,390,275
Wells Fargo Company................................................. 7,533 1,873,834
------------
6,540,359
------------
BEVERAGES -- ALCOHOLIC -- 0.6%
Anheuser-Busch Companies............................................ 14,900 1,128,675
------------
BEVERAGES -- SOFT DRINKS -- 1.7%
Coca-Cola Co. ...................................................... 38,700 1,935,000
Pepsico............................................................. 37,400 1,075,250
------------
3,010,250
------------
CHEMICALS -- 2.1%
Corning, Inc. ...................................................... 12,400 461,900
Dow Chemical Co. ................................................... 10,600 845,350
E.I. Du Pont De Nemours & Co. ...................................... 13,000 1,067,625
Monsanto Corp. ..................................................... 46,000 1,477,750
------------
3,852,625
------------
COMMERCIAL SERVICES -- 0.1%
Dun & Bradstreet Corp. ............................................. 3,300 190,163
------------
COMPUTER SOFTWARE -- 2.0%
Automatic Data Processing Inc. ..................................... 16,800 699,300
Microsoft Corp. .................................................... 18,400 2,254,000
Silicon Graphics. .................................................. 29,700 690,525
------------
3,643,825
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-216
<PAGE> 502
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMPUTER HARDWARE -- 2.8%
Cisco Systems....................................................... 24,600 $ 1,297,650
Hewlett Packard Co. ................................................ 24,000 1,050,000
IBM................................................................. 14,500 1,658,438
Seagate Technology.................................................. 23,700 1,137,600
------------
5,143,688
------------
ELECTRICAL PRODUCTS -- 2.8%
Emerson Electric Co. ............................................... 15,900 1,331,625
General Electric Co. ............................................... 44,700 3,715,688
------------
5,047,313
------------
FINANCIAL SERVICES -- 2.7%
American Express.................................................... 44,500 1,946,875
Dean Witter Discover Co. ........................................... 32,800 1,640,000
Household International, Inc. ...................................... 16,800 1,331,400
------------
4,918,275
------------
FOOD -- 1.4%
Conagra Inc. ....................................................... 20,000 842,500
Ralston Purina Co. ................................................. 15,300 956,250
Sara Lee Corp. ..................................................... 23,000 724,500
------------
2,523,250
------------
HEALTHCARE PRODUCTS -- 0.8%
Baxter International................................................ 21,200 946,050
Medtronic Inc. ..................................................... 8,100 421,200
------------
1,367,250
------------
HOUSEHOLD/GENERAL PRODUCTS -- 1.9%
Colgate-Palmolive Co. .............................................. 4,600 373,750
Gillette Co. ....................................................... 14,800 943,500
Newell Co. ......................................................... 18,000 560,250
Proctor & Gamble.................................................... 18,700 1,661,963
------------
3,539,463
------------
INSURANCE -- LIFE -- 0.5%
Providian Corp. .................................................... 21,800 901,975
------------
INSURANCE -- PROPERTY AND CASUALTY -- 1.0%
American Intl Group, Inc. .......................................... 12,750 1,211,250
Chubb Corp. ........................................................ 13,800 612,375
------------
1,823,625
------------
LEISURE -- 0.7%
Disney Walt Co. .................................................... 15,497 883,329
Hilton Hotels Corp.................................................. 3,900 416,813
------------
1,300,142
------------
MACHINERY -- 1.0%
General Signal Corp. ............................................... 17,500 702,188
Illinois Tool Works Inc. ........................................... 17,100 1,182,038
------------
1,884,226
------------
MANUFACTURING -- BUILDING MATERIALS -- 0.4%
Armstrong World Ind. ............................................... 10,200 631,125
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-217
<PAGE> 503
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
MEDIA, PUBLISHING -- 0.8%
Gannett, Inc. ...................................................... 4,100 $ 274,700
McGraw Hill Companies............................................... 9,400 385,400
Time Warner, Inc. .................................................. 9,600 320,400
Tribune Co. ........................................................ 6,300 452,813
------------
1,433,313
------------
MEDIA -- BROADCASTING -- 0.1%
TeleCommunications, Inc. ........................................... 8,300 123,463
------------
METALS -- 0.3%
Newmont Mining Corp. ............................................... 10,500 555,188
------------
MULTI INDUSTRIES -- 3.0%
Alco Standard Corp. ................................................ 36,900 1,609,763
Tenneco Inc. ....................................................... 18,800 935,300
TRW Inc. ........................................................... 15,400 1,424,500
Tyco International.................................................. 34,600 1,461,850
------------
5,431,413
------------
OIL & GAS INTERNATIONAL -- 2.3%
Chevron Corp. ...................................................... 12,300 724,163
Exxon Corp. ........................................................ 19,600 1,594,950
Mobil Oil........................................................... 9,200 1,037,300
Texaco Inc. ........................................................ 9,000 798,750
------------
4,155,163
------------
OIL & GAS PRODUCTION/SERVICES -- 2.3%
Coastal Corp. ...................................................... 20,100 796,463
Panenergy Corp. .................................................... 20,500 679,063
Halliburton Co. .................................................... 12,700 668,338
Schlumberger Ltd. .................................................. 6,900 582,188
Williams Co. ....................................................... 17,700 882,788
USX Marathon Group.................................................. 24,100 503,088
------------
4,111,928
------------
PAPER PRODUCTS -- 1.2%
