<PAGE> 1
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SEAFIRST RETIREMENT FUNDS
ASSET ALLOCATION FUND
BLUE CHIP FUND
BOND FUND
PACIFIC HORIZON FUNDS, INC.
PRIME FUND
Annual Report
February 28, 1997
------------------------------
NOT FDIC Insured
-----------------------------
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<PAGE> 2
SEAFIRST RETIREMENT FUNDS
PACIFIC HORIZON PRIME FUND
1-800-323-9919
Speech or hearing impaired TTY/TDD users may call 1-800-232-6299
INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104
DISTRIBUTOR
Concord Financial Group, Inc.
3435 Stelzer Road
Columbus, OH 43219
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
FUND COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
SEAFIRST RETIREMENT FUNDS ADMINISTRATOR
Bank of America National Trust and Savings Association
doing business as Seafirst Bank (Seafirst)
701 Fifth Avenue
Seattle, WA 98104
PACIFIC HORIZON PRIME FUND ADMINISTRATOR
The BISYS Group, Inc.
3435 Stelzer Road
Columbus, OH 43219
For further information about retirement accounts, contact a Personal Banker
at any Seafirst branch or call Monday through Friday 8 a.m. to 6 p.m.
or Saturday 9 a.m. to 1 p.m. (Pacific time)
FUND SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF, OR
OTHERWISE ENDORSED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY.
The Seafirst Retirement Funds and the Pacific Horizon Prime Fund are sponsored
and distributed by Concord Financial Group, Inc., which is unaffiliated with
Bank of America or Seafirst Bank. Bank of America serves as investment adviser
and receives fees for such services. From time to time, Bank of America may
provide other services to the Funds for additional fees, as disclosed in the
Funds' prospectuses.
There can be no assurance that the Pacific Horizon Prime Fund will be able to
maintain a net asset value of $1.00 per share and Fund shares are not insured or
guaranteed by the U.S. Government or its agencies.
This material must be preceded or accompanied by a current prospectus.
<TABLE>
<S> <C>
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INVESTMENTS IN PACIFIC HORIZON FUNDS, INC. ARE NOT
BANK DEPOSITS AND ARE NOT OBLIGATIONS OF, OR
GUARANTEED BY, BANK OF AMERICA OR ANY AFFILIATES. AN
INVESTMENT IN MUTUAL FUNDS INVOLVES INVESTMENT RISKS, NOT
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT FDIC
INVESTED. INSURED
</TABLE>
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<PAGE> 3
Contents
<TABLE>
<S> <C>
ECONOMIC REVIEW 2-3
FUND OVERVIEW AND
INTERVIEWS WITH YOUR
INVESTMENT MANAGERS 4-19
SEAFIRST RETIREMENT FUNDS
Statements of Assets
and Liabilities 20
Statements of Operations 21
Statements of Changes
in Net Assets 22-24
Notes to Financial
Statements 25-29
Financial Highlights 30-32
Report of Independent Accountants 33
MASTER INVESTMENT TRUST -- SERIES I
Portfolios of Investments 34-45
Statements of Assets
and Liabilities 46
Statements of Operations 47
Statements of Changes
in Net Assets 48-50
Notes to Financial
Statements 51-56
Supplementary Data 57-59
Report of Independent Accountants 60
PACIFIC HORIZON PRIME FUND
Portfolio of Investments 61-69
Statement of Assets
and Liabilities 70
Statement of Operations 71
Statements of Changes
in Net Assets 72
Notes to Financial
Statements 73-79
Financial Highlights 80-83
Report of Independent Accountants 84
</TABLE>
<PAGE> 4
ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER
The Standard & Poor's Stock Index posted a total return of 26.18% during the 12
month period ended February 28, 1997, amply rewarding long-term investors who
rode out volatility early in the period.* The best performers were concentrated
among shares of large company stocks, which significantly outpaced shares of
smaller firms.
At the end of this period, however, the markets began to give serious
consideration to a possible tightening of monetary policy following Federal
Reserve Chairman Alan Greenspan's Humphrey-Hawkins testimony. Chairman
Greenspan's comments focused on current high levels of consumer confidence and
the potential for inflationary pressures to surface. His comments fueled renewed
volatility in the fixed-income markets, and the bellwether 30-year Treasury bond
ended the period with a 0.36% total return.**
THE CASE FOR
STOCKS AND BONDS
The stock market's gain raises some important issues. Late in the period, there
was considerable discussion concerning Federal Reserve Chairman Alan Greenspan's
comments of "irrational exuberance" in his reflections on the state of the U.S.
equity markets. Other observers felt that investors should be optimistic based
on the healthy business climate in the U.S., the moderate economic policies of
the current administration and the focus in Washington on balanced budgets.