Champion International.............................................. 27,100 1,165,300
International Paper Co. ............................................ 11,300 452,000
Willamette Industries............................................... 8,200 506,350
------------
2,123,650
------------
PHARMACEUTICALS -- 5.4%
Abbot Laboratories.................................................. 39,000 1,759,875
American Home Products.............................................. 21,000 1,244,250
Amgen Inc. ......................................................... 10,000 582,500
Bristol-Meyers...................................................... 15,800 1,386,450
Johnson & Johnson................................................... 8,000 394,000
Lilly Eli & Co. .................................................... 19,800 1,133,550
Merck & Co., Inc. .................................................. 18,200 1,194,375
Pfizer, Inc. ....................................................... 16,600 1,178,600
Schering Plough Corp. .............................................. 10,400 581,100
Warner Lambert Co. ................................................. 5,400 321,300
------------
9,776,000
------------
PHOTOGRAPHY -- 0.3%
Eastman Kodak Co. .................................................. 6,900 500,250
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-218
<PAGE> 504
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
RAILROAD -- 0.8%
Burlington Northern Santa Fe........................................ 8,400 $ 672,000
Union Pacific Corp. ................................................ 9,600 699,600
------------
1,371,600
------------
RETAIL -- 3.3%
Home Depot.......................................................... 28,300 1,503,438
May Dept Stores..................................................... 24,000 1,092,000
Nordstrom, Inc. .................................................... 18,100 705,900
Price/Costco Inc. .................................................. 29,500 586,313
Wal-Mart Stores, Inc. .............................................. 80,400 2,130,600
------------
6,018,251
------------
SEMICONDUCTORS -- 2.4%
Intel Corp. ........................................................ 36,000 2,873,250
Motorola, Inc. ..................................................... 12,700 677,863
National Semiconductor.............................................. 44,700 821,363
------------
4,372,476
------------
TELECOMMUNICATIONS EQUIPMENT -- 0.5%
3 Com Corp.......................................................... 18,000 841,500
------------
TELECOMMUNICATIONS SERVICES -- 3.1%
Airtouch Communications............................................. 13,000 357,500
AT&T................................................................ 25,900 1,359,750
GTE................................................................. 36,100 1,421,438
MCI Communications Corp. ........................................... 45,100 1,133,138
Pacific Telesis Group............................................... 13,700 443,524
Worldcom Inc. ...................................................... 44,200 928,200
------------
5,643,550
------------
TOBACCO -- 1.6%
Philip Morris Cos., Inc. ........................................... 20,900 1,875,775
UST, Inc. .......................................................... 33,400 1,002,000
------------
2,877,775
------------
TOYS -- 0.1%
Mattel, Inc. ....................................................... 7,000 184,625
------------
UTILITIES/ELECTRIC -- 0.8%
Central & South West Corp. ......................................... 24,200 638,275
Duke Power Co. ..................................................... 15,900 743,325
------------
1,381,600
------------
UTILITIES -- GAS -- 0.8%
Noram Energy........................................................ 65,700 960,863
Pacific Enterprises................................................. 13,800 412,275
------------
1,373,138
------------
Total Common Stocks -- 57.2%
(Cost $95,101,290).................................................. 104,317,537
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-219
<PAGE> 505
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE)
- ------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
U.S. TREASURY BONDS -- 7.5%
U.S. Treasury Bonds............................. 10.38% 11/15/12 $ 8,800 $ 10,954,680
U.S. Treasury Bonds............................. 8.13% 08/15/21 2,500 2,739,675
------------
13,694,355
------------
U.S. TREASURY NOTES -- 2.0%
U.S. Treasury Notes............................. 5.00% 02/15/99 2,250 2,176,560
U.S. Treasury Notes............................. 6.63% 06/30/01 1,500 1,493,085
------------
3,669,645
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS -- 9.5%
(Cost $18,085,133).............................. 17,364,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 13.4%
*Federal Home Loan Mortgage Corporation
Pool #G10304.................................. 6.50% 04/01/09 887 851,594
*Federal Home Loan Mortgage Corporation
Pool #E60891.................................. 6.50% 07/01/10 3,066 2,942,527
*Federal Home Loan Mortgage Corporation
Pool #297505.................................. 8.00% 06/01/17 12 12,216
*Federal Home Loan Mortgage Corporation
Pool #533301.................................. 10.50% 04/01/19 32 35,199
*Federal Home Loan Mortgage Corporation
Pool #544066.................................. 8.00% 12/01/19 13 13,416
FNCI Pool #325602............................... 6.50% 10/01/10 578 554,414
FNCI Pool #329451............................... 6.50% 03/01/11 992 951,578
FNCI Pool #338029............................... 6.50% 03/01/11 421 403,518
FNCI Pool #338572............................... 6.50% 03/01/11 673 644,942
FNCI Pool #340676............................... 6.50% 03/01/11 999 958,542
FNCI Pool #340686............................... 6.50% 03/01/11 1,270 1,218,180
*Government National Mortgage Association
Pool #146301.................................. 10.00% 02/15/16 90 97,715
GNSF Pool #318567............................... 8.00% 01/15/22 15 15,442
GNSF Pool #317275............................... 8.00% 02/15/22 16 15,713
GNSF Pool #321799............................... 8.00% 04/15/22 487 487,542
GNSF Pool #323085............................... 8.00% 05/15/22 976 976,437
GNSF Pool #342065............................... 8.00% 11/15/22 434 434,379
FGLMC Pool #D66935.............................. 7.50% 01/01/26 409 399,871
FGLMC Pool #D66969.............................. 7.50% 01/01/26 876 856,854