Overall, the U.S. economy seems poised for continued moderate growth, which is
good news for stocks. The stock market's current price-to-earnings (P/E) ratio
of 17.8 times our 1997 earnings estimates is within the 16 to 19 times range of
the 1960s when we had similar inflation levels. We think it is reasonable to
expect P/E ratios to stay at current levels. That gives an estimated market
return over the next 12 months of 10% (8% from earnings growth and 2% from
dividend yield).
Congress and the Clinton Administration continue to entertain the prospect of a
Balanced Budget Amendment, mandating the end of federal deficits within five to
seven years. While an agreement has not passed to date, this shift in attitude
bodes well for both stocks and bonds, as a balanced budget facilitates lower
interest rates, encouraging earnings growth.
POTENTIAL RISKS
Given the length of the current economic expansion, history tells us that the
bulls will run out of steam. Slowing economic growth is a double-edged sword as
lower corporate earnings lead to both a decline in prices and a reallocation of
savings. Companies with disappointing earnings may quickly fall into disfavor.
Broad equity indices may then decline as investors reallocate their assets into
more stable stocks.
The U.S. bond market and, indirectly, the U.S. equity market have benefited from
strong purchases of U.S. Treasuries by foreign investors. Supported by an
appreciating dollar, foreign purchases of U.S. Treasuries in 1996 were $265
billion compared to $118 billion in net sales by domestic investors (for four
quarters ended December 31, 1996).*** If the dollar should decline, there would
be less incentive to buy dollar denominated assets.
LOOKING FORWARD
In our view, investors should approach the remainder of 1997 with rational
exuberance tempered by a knowledge of history. Under the best case scenario, the
U.S. economy will see a move toward sustainable growth, higher real interest
rates and an anticipated 8% to 9% increase in corporate profits. Given these
projections, most investment professionals expect equities to perform well in
1997, although below 1996 levels. Bonds at this juncture seem attractive,
especially given the recommended revisions to real rates of inflation and the
trend toward a balanced federal budget.
2
<PAGE> 5
History, however, usually repeats itself, and we would not be surprised to see
some corrections ahead. Thus, investors may want to review their portfolios,
bearing in mind the importance of diversification in controlling risk. We see
the most value in equities characterized by growth at reasonable P/E multiples,
and find relative value in intermediate-term bonds, rather than long duration
plays. Investors seeking long-term growth after inflation and taxes should
remain biased toward stocks and positive on bonds.
Sincerely,
Kirk Hartman
Kirk Hartman
Chief Investment Officer,
Bank of America NT&SA,
Investment Adviser to the
Pacific Horizon Funds
- ---------------
* The S&P 500 is an index that is representative of the large capitalization
U.S. equity market as a whole, and cannot be invested in directly.
** Source: Bloomberg using Merrill Lynch Taxable Bond Indices which reflects
the 30-year Treasury bond return.
*** Source: ISI Group
3
<PAGE> 6
SEAFIRST
ASSET ALLOCATION FUND
======================
ROBERT PYLES, CFA
Sr. Vice President &
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 28, 1997:
Over $173.4 million
- ----------------------
- ----------------------
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 THE FUND PERFORM DURING THE 12 MONTHS ENDED FEBRUARY 28, 1997?
A
The Fund had a total return of 18.03% for the 12 months ended February 28,
1997.* The Fund uses two benchmarks, the Standard & Poor's 500 Stock Index and
the Lehman Brothers Aggregate Bond Index, which returned 26.18% and 4.83%,
respectively.**
Q
HOW DID YOU ALLOCATE THE FUND'S PORTFOLIO AMONG STOCKS, BONDS AND CASH
DURING THE RECENT 12 MONTHS?
A
The Fund began the 12 month period with a normal asset mix of about 55%
stocks, 40% bonds and 5% cash. But as interest rates rose during the early part
of the year, we moved 2% to 3% of our cash position into bonds to take advantage
of the higher yields. The strong performance of stocks in the portfolio raised
the Fund's equity weighting to approximately 60% both in November and February.
On both occasions, we sold stocks at a profit in order to bring the Fund's
allocation back into
4
<PAGE> 7
line. Our weightings as of the period ended February 28, 1997 were 58% stocks,
39% bonds, and 3% cash.***
Q
HOW DID YOU MANAGE THE STOCK PORTION OF THE PORTFOLIO?
A
We based our sector investment decisions on earnings growth and value levels
and where we are in the economic cycle. For the past year, we were in the third
phase of a four-phase economic cycle--the expansion phase. Historical data shows
that the capital goods and technology industries typically perform well in this
phase of the economic cycle, so we chose to be overweighted in these sectors.
They turned out to be two of the three strongest performing segments of the
stock market during the past 12 months.
The Fund also benefited from our underweighting in the utility sector, which
dramatically underperformed the market due to the changing regulatory and
competitive environment.
Among portfolio stocks, strong performers for the Fund included Intel (3.9%),
Cisco Systems (1.0%), Warner-Lambert (0.9%), Price-Costco, Inc. (0.6%), and
Household International (1.3%).***
Q
HOW DID YOU MANAGE THE BONDS IN THE PORTFOLIO?
A
The fixed-income portion of the Asset Allocation Fund is managed against the
Lehman Brothers Aggregate Bond Index which includes Treasuries, corporate bonds,
and mortgage-backed securities. With the economy slowing sharply in late 1995
and early 1996, the portfolio was structured to take advantage of falling
interest rates. Thus, it was underweighted in both the corporate and mortgage
sectors.
As evidence of steady economic strength continued to mount, and interest rates
settled into a trading range, we increased our asset allocation to both
mortgages and corporate bonds; with spreads in the corporate sector trading at
relatively tight levels, the credit curve flat and quality spreads tight. We
positioned our corporate exposure predominantly in shorter maturities of higher
credit quality. (The credit curve is a measure of the incremental spread for
extending maturities in the same credit. Quality spreads are a measure of the
incremental spread for accepting lower-rated credits.) In mortgages, we have
increased our exposure to the seasoned sector using current coupons and moderate
premiums. Seasoned mortgages, having been through previous prepayment cycles,
have lower prepayment volatility, and should perform very well in the
range-bound environment that we are forecasting--an environment where interest
rates are trading within a tighter range.
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND?
A
We anticipate a period of continued economic expansion. We are watching
stock valuations and economic data carefully, and will continue to select
attractively priced stocks that can deliver steady earnings growth in the long
term. We will continue to manage the bond sector of the portfolio within the
context of our duration-neutral strategy, but with a slight bias toward
shorter-term issues whose prices are more stable when interest rates fluctuate.
Duration, which measures a bond's price sensitivity to interest rates, is a
principal component of risk and return. In terms of our Funds, the average
durations of the securities in the Funds' portfolios generally remain fairly
close to the durations of the Funds' respective benchmarks. We then attempt to
add value by applying our relative value methodology to sector allocation, yield
curve positioning and security selection. We plan to again reduce equities to
56% and increase bonds to 42%, and retain 2% cash.***
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. The Fund is currently waiving a
portion of the advisory, administrative and/or shareholder
5
<PAGE> 8
servicing fee. This voluntary waiver may be
6
<PAGE> 9
modified or terminated at any time, which would reduce the Fund's
performance.
** The S&P 500 and the Lehman Brothers Aggregate Bond are unmanaged indices
generally representative of equity investments and asset allocation
investments respectively, and cannot be invested in directly.
*** The composition of the Fund's holdings is subject to change.
7
<PAGE> 10
SEAFIRST
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
SEAFIRST LIPPER LEHMAN
ASSET FLEXIBLE BROTHERS
MEASUREMENT PERIOD ALLOCATION FUNDS AGGREGATE
(FISCAL YEAR COVERED) FUND AVERAGE BOND INDEX S&P 500
<S> <C> <C> <C> <C>
3/9/88 10037 10000 10000 10000
2/28/89 11120 10438 10470 11536
2/28/90 12654 11620 11805 13713
2/28/91 14116 13013 13247 15730
2/29/92 15986 15110 14942 18247
2/28/93 17211 16230 16763 20192
2/28/94 18651 18084 17668 21872
2/28/95 19452 18136 23480
2/29/96 23817 22403 20183 31604
2/28/97 28159.81 26208.79 21266 39720
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Seafirst Asset Allocation Fund to
the S&P 500, an unmanaged index
typically used as a performance
benchmark for equity investments, and
the Lehman Brothers Aggregate Bond
Index, an unmanaged index with
investment policies similar to the
Fund. As illustrated, the Fund fared
well compared to other asset allocation funds. The average of asset allocation
funds as tracked by Lipper Analytical Services, Inc., measures the performance
of other funds with investment objectives and policies similar to those of the
Seafirst Asset Allocation Fund. An initial $10,000 investment in the Fund made
on March 9, 1988, would now be worth $28,160. The same investment made in the
Lipper Flexible Funds Average would now be worth $26,209.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Flexible Funds Average, the S&P 500 Index, nor
the Lehman Brothers Aggregate Bond Index may be invested in directly. The
hypothetical investment in the S&P 500 and Lehman Brothers Aggregate Bond Index
do not reflect any sales or management fees that would be incurred if an
investor were to actually purchase individual securities or mutual funds, while
the performance of the Fund reflects all expenses and management fees.