FGLMC Pool #D68671.............................. 7.50% 02/01/26 599 585,388
FGLMC Pool #D69671.............................. 7.50% 03/01/26 33 32,571
FGLMC Pool #D70402.............................. 7.50% 03/01/26 107 104,693
FGLMC Pool #D69839.............................. 7.50% 04/01/26 540 528,441
FGLMC Pool #D69930.............................. 7.50% 04/01/26 468 457,378
FGLMC Pool #D70086.............................. 7.50% 04/01/26 577 564,455
FGLMC Pool #D71116.............................. 7.50% 05/01/26 98 95,773
FGLMC Pool #D71404.............................. 7.50% 05/01/26 1,270 1,242,049
FGLMC TBA....................................... 8.00% 08/01/26 9,000 9,056,250
------------
Total U.S. Government Agency Obligations
(Cost $24,942,940).............................. 24,537,077
------------
TAXABLE MUNICIPAL BONDS -- 0.4%
ILLINOIS -- 0.4%
Cook County, General Obligation Bond............ 5.00% 11/15/23 800 685,000
------------
EURO BONDS -- 1.4%
Republic of Italy Zero Coupon................... 0.00% 01/10/01 3,500 2,559,374
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-220
<PAGE> 506
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE)
- ------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 4.2%
AT&T**.......................................... 5.32% 09/10/96 $ 3,800 $ 3,796,069
Nestle Capital Corp**........................... 5.32% 09/10/96 3,800 3,798,344
------------
7,594,413
------------
CORPORATE OBLIGATIONS -- 14.7%
CORPORATE BONDS -- 1.9%
Lehman Brothers................................. 5.75% 11/15/98 1,000 975,000
Hertz Corporation............................... 7.00% 07/15/03 2,500 2,421,875
------------
3,396,875
------------
MEDIUM TERM NOTES -- 12.8%
Morgan Stanley Group MTN........................ 5.63% 03/01/99 1,500 1,456,875
Province of Quebec MTN.......................... 7.98% 04/01/99 3,000 3,075,000
General Motors Accept Corp...................... 7.38% 05/26/99 2,000 2,022,500
Bank of Nova Scotia............................. 9.00% 10/01/99 1,400 1,477,000
GMAC............................................ 8.40% 10/15/99 1,345 1,398,800
Ford Motor...................................... 8.38% 01/15/00 3,000 3,112,500
International Lease Finance..................... 5.71% 02/01/00 1,600 1,536,000
Chrysler Financial Corp......................... 5.63% 02/16/01 2,500 2,346,875
NationsBank Credit Card Master.................. 6.45% 04/15/03 3,500 3,455,168
The Money Storetrust 1996-B..................... 7.38% 05/15/17 3,500 3,494,112
------------
23,374,830
------------
Total Corporate Obligations
(Cost $38,264,533) 26,771,705
------------
TOTAL INVESTMENTS -- 100.7%
(Cost $176,393,070)............................. 183,829,106
Other Liabilities in Excess of
Assets -- (0.7%)................................ (1,317,231)
------------
NET ASSETS -- 100%............................... $182,511,875
============
</TABLE>
- ---------------
* Mortgage-backed pass-through obligations
** Discount Security
See Notes to Financial Statements.
FS-221
<PAGE> 507
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE -- 3.6%
Lockheed Martin Corp. .............................................. 43,100 $ 3,625,788
Rockwell International.............................................. 60,900 3,166,800
United Technologies Corp............................................ 46,500 5,242,875
------------
12,035,463
------------
AIRLINES -- 0.4%
AMR Corp. .......................................................... 15,900 1,303,800
------------
APPAREL -- 0.9%
Nike Inc. .......................................................... 26,700 2,883,600
------------
AUTOMOBILES -- 2.0%
Chrysler Corp. ..................................................... 115,800 3,372,675
Ford ............................................................... 103,700 3,473,950
------------
6,846,625
------------
AUTOMOBILE PARTS -- 0.5%
Goodyear ........................................................... 38,200 1,742,875
------------
BANKS -- 7.2%
Bank of Boston Corp. ............................................... 89,600 4,726,400
Citicorp ........................................................... 82,200 6,843,150
Comerica ........................................................... 77,200 3,763,500
First Union Corp. .................................................. 73,200 4,675,650
NationsBank Corp. .................................................. 52,200 4,443,525
------------
24,452,225
------------
BEVERAGES -- SOFT DRINKS -- 3.8%
Coca-Cola Co. ...................................................... 178,600 8,930,000
Pepsico ............................................................ 133,600 3,841,000
------------
12,771,000
------------
CHEMICALS -- 3.5%
E.I. Du Pont de Nemours ............................................ 70,200 5,765,175
Monsanto ........................................................... 146,400 4,703,100
Morton International ............................................... 32,900 1,221,413
------------
11,689,688
------------
COMPUTER HARDWARE -- 2.1%
Compaq Computer Corp. .............................................. 50,700 2,870,888
Sun Microsystems Inc. .............................................. 36,100 1,962,938
Xerox Corporation .................................................. 40,900 2,244,388
------------
7,078,214
------------
COMPUTER SOFTWARE -- 5.2%
Computer Associates ................................................ 49,350 2,590,875
Cisco Systems ...................................................... 90,500 4,773,875
Cabletron Systems .................................................. 20,700 1,262,700
Microsoft Corp. .................................................... 47,800 5,855,500
Oracle ............................................................. 90,450 3,188,363
------------
17,671,313
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-222
<PAGE> 508
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COSMETICS/TOILETRIES -- 1.3%
Avon Products ...................................................... 91,900 $ 4,399,713
------------
ELECTRICAL EQUIPMENT -- 2.5%
General Electric Co. ............................................... 102,100 8,487,063
------------
FINANCIAL SERVICES -- 2.9%
Merrill Lynch ...................................................... 56,500 3,460,625
Morgan (J.P.) & Co., Inc. .......................................... 37,300 3,268,413
Morgan Stanley ..................................................... 65,800 3,141,950