<TABLE>
<CAPTION>
--------------------------------------
ASSET ALLOCATION FUND
AVERAGE ANNUAL RETURN
--------------------------------------
<S> <C>
1 Year 18.03%
....................................
5 Year 11.98%
....................................
Since Inception
(3/9/88) 12.31%
-------------------------------------
</TABLE>
<PAGE> 11
SEAFIRST
ASSET ALLOCATION FUND
(AS OF FEBRUARY 28, 1997)
PORTFOLIO COMPOSITION*
A Market-Driven Process
The Fund's adviser seeks to
determine relative values among
stocks, bonds and cash equivalents
and weights the portfolio
accordingly.
The Fund's adviser looks for the
following characteristics within
each asset class: Stock holdings
that display above-average growth
potential and reasonable valuation.
The diversified bond portfolio may
contain mortgage-backed securities
as well as fixed-income obligations
that are undervalued in the opinion
of the Fund's adviser. The Fund's
cash holdings can be viewed as a
defensive position in changing
markets.
- --------------------------------------------------------------------------------
A BALANCED INVESTMENT
APPROACH
Allocation Among Asset Classes
The Fund may be appropriate for
investors seeking long-term growth
from capital appreciation as well as
dividend and interest income through
a balanced approach to investing
using bonds, stocks and cash
equivalents. Investors can make one
simple investment and their money
will be spread over a variety of
asset classes. The Fund's adviser
seeks a total return greater than
bonds or cash with less volatility
than an investment in stocks.
Through strategically allocating
assets among various investments,
the Fund's adviser will shift the
asset mix as market conditions
change, thereby seeking to profit
from market opportunities in any
economic environment.
ASSET ALLOCATION
<TABLE>
<S> <C> <C> <C> <C>
COMMON STOCKS 58.0
CASH & EQUIVALENTS 3.0
BONDS 39.0
</TABLE>
- --------------------------------------------------------------------------------
* The composition of the Fund's
holdings is subject to change.
SHIFTING THE ASSET MIX
<PAGE> 12
SEAFIRST
BLUE CHIP FUND
======================
JAMES D. MILLER, CFA
Chief Investment Officer
Bank of America Illinois
Investment Advisers Division
Mr. Miller is head 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 portfolio 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 28, 1997:
Over $273.9 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE RECENT PERIOD?
A
The market, aided by slow economic growth and low inflation, experienced a
phenomenal run during the past 12 months. The Fund posted a total return of
27.42%* compared to 26.18%** for the Standard & Poor's 500 Stock Index for the
12 months ended February 28, 1997.
Investors were particularly drawn to large company stocks, which outpaced stocks
of small companies. The stocks of five blue chip firms accounted for 20% of the
returns of the S&P 500. Those companies were Microsoft Corporation, Intel
Corporation, General Electric, Coca-Cola Company, and IBM.*** In addition, there
was heavy rotation between market sectors. For example, technology was the
leader in 1996 and has lagged the market in early 1997. During the second half
of 1996, there was a shift away from stocks of companies with strong earnings
momentum towards stocks investors perceive to be undervalued.
Q
HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A
We stayed neutral to the market capitalization of the benchmark, which is
around $45 billion. **** But as always, we focused on individual stock
selection. Our stock selection is based on a number of different factors, with
the heaviest weighting given to those that are having the greatest impact at a
given time. During the recent period, we focused on stocks with a combination of
"earnings certainty," "rising earnings expectations" and value factors such as
low price-to-earnings (P/E) ratios. Companies with high earnings certainty are
those that have similar earnings estimates from different analysts. Firms with
rising earnings expectations are those
10
<PAGE> 13
that have experienced the biggest increases in analysts' earnings estimates.
Q
WHAT ARE SOME STOCKS OR SECTORS THAT PERFORMED WELL FOR THE FUND DURING THE
YEAR?
A
The technology sector was the best performing sector in the market for the
12 month period ended February 28, 1997. Our holdings included companies such as
Intel Corp. (3.0% of net assets as of February 28, 1997) which gained 141%
during the period. Other large, widely recognized companies that performed well
were in retail and financial services -- companies such as Citicorp (0.85% of
net assets as of February 28, 1997) and T.J.X. Companies, Inc. (0.83% of net
assets as of February 28, 1997), which operate T.J. Maxx and Marshalls
stores.*****
Q
WHAT'S AHEAD FOR THE FUND?