------------
9,870,988
------------
FOODS -- 2.5%
Conagra Inc. ....................................................... 71,800 3,024,575
Hershey Foods Corp. ................................................ 30,500 2,657,313
Sara Lee Corp. ..................................................... 92,100 2,901,150
------------
8,583,038
------------
FOREST PRODUCTS AND PAPER -- 1.0%
Bemis Co. .......................................................... 39,400 1,177,075
Mead Inc. .......................................................... 5,300 211,825
Temple Inland Inc. ................................................. 40,100 2,068,813
------------
3,457,713
------------
HOUSEHOLD PRODUCTS -- GENERAL -- 2.1%
Clorox ............................................................. 45,400 4,250,575
Proctor & Gamble ................................................... 33,000 2,932,875
------------
7,183,450
------------
INSURANCE -- 3.2%
Aetna Inc. ......................................................... 8,422 556,905
Allstate ........................................................... 67,197 2,998,666
American General ................................................... 92,300 3,368,950
Cigna .............................................................. 23,100 2,682,488
General re Corp. ................................................... 8,500 1,231,438
------------
10,838,447
------------
LEISURE -- 1.4%
Walt Disney Co. .................................................... 66,178 3,772,146
King World Productions Inc. ........................................ 27,600 972,900
------------
4,745,046
------------
MACHINERY & EQUIPMENT -- 1.1%
Caterpillar Inc. ................................................... 27,400 1,887,175
Ingersoll Rand Co. ................................................. 39,500 1,688,625
------------
3,575,800
------------
MANUFACTURING -- 0.5%
Armstrong World Industries ......................................... 24,700 1,528,313
------------
MEDIA -- PUBLISHING -- 1.1%
New York Times Co. ................................................. 66,500 2,078,125
Times Mirror ....................................................... 35,700 1,548,488
------------
3,626,613
------------
MEDICAL -- HOSPITAL MANAGEMENT SERVICES -- 0.8%
Columbia Healthcare Corp. (HCA) .................................... 50,400 2,841,300
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-223
<PAGE> 509
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
METALS -- 1.1%
Phelps Dodge ....................................................... 45,800 $ 2,770,900
USX -- Steel ....................................................... 36,000 775,500
------------
3,546,400
------------
MULTI-INDUSTRY -- 2.1%
Honeywell Inc. ..................................................... 74,000 4,301,250
Textron ............................................................ 33,400 2,851,525
------------
7,152,775
------------
OIL/GAS -- DOMESTIC -- 2.1%
Atlantic Richfield Co. ............................................. 20,300 2,370,025
Phillips Petroleum Co. ............................................. 59,000 2,389,500
Unocal Corp. ....................................................... 64,700 2,215,975
------------
6,975,500
------------
OIL/GAS -- INTERNATIONAL -- 5.6%
Exxon Corp. ........................................................ 67,200 5,468,400
Mobil Corp. ........................................................ 42,000 4,735,500
Royal Dutch Pete Co. ............................................... 23,800 3,555,125
Texaco Inc. ........................................................ 57,100 5,067,625
------------
18,826,650
------------
OIL/GAS -- PRODUCTION SERVICES -- 1.0%
Tidewater .......................................................... 91,500 3,511,313
------------
PHARMACEUTICALS -- 9.1%
Abbott Labs ........................................................ 83,000 3,745,375
Bristol-Meyers ..................................................... 49,200 4,317,300
Johnson & Johnson .................................................. 135,700 6,683,225
Merck & Co. Inc. ................................................... 125,700 8,249,063
Pfizer Inc. ........................................................ 67,300 4,778,300
Schering Plough Corp. .............................................. 55,400 3,095,475
------------
30,868,738
------------
PHOTOGRAPHY -- 0.8%
Eastman Kodak ...................................................... 35,400 2,566,500
------------
RAILROAD -- 1.1%
Norfolk Southern Corp. ............................................. 46,300 3,860,263
------------
RESTAURANTS/LODGING -- 1.2%
Hospitality Franchise .............................................. 25,200 1,508,850
Marriott International Inc. ........................................ 47,800 2,623,025
------------
4,131,875
------------
RETAIL -- 4.9%
American Stores Co. ................................................ 98,500 4,050,813
Dayton Hudson ...................................................... 75,900 2,618,550
Gap Inc. ........................................................... 135,000 4,725,000
Home Depot Inc. .................................................... 46,100 2,449,063
TJX Cos. Inc. ...................................................... 82,200 2,630,400
------------
16,473,826
------------
SEMICONDUCTORS -- 2.2%
Intel Corp. ........................................................ 94,800 7,566,225
------------
TELECOMMUNICATIONS EQUIPMENT -- 0.8%
Harris Corp. ....................................................... 42,600 2,619,900
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-224
<PAGE> 510
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
TOBACCO -- 1.8%
Philip Morris Inc. ................................................. 69,500 $ 6,237,625
------------
TOYS -- 0.5%
Hasbro Inc. ........................................................ 42,300 1,554,525
------------
UTILITIES -- ELECTRIC -- 3.1%
Edison International ............................................... 232,200 4,034,475
FPL Group Inc. ..................................................... 51,400 2,274,450
General Public Utilities ........................................... 132,400 4,170,600
------------
10,479,525
------------
UTILITIES -- GAS -- 0.9%
Pacific Enterprises ................................................ 97,700 2,918,788
------------
UTILITIES -- TELECOMMUNICATIONS -- 6.8%
Ameritech Corp. .................................................... 68,300 3,525,988