A
We will continue to maintain a portfolio broadly diversified among market
sectors according to the benchmark that we use to compare our Fund's
performance. At the same time, we will add value by choosing stocks of companies
that offer a combination of growth, value and earnings momentum. Our philosophy
will not change based on short-term trends or conditions in the market. Instead,
we will remain focused on meeting the goals of long-term investors, while
attempting to outperform the S&P 500 on a consistent basis.
- ---------------
* Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions. The Fund is currently waiving a
portion of the advisory, administrative and/or shareholder servicing fee.
This voluntary waiver may be modified or terminated at any time, which
would reduce the Fund's performance.
** Source: Ibbotson Associates, 1997. The S&P 500 is an unmanaged index
generally representative of the equity market as a whole, and cannot be
invested in directly.
*** Source: Standard & Poor's Composite, 1996 "Performance Attribution,"
Prudential Securities by Melissa Brown, 1/6/97.
**** Source: BARRA, February 28, 1997.
***** The composition of the Fund's holdings is subject to change.
11
<PAGE> 14
SEAFIRST
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SEAFIRST BLUE LIPPER GROWTH
(FISCAL YEAR COVERED) CHIP FUND FUNDS AVERAGE S&P 500
<S> <C> <C> <C>
3/9/88 10023.34 10000 10000.00
2/28/89 11573.03 10916 11535.92
2/28/90 13802.89 12572 13713.33
2/28/91 15521.05 14427 15730.40
2/29/92 17760.28 17637 18246.67
2/28/93 18645.22 18632 20191.65
2/28/94 21434.69 21104 21871.58
2/28/95 23100 21855 24175
2/29/96 29984 27893 31604
2/28/97 38280.06 34802.59 39720
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Seafirst Blue Chip Fund to the
S&P 500, which is an unmanaged index
typically used as a performance
benchmark for equity investments. As
illustrated, the Fund has fared well
compared to other growth funds. The
average of growth funds as tracked by
Lipper Analytical
Services, Inc. measures the performance of other funds with investment
objectives and policies similar to those of the Seafirst Blue Chip Fund. An
initial $10,000 investment in the Fund made on March 9, 1988, would now be worth
$38,280. The same investment made in the Lipper Growth Funds Average, would now
be worth only $34,803.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gain distributions.
Lipper Analytical Services, Inc., is an independent mutual fund-monitoring
organization. Neither the Lipper Growth Funds Average nor the S&P 500 can be
invested in directly. The hypothetical investment in the S&P 500 does not
reflect any sales or management fees that would be incurred in an investor were
to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees.
<TABLE>
<CAPTION>
---------------------------------------
BLUE CHIP FUND
AVERAGE ANNUAL RETURN
--------------------------------------
<S> <C>
1 year: 27.42%
....................................
5 year: 16.55%
....................................
Since inception:
3/9/88 16.12%
-------------------------------------
</TABLE>
<PAGE> 15
SEAFIRST
BLUE CHIP FUND
(AS OF FEBRUARY 28, 1997)
PORTFOLIO COMPOSITION
FUND QUALITY
A Strategy for Long-Term Capital
Appreciation
The Fund maintains a "quality"
investment orientation by placing an
emphasis on the securities of
well-known established companies.
This "blue chip" approach may be
appropriate for investors seeking
long-term growth of capital. At
least 80% of the Fund's assets are
normally invested in blue chip
stocks. To meet the criteria set by
the Fund's investment objectives,
these stocks must be components of
the Dow Jones Industrial Average or
the Standard & Poor's 500 Index.
- --------------------------------------------------------------------------------
The Fund adviser's research
orientation seeks to
identify individual stocks,
within the sector
allocations mirroring those
of the S&P 500, with the
greatest potential for
long-term growth. The Fund's
primary emphasis is on
stocks that, in the opinion
of the Fund's adviser, have
the greatest potential of
superior performance with
the least amount of risk.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
------------------------------------------------------
PERCENT OF
COMPANY NET ASSETS
<S> <C>
------------------------------------------------------
Coca-Cola Co. 3.10%
......................................................
Intel Corp. 3.00%
......................................................
Merck & Co., Inc. 2.98%
......................................................
Microsoft Corp. 2.84%
......................................................
General Electric Co. 2.76%
......................................................
Phillip Morris Cos, Inc. 2.26%
......................................................
E.I. Du Pont de Nemours & Co. 2.13%
......................................................
Exxon Corp. 1.98%
......................................................
Proctor & Gamble 1.91%
......................................................
Johnson & Johnson 1.88%
------------------------------------------------------
TOTAL 24.84%
------------------------------------------------------
</TABLE>
A RESEARCH-DRIVEN APPROACH*
<TABLE>
<C> <C> <S> <C>
Utilities 10.3
Finance 15.4
Consumer Suplies 12.7
Health Care 11.3
Technology 13.3
Capital Goods 9.5
Energy 8.5
Basics 5.6
Transportation 1.3
Consumer Cyclicals 12.1
</TABLE>
* THE COMPOSITION OF THE FUND'S HOLDINGS IS SUBJECT TO CHANGE.
<PAGE> 16
SEAFIRST
BOND FUND
======================
KIRK HARTMAN
Chief Investment Officer
Bank of America NT&SA
The Seafirst Bond Fund is managed by a Bank of America NT&SA investment team led
by Kirk Hartman, Chief Investment Officer.
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 28, 1997:
Over $39.2 million
Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE 12 MONTHS ENDED
FEBRUARY 28, 1997?
A
Over the last 12 months, the economy continued to grow, further extending
the current economic expansion, while inflation, especially for this stage of
the business cycle, remained quite tame. There had been fear of resurgent
inflation causing interest rates to rise across the yield curve. During the
year, interest rates rose .20% in three month Treasury Bills, .68% in three year
Treasury Notes, and .33% in the 30 year Bond, causing the yield curve to steepen
in the front end, and flatten in intermediate and longer maturities.*
Interest rates rose sharply in March and April of 1996, then traded in a
relatively tight trading range for the remainder of the period ended February
28, 1997. This period was also marked by gradual tightening in the mortgage and
corporate sectors. As measured by the Lehman family of indices,** the mortgage
sector had the best total return for the year with 6.58%, followed by both
corporate bonds and asset-backed bonds at 5.71%, agencies at 5.30% and
treasuries at 4.42%.**
A notable adjustment to the mortgage index was the tiering of coupons by age, or
seasoning. In July, a number of rating agencies began to price seasoned
mortgages differently than newly-issued mortgages. The theory is that seasoned
mortgages, having been through previous prepayment cycles, will have a more
stable prepayment profile, and would therefore justify a higher dollar price
than their newly originated counterparts.
14
<PAGE> 17
Within the corporate sector, utilities led the way with a total return of 6.00%
followed by industrials at 5.83%, Yankee Bonds at 5.68% and finance at 5.36%.
(Yankee Bonds, which are registered bonds issued in the U.S. by foreign
governments, banks and institutions, tend to pay higher interest than other
bonds of comparable credit quality when market conditions are better in the U.S.
than abroad.) On a duration adjusted basis, however, the finance sector had the
best performance at 6.57% compared to utilities at 6.22% and both industrials
and Yankee Bonds at 5.83%.**
Q
WHAT WAS THE FUND'S RETURNS IN THAT ENVIRONMENT?
A
By virtue of its relatively short maturity and higher credit quality
holdings, the Bond Fund underperformed the Fund's benchmark on a total
return basis, posting a return of 3.74% during the 12 months ended February 28,
1997.*** The Fund's benchmark, the Lehman Brothers Intermediate Government
/Corporate Index returned 5.00% for the same period.**
Q
HOW DID YOU STRUCTURE THE DURATION OF THE FUND?
A
The Seafirst Bond Fund seeks to use a duration-neutral philosophy. Since
duration, a measure of a bonds price sensitivity to changes in interest rates,
is the principal component of both risk and return, we seek to deliver returns
consistent with the returns of the appropriate benchmark by maintaining the
duration of the fund close to that of the benchmark. We then attempt to add
value by applying our relative value methodology to sector allocation, yield
curve positioning and security selection as appropriate for each fund. Our
relative value methodology strategy enables us to compare and select
opportunities that represent some of the best values from the universe of
available issues in the market.
Q
WHAT OPPORTUNITIES DID YOU FIND TO ADD VALUE THROUGH SECTOR ALLOCATION IN
THE BOND FUND?
A
As the period began, spreads in the corporate sector were trading at
historically tight levels, the credit curve was flat and quality spreads were
tight. The credit curve is a measure of the incremental spread for extending
maturities in the same credit. Quality spreads are a measure of the incremental
spread for accepting lower-rated credits.
The Fund held corporate debt obligations, and was overweighted to the finance
sector and underweighted to the utility sector due to litigation at that time
involving deregulation uncertainties. We positioned the Fund this way because of
the positive fundamentals of the finance sector. Our decision to overweight our
holdings in finance proved beneficial. Utilities also performed quite well as
the regulatory environment became much more favorable.****
In light of the historic tightness at the beginning of the period, we moved from
a more aggressive stance to one that is moderately defensive. In hind sight,
this change was somewhat premature as lower quality, longer maturity corporate
bonds were the strongest performers over the past year, and our performance
lagged. We continue to believe, however, that our defensive strategy should
ultimately prove to be correct. If spreads continue to tighten, we will likely
underperform marginally. Conversely, if spreads do widen, our performance should
be considerably better.