AT&T ............................................................... 70,700 3,711,750
Bellsouth Corp. .................................................... 125,200 4,538,500
GTE Corp. .......................................................... 79,600 3,134,250
Nynex Corp. ........................................................ 62,300 2,686,687
Sprint Corp. ....................................................... 136,300 5,537,188
------------
23,134,363
------------
TOTAL COMMON STOCKS -- 94.4%
(Cost $320,232,223) ................................................ 320,037,067
------------
PREFERRED STOCK -- 0.1%
Aetna Services...................................................... 2,808 195,156
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-225
<PAGE> 511
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 5.4%
U.S. Treasury Bill.............................. 5.06%* 09/19/96 $ 368 $ 367,017
U.S. Treasury Bill.............................. 5.15%* 10/17/96 22 21,848
U.S. Treasury Bill.............................. 5.03%* 10/24/96 2,196 2,179,494
U.S. Treasury Bill.............................. 4.99%* 10/24/96 2,730 2,709,481
U.S. Treasury Bill.............................. 4.97%* 10/24/96 1,213 1,203,883
U.S. Treasury Bill.............................. 5.06%* 10/31/96 734 727,654
U.S. Treasury Bill.............................. 5.00%* 11/07/96 493 488,247
U.S. Treasury Bill.............................. 5.10%* 11/07/96 663 656,608
U.S. Treasury Bill.............................. 5.02%* 11/07/96 940 930,937
U.S. Treasury Bill.............................. 5.04%* 11/14/96 687 679,676
U.S. Treasury Bill.............................. 4.97%* 11/14/96 434 429,373
U.S. Treasury Bill.............................. 4.98%* 11/14/96 687 679,676
U.S. Treasury Bill.............................. 4.97%* 11/14/96 947 936,904
U.S. Treasury Bill.............................. 5.02%* 11/14/96 261 258,217
U.S. Treasury Bill.............................. 5.03%* 11/14/96 108 106,849
U.S. Treasury Bill.............................. 5.07%* 11/14/96 5,677 5,616,476
U.S. Treasury Bill.............................. 5.07%* 11/14/96 337 333,407
------------
18,325,745
------------
Total U.S. Government Obligations
(Cost $18,293,0401)............................. 18,325,745
------------
TOTAL INVESTMENT
(COST $298,146,861) -- 99.8%.................... 338,557,968
Other assets in excess of liabilities -- 0.2%.... 593,428
------------
NET ASSETS -- 100%............................... $339,151,396
============
</TABLE>
- ---------------
* Effective Yield
See Notes to Financial Statements.
FS-226
<PAGE> 512
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES -- CREDIT CARDS -- 5.7%
Standard Credit Card Master Tr.................. 7.85% 02/07/02 $ 2,500 $ 2,577,250
NationsBank Credit Card Master.................. 6.45% 04/15/03 2,700 2,665,415
------------
5,242,665
------------
ASSET BACKED SECURITIES -- HOME EQUITY LOANS -- 1.1%
The Money Storetrust 1996 -- B.................. 7.38% 03/15/17 1,000 998,318
------------
COMMERCIAL PAPER -- 2.4%
Nestle Capital Corp............................. 5.23% 09/06/96 2,200 2,199,041
------------
CORPORATE OBLIGATIONS -- 8.6%
General Motors.................................. 8.40% 10/15/99 1,000 1,040,000
Household International BV...................... 5.25% 10/15/98 2,000 1,945,000
Texas Instruments Inc........................... 6.88% 07/15/00 2,500 2,484,375
Hertz Corporation............................... 7.00% 07/15/03 2,500 2,421,875
------------
7,891,250
------------
EURO BONDS -- 2.6%
Republic of Italy Zero Coupon................... 0.00% 01/10/01 3,300 2,413,177
------------
MEDIUM TERM NOTES -- 19.0%
International Lease Finance MT.................. 6.27% 02/10/99 2,500 2,471,875
Sears Roebuck Co................................ 6.58% 06/15/00 2,000 1,965,000
General Motors Accept Corp...................... 7.38% 05/26/99 2,000 2,022,500
Caterpillar Finance MTN......................... 6.77% 02/01/99 2,000 1,995,000
Associates Corporation.......................... 6.35% 06/29/00 3,000 2,932,500
Morgan Stanley Group MTN........................ 6.25% 03/01/99 2,000 1,942,500
USL Capital Corp................................ 8.13% 02/15/00 4,000 4,115,000
------------
17,444,375
------------
U.S. GOVERNMENT AGENCY NOTES -- 4.4%
Federal Home Loan Mortgage Corp. Pool #303528... 6.00% 06/01/01 2,293 2,192,433
Federal Home Loan Mortgage Corp. Pool #131579... 6.50% 06/01/01 181 166,900
Federal Home Loan Mortgage Corp. Pool #286087... 8.00% 06/01/24 773 772,447
Government National Mortgage Assoc. Pool
#136688....................................... 10.00% 06/01/15 36 39,341
Government National Mortgage Assoc. Pool
#166744....................................... 10.00% 06/01/16 358 391,083
Government National Mortgage Assoc. Pool
#209480....................................... 10.00% 07/15/17 80 87,622
Government National Mortgage Assoc. Pool
#227082....................................... 10.00% 08/15/17 114 124,052
Federal Home Loan Mortgage Corp. Pool #160034... 8.50% 12/01/07 69 69,841
Federal Home Loan Mortgage Corp. Pool #549837... 8.00% 07/01/10 216 216,198
Federal Home Loan Mortgage Corp. Pool #284343... 8.00% 12/01/16 13 13,076
Federal Home Loan Mortgage Corp. Pool #297505... 8.00% 06/01/17 18 18,043
------------
4,091,036
------------
U.S TREASURY BONDS -- 5.0%
U.S. Treasury Bonds............................. 10.38% 11/15/09 3,800 4,578,848
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-227
<PAGE> 513
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES -- 49.3%
U.S. Treasury Notes............................. 5.12% 11/30/98 $ 6,900 $ 6,716,804
U.S. Treasury Notes............................. 6.38% 05/15/99 12,000 11,958,958
U.S. Treasury Notes............................. 6.88% 08/31/99 2,000 2,017,400
U.S. Treasury Notes............................. 7.75% 11/30/99 7,500 7,749,075
U.S. Treasury Notes............................. 7.75% 01/21/00 2,500 2,584,775
U.S. Treasury Notes............................. 5.63% 11/30/00 1,500 1,440,720
6.63% 06/30/01 13,000 12,940,070
------------
45,407,802
------------
TOTAL INVESTMENTS -- 98.1%
(Cost $91,680,545).............................. 90,266,512
Other Assets in Excess of Liabilities -- 1.9%.... 1,755,100
------------
NET ASSETS -- 100%............................... $ 92,021,612
============
</TABLE>
- ---------------
* Discount Security
See Notes to Financial Statements.