Q
WHAT'S AHEAD FOR THE BOND MARKET AND THE FUND?
A
Currently, we are forecasting an economy that continues to grow at or near
the non-inflationary growth rate of 2.0-2.5% and a continuing, stable inflation
environment. With the current tightness in the labor market pointing to an
increased
15
<PAGE> 18
probability of rekindled inflation, and the recent comments from the Federal
Reserve, we would not be surprised to see the Federal Reserve raise interest
rates in the near future.*****
We do not, however, see rates moving dramatically higher. We continue to believe
that interest rates will trade within a relatively tight range, and feel that we
are currently in the middle of that range. We will continue to manage the
portfolio within the context of our duration-neutral strategy, but with a
marginally more defensive bias in the near-term.
- ---------------
* Source: Bloomberg, using Merrill Lynch Taxable Bond Indices which
reflects the One-Year Treasury Bill return. The One-Year Treasury Bill
Index is an unmanaged index generally representative of the Treasury bond
market as a whole, and cannot be invested in directly.
** The Lehman family of indices including the Lehman Brothers Corporate
Bond, Intermediate Government/Corporate Bond and the Mortgage Bond are
unmanaged indices generally representative of the different sectors
within the bond market as a whole, and cannot be invested in directly.
*** Return figures for the Fund include change in share price, reinvestment
of dividends and capital gain distributions. The Fund is currently
waiving a portion of the advisory, administrative and/or shareholder
servicing fee. This voluntary waiver may be modified or terminated at any
time, which would reduce the Fund's performance.
**** The composition of the Fund's holdings is subject to change.
***** Note: This move occurred in late March of 1997, subsequent to the close
of the Fund year.
16
<PAGE> 19
SEAFIRST
BOND FUND
(AS OF FEBRUARY 28, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LIPPER LEHMAN BROTHERS
INTERMEDIATE INTERMEDIATE
MEASUREMENT PERIOD SEAFIRST BOND INVESTMENT GOVERNMENT/CORPORATE
(FISCAL YEAR COVERED) FUND FUNDS AVERAGE BOND INDEX
<S> <C> <C> <C>
3/9/88 10013.28 10000 10000.00
2/28/89 10599.90 10297 10391.66
2/28/90 11798.09 11332 11613.74
2/28/91 13091.29 12504 12944.41
2/29/92 14504.66 14086 14493.55
2/28/93 16025.25 15817 16170.70
2/28/94 16521.14 16690 16803.17
2/28/95 16722 16821 17029
2/29/96 18377 18715 18861
2/28/97 19187.88 20073.65 20107
</TABLE>
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Seafirst Bond Fund to the Lehman
Brothers Intermediate
Government/Corporate Bond Index,
which is an unmanaged index typically
used as a performance benchmark for
intermediate term investments.
As illustrated, the Fund tracked the
perform-
ance of other intermediate bond funds. The average of intermediate investment
funds reported by Lipper Analytical Services, Inc. measures the performance of
other funds with investment objectives and policies similar to those of the
Seafirst Intermediate Bond Fund. An initial $10,000 investment in the Fund made
on March 9, 1988, would now be worth $19,188. The same investment made in the
Lipper Intermediate Investment Funds Average would now be worth $20,074.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. Return figures for the Fund include change in share
price, reinvestment of dividends, and capital gains distributions.
Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization. Neither the Lipper Intermediate Investment Funds Average, nor the
Lehman Brothers Intermediate Government/Corporate Bond Index may be invested in
directly. The hypothetical investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index does not reflect any sales or management fees
that would be incurred if an investor were to actually purchase individual
securities or mutual funds, while the performance of the Fund reflects all
expenses and management fees.
<TABLE>
<CAPTION>
--------------------------------------
INTERMEDIATE BOND FUND
AVERAGE ANNUAL RETURN
--------------------------------------
<S> <C>
1 Year 3.74%
....................................
5 Year 5.69%
....................................
Since Inception
(3/9/88) 7.53%
--------------------------------------
</TABLE>
<PAGE> 20
SEAFIRST
BOND FUND
(AS OF FEBRUARY 28, 1997)
QUALITY
The credit research team at Bank of
America, the Fund's adviser,
monitors debt instruments and issuer
quality to identify fixed-income
securities for the Fund. With its
emphasis on quality, the Fund
invests primarily in securities that
are rated investment grade by an
independent rating service or that
are issued by the U.S. Government.
The security selection process also
depends on information about broad
economic factors that can affect the
bond markets.