FS-228
<PAGE> 514
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET INVESTMENT
ALLOCATION BLUE CHIP GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value
(cost $176,393,070, $298,146,861
and $91,680,545 respectively)........ $183,829,106 $338,557,968 $90,266,512
Cash................................... 73,400 312 54,240
Receivable for investment securities
sold................................. 7,892,860 6,218,257 --
Contribution receivable................ 107,408 746,059 400,274
Dividends receivable................... 262,201..... 755,213 --
Interest receivable.................... 876,101 -- 1,343,225
Deferred organization costs and prepaid
expenses............................. 32,594 29,161 31,653
------------ ------------ -----------
Total assets............................. 193,073,670 346,306,970 92,095,904
------------ ------------ -----------
LIABILITIES:
Withdrawal payable..................... 15,811 75,952 13,753
Payable for investment securities
purchased 10,448,530 6,761,707 --
Advisor fees payable................... 30,460 153,367 16,510
Accrued audit fees..................... 20,068 13,990 17,705
Accrued legal fees..................... 10,992 19,951 4,363
Accrued accounting fees................ 10,161 14,060 3,410
Accrued custody fees................... 7,320 19,344 3,770
Administration fees payable............ 2,768 10,227 1,832
Other accrued expenses................. 15,685 86,976 12,949
------------ ------------ -----------
Total liabilities........................ 10,561,795 7,155,574 74,292
------------ ------------ -----------
NET ASSETS............................... $182,511,875 $339,151,396 $92,021,612
============ ============ ===========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-229
<PAGE> 515
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET INVESTMENT
ALLOCATION BLUE CHIP GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................. $ 2,535,308 $ 302,621 $2,274,374
Dividends................................ 1,020,836 3,372,255 --
----------- ----------- ----------
3,556,144 3,674,876 2,274,374
----------- ----------- ----------
EXPENSES:
Advisory fees............................ 507,536 1,156,068 167,152
Administration fees...................... 46,140 77,071 18,572
Fund accounting fees and expenses........ 66,782 93,231 24,759
Audit fees............................... 20,491 14,552 9,922
Custodian fees and expenses.............. 15,125 33,283 7,471
Legal fees............................... 12,307 24,867 4,107
Trustees fees............................ 9,695 15,048 3,523
Amortization of organization costs....... 6,982 6,970 6,982
Other operating expenses................. 5,449 6,200 3,120
----------- ----------- ----------
690,507 1,427,290 245,608
Less: Fee waivers and expense
reimbursements......................... (396,867) (484,008) (161,500)
----------- ----------- ----------
293,640 943,282 84,108
----------- ----------- ----------
Net Investment Income...................... 3,262,504 2,731,594 2,190,266
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on securities
transactions........................... 8,726,909 12,400,049 (643,236)
Net change in unrealized appreciation
(depreciation) on investments.......... (8,382,622) (5,968,861) (1,413,251)
----------- ----------- ----------
Net Gain on Investments.................... 344,287 6,431,188 (2,056,487)
----------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $ 3,606,791 $ 9,162,782 $ 133,779
=========== =========== ==========
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-230
<PAGE> 516
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
----------------------------
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 3,262,504 $ 6,425,653
Net realized gain on securities transactions........... 8,726,909 19,223,012
Net change in unrealized appreciation/depreciation on
investments.......................................... (8,382,622) 8,662,241
------------- ------------
Net increase in net assets resulting from operations... 3,606,791 34,310,906
------------- ------------
Trust Share Transactions:
Contributions.......................................... 13,790,000 31,372,458
Withdrawals............................................ (15,939,330) (35,499,213)
------------- ------------
Net decrease in net assets resulting from Trust share
transactions......................................... (2,149,330) (4,126,755)
------------- ------------
Total Increase........................................... 1,457,461 30,184,151
NET ASSETS:
Beginning of year...................................... 181,054,414 150,870,263
------------- ------------
End of period.......................................... $ 182,511,875 $181,054,414
============= ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-231
<PAGE> 517
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP PORTFOLIO
----------------------------
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 2,731,594 $ 4,528,400
Net realized gain on securities transactions........... 12,400,049 21,310,546
Net change in unrealized appreciation/depreciation on
investments.......................................... (5,968,861) 34,689,746
------------- ------------
Net increase in net assets resulting from operations... 9,162,782 60,528,692
------------- ------------
Trust Share Transactions:
Contributions.......................................... 78,154,310 96,776,148
Withdrawals............................................ (23,687,970) (39,120,232)
------------- ------------
Net increase in net assets resulting from Trust share
transactions......................................... 54,466,340 57,655,916
------------- ------------
Total Increase........................................... 63,629,122 118,184,608
NET ASSETS
Beginning of period.................................... 275,522,274 157,337,666
------------- ------------
End of period.......................................... $ 339,151,396 $275,522,274
============= ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-232
<PAGE> 518
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
PORTFOLIO
----------------------------
FOR THE SIX
MONTHS ENDED FOR THE
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................... $ 2,190,266 $ 3,879,980
Net realized gain (loss) on securities transactions..... (643,236) 2,336,008
Net change in unrealized appreciation/depreciation on
investments........................................... (1,413,251) (247,652)
------------- ------------
Net increase in net assets resulting from operations.... 133,779 5,968,336
------------- ------------
Trust Share Transactions:
Contributions........................................... 35,810,542 21,358,278
Withdrawals............................................. (10,212,284) (18,755,421)
------------- ------------
Net increase(decrease) in net assets resulting from
Trust share transactions.............................. 25,598,258 2,602,857
------------- ------------
Total Increase............................................ 25,732,037 8,571,193
NET ASSETS:
Beginning of period..................................... 66,289,575 57,718,382
------------- ------------
End of period........................................... $92,021,612 $ 66,289,575
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
FS-233
<PAGE> 519
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. At August 31, 1996 the Trust
consisted of five portfolios. The accompanying financial statements and notes
are those of the Blue Chip Portfolio (the "Blue Chip Portfolio"), Investment
Grade Bond Portfolio, (the "Bond Portfolio") and Asset Allocation Portfolio (the
"Asset Allocation Portfolio") (collectively, the "Portfolios") only.
The investment objective of the Blue Chip Portfolio is long-term capital
appreciation through investments in blue chip stocks. The investment objective
of the Investment Grade Bond Portfolio is to obtain interest income and capital
appreciation by investing in investment grade intermediate and longer term
bonds, including corporate and governmental fixed income obligations and
mortgage-backed securities. The investment objective of the Asset Allocation
Portfolio is to obtain long term growth from capital appreciation and dividend
and interest income. The Asset Allocation Portfolio seeks to achieve its
objective by actively allocating investments among the three major asset
categories: bonds, equity securities and cash equivalents.
Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolios'
Investment Adviser. Concord Holding Corporation ("Concord") serves as the
Portfolios' Administrator through BISYS Fund Services (Ireland) Ltd., a wholly
owned subsidiary of Concord.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The
BISYS Group, Inc., ("BISYS").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts and accounting disclosures in the financial statements. Actual
results could differ from those estimates.
A) SECURITY VALUATIONS:
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sales price on the date of valuation or, if none is
available, at the mean between the current quoted
FS-234
<PAGE> 520
bid and asked prices on the date of valuation. Securities that are primarily
traded on the NASDAQ national securities market are valued at the last reported
sales price on the date of valuation or, if none is available, at the last
quoted bid price on the date of valuation. The Portfolio may use an independent
pricing service, approved by the Board of Trustees, to value certain of its
securities. Such prices reflect market values which may be established through
the use of electronic data processing techniques and matrix systems. Restricted
securities and securities for which market quotations are not readily available,
if any, are valued at fair value using methods approved by the Board of
Trustees. Debt securities with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. The amortized cost
method involves valuing a security at its cost on the date of purchase or, in
the case of securities purchased with more than 60 days until maturity, at their
market value each day until the 61st day prior to maturity, and thereafter
assuming a constant amortization to maturity of the difference between the
principal amount due at maturity and such valuation.
B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recorded on the ex-dividend date.
C) EXPENSES:
Expenses directly attributable to a Portfolio are charged to that Portfolio,
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.
D) FEDERAL INCOME TAXES:
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in the Portfolios will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolios will be managed in such a way that an investor will be able to
satisfy the requirements of the Internal Revenue Code applicable to regulated
investment companies.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolios have an Investment Advisory Agreement with Bank of America
and an Administration Agreement with Concord.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolios. For its services, Bank of America is entitled to a
fee, accrued daily and payable monthly, at an annual rate of 0.55%, 0.75% and
0.45% of the average daily net assets of the Asset Allocation
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<PAGE> 521
Portfolio, Blue Chip Portfolio and Bond Portfolio, respectively. For the period
ended August 31, 1996, Bank of America waived the following fees as Adviser for
each Portfolio.
<TABLE>
<S> <C>
Asset Allocation......................................................... $ 363,775
Blue Chip................................................................ $ 453,754
Bond..................................................................... $ 145,347
</TABLE>
As Administrator, Concord assists in supervising the operations of the
Portfolios. For its services, Concord is entitled to a fee from each Portfolio
accrued daily and payable monthly, at an annual rate of 0.05% of each of the
Portfolio's average daily net assets. For the period ended August 31, 1996,
Concord waived the following fees as Administrator for each Portfolio.
<TABLE>
<S> <C>
Asset Allocation.......................................................... $ 33,092
Blue Chip................................................................. $ 30,254
Bond...................................................................... $ 16,153
</TABLE>
For services provided to all five of the portfolios constituting the Trust,
each Trustee receives an annual fee of $3,000 and a meeting fee of $500. For the
period ended August 31, 1996, the Asset Allocation Portfolio, Blue Chip
Portfolio and Bond Portfolio incurred legal expenses of $12,307, $24,867 and
$4,107, which were earned by a law firm, a partner of which serves as Secretary
of the Trust. Certain officers of the Trust are "affiliated persons" (as defined
in the Act) of BISYS.
NOTE 4 -- SECURITIES TRANSACTIONS
During the period ended August 31, 1996, each Portfolio purchased and sold
portfolio securities, excluding short-term securities, in the following amounts:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
ASSET ALLOCATION PORTFOLIO
U.S. Government.................................. $ 6,776,406 $ 0
Other............................................ 94,121,136 97,191,208
------------ ------------
Total............................................ 100,897,542 97,191,208
============ ============
BLUE CHIP PORTFOLIO
Total Common Stocks.............................. $157,989,151 $116,133,810
============ ============
BOND PORTFOLIO
U.S. Government.................................. $ 34,247,132 $ 9,163,594
Other............................................ 15,119,716 12,925,931
------------ ------------
Total............................................ 49,366,848 22,089,525
============ ============
</TABLE>
At August 31, 1996, the cost of the securities of the Asset Allocation
Portfolio, Blue Chip Portfolio and Bond Portfolio for federal income tax
purposes was substantially the same as for financial reporting purposes.
Accordingly net unrealized appreciation (depreciation) of
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<PAGE> 522
investments amounted to $7,436,036, $40,411,107 and ($1,414,033) respectively,
consisting of gross unrealized appreciation of $12,044,215, $42,366,519 and
$179,252, respectively, and gross unrealized depreciation of $4,608,179,
$1,955,412 and $1,593,285, respectively.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Asset Allocation Portfolio had the following concentrations by industry
sector at August 31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U. S. Treasury Bonds............................................... 7.4%
U. S. Treasury Notes............................................... 2.0
U. S. Government Agency Obligations................................ 13.3
Taxable Municipal Bonds............................................ 0.4
Medium Term Notes.................................................. 12.7
Corporate Bonds.................................................... 1.9
Commercial Paper Discount.......................................... 4.1
Euro Bonds......................................................... 1.4
Aerospace/Defense.................................................. 0.9
Airlines........................................................... 0.2
Aluminum........................................................... 0.3
Automobiles........................................................ 1.1
Banks.............................................................. 3.6
Beverages.......................................................... 2.2
Chemicals.......................................................... 2.1
Commercial Services................................................ 0.1
Computer Hardware.................................................. 2.8
Computer Software.................................................. 2.0
Household, General Products........................................ 1.9
Electrical Products................................................ 2.8
Semiconductors..................................................... 2.4
Financial Services................................................. 2.7
Food............................................................... 1.4
Health Care Products............................................... 0.7
Insurance Life..................................................... 0.5
Insurance -- Property and Casualty................................. 1.0
Oil & Gas International............................................ 4.5
Leisure............................................................ 0.7
Manufacturing -- Building Materials................................ 0.3
Manufacturing -- Machinery......................................... 1.0
Media, Broadcasting, Publishing.................................... 0.9
Metals............................................................. 0.3
Multi Industries................................................... 2.9
Paper Products..................................................... 1.2
Pharmaceuticals.................................................... 5.3
Photography........................................................ 0.3
Railroad........................................................... 0.7
</TABLE>
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<PAGE> 523
<TABLE>
<S> <C>
Retail............................................................. 3.3
Telecommunications Equipment....................................... 0.5
Telecommunications Services........................................ 3.1
Tobacco............................................................ 1.6
Toys............................................................... 0.1
Utilities -- Gas/Electric.......................................... 1.4
-----
100.0%
=====
</TABLE>
The Bond Portfolio had the following concentrations by security type at
August 31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
U.S. Treasury Notes................................................ 50.3%
Medium Term Notes.................................................. 19.3
U.S. Government Treasury Bonds..................................... 5.1
Asset Backed Securities............................................ 6.9
U.S. Government Agency Notes....................................... 4.5
Commercial Paper Discount.......................................... 2.4
Corporate Obligations.............................................. 8.7
Euro Bonds......................................................... 2.8
-----
100.0%
=====
</TABLE>
FS-238
<PAGE> 524
MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR YEAR
AUGUST 31, YEAR ENDED ENDED ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets**.... 0.32%*** 0.26% 0.17% 0.24%***
Ratio of investment income
to average net
assets**................ 3.54%*** 3.87% 4.01% 3.35%***
Portfolio Turnover........ 55% 157% 142% 67%
Average commission rate
paid (a)................ $ 0.0010
</TABLE>
- ---------------
* For the period December 6, 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 0.43%, 0.47%, 0.60%, 0.03% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
*** Annualized
(a) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure not required for prior periods.
See Notes to Financial Statements.
FS-239
<PAGE> 525
MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR YEAR
AUGUST 31, YEAR ENDED ENDED ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets**.... 0.61%*** 0.31% 0.17% 0.27%***
Ratio of investment income
to average net
assets**................ 1.77%*** 2.16% 2.30% 1.97%***
Portfolio Turnover........ 40% 108% 44% 86%
Average commission rate
paid (a)................ $ 0.0012
</TABLE>
- ---------------
* For the period December 6, 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 0.32%, 0.59%, 0.80%, 0.80% (annualized) for the
periods ended August 31, 1996, February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
*** Annualized
(a) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure not required for prior periods.
See Notes to Financial Statements.
FS-240
<PAGE> 526
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR YEAR
AUGUST 31, YEAR ENDED ENDED ENDED
1996 FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets**.... 0.23%*** 0.18% 0.25% 0.41%***
Ratio of investment income
to average net
assets**................ 5.90%*** 6.47% 6.22% 4.93%***
Portfolio Turnover........ 32% 172% 240% 32%
</TABLE>
- ---------------
* For the period December 6, 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 period ended August 31, 1996, and 0.50%
(annualized) for the periods ended February 29, 1996, February 28, 1995 and
February 28, 1994, respectively.
*** Annualized
See Notes to Financial Statements.
FS-241