- --------------------------------------------------------------------------------
FLEXIBILITY
Capitalizing on Changing Markets
The Fund invests in a varied
portfolio of quality bonds in an
effort to protect principal against
sharp price fluctuations and
stabilize net asset value. The
Fund's adviser has great latitude in
deciding how assets are invested
among corporate, government and
mortgage-backed obligations. That
means the Fund enjoys total
flexibility to make the most of
changing market conditions.
<TABLE>
<S> <C> <C> <C> <C>
Aaa 68.4
Aa 7.7
A 23.9
</TABLE>
- -----------------------------------------------------------
* THE COMPOSITION OF THE FUND'S
HOLDINGS IS SUBJECT TO CHANGE.
<PAGE> 21
PACIFIC HORIZON
PRIME FUND
======================
MARIKA ECONOMOS
Portfolio Manager
Taxable Money Market Funds
Bank of America NT&SA
GOAL:
The Seafirst Prime Fund seeks to provide a high level of current income, daily
liquidity and stability of principal by investing in U.S. dollar-denominated
short-term money market instruments.
INVESTMENTS:
The Prime Fund seeks to achieve its objectives through a broad range of
government, bank and commercial obligations available in the money markets
instruments.
APPROPRIATE FOR:
Investors or institutions that want daily liquidity.
SIZE OF FUNDS AS OF
FEBRUARY 28, 1997:
Over $7.1 billion
Q
WHAT FACTORS AFFECTED THE SHORT-TERM FIXED INCOME MARKETS DURING THE 12
MONTHS ENDED FEBRUARY 28, 1997?
A
For the first six months of the fiscal year, the domestic economy grew
faster than the rate generally considered sustainable and non-inflationary.
Expectations were that the Federal Reserve would be forced to cool down the
economy with a short-term interest rate increase.
A trading pattern emerged in the first two quarters whereby yields repeatedly
rose due to higher than expected employment reports, and subsequently dropped as
the additional jobs that were created failed to translate into higher prices.
Then in the third quarter, the market sustained its strongest rally of the year
as inflation fears dissipated on the heels of consecutive weak employment
reports.
The apparent slowdown of the domestic economy seemed to assure market
participants that the Federal Reserve would not raise interest rates in the
foreseeable future. However, this comfort was short-lived; Federal Reserve
Chairman Alan Greenspan caused market concern in December with his views that
recent gains in stock prices were unsustainable and could be detrimental to
financial markets in the long run. As a result, the 12-month period ended with
investors once again wary of tighter monetary policy.*
CURRENT SEVEN-DAY YIELDS
AS OF FEBRUARY 28, 1997+
- ---------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Prime Fund 4.91%
</TABLE>
- ---------------------------------------
- ------------
+ Past performance is no guarantee of future results. Yields will fluctuate
with the market. Investments in money market funds are neither insured nor
guaranteed by the U.S.
19
<PAGE> 22
Government, and there can be no assurance that the Funds will be able to
maintain a stable Net Asset Value (NAV) of $1.00 per share.
Q
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
A
As the period began in March, 1996, we structured the Fund using a laddered
approach, which provides protection against sudden increases in short-term
interest rates. We adhered to this strategy through the end of September, when
the yield curve flattened in response to the Federal Reserve holding interest
rates steady and a subsequent slowing of economic growth. At that point, we
began to restructure the Fund by employing a barbell strategy, which includes a
combination of overnight to three month securities and longer-term issues that
mature in 11 to 13 months.
The months of November through January provided inordinately high overnight
rates as a result of several different technical factors. The Fund benefited
greatly from this phenomenon, as they consistently maintain a considerable
amount of cash for liquidity.
Throughout the entire year, we strove to keep a significant percentage of our
assets in floating rate notes. These securities perform well in uncertain rate
environments, because their coupons reset to a positive spread to market levels
at short intervals.
Q
WHAT WERE THE FUND'S AVERAGE MATURITIES DURING THE YEAR?
A
The Fund's weighted average maturities remained just long of neutral for the
majority of the year at approximately 48 to 55 days.** We extended the
maturities in the face of stronger than expected economic data given that the
corresponding yields made sense in the event of a Federal Reserve tightening. In
contrast, when market prices seemed unsustainably high, we reduced the average
maturity of the Fund closer to neutral at 40 to 45 days.**
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE FUND GOING FORWARD?
A
We believe that the economy is beginning to show signs of inflationary
growth in the employment sector as well as in housing, retail sales and consumer
confidence. These factors could force the Federal Reserve to implement at least
one short-term interest rate increase.* Given this scenario, we believe that the
zero to 12 month yield curve will remain steep for the first nine months of the
year. But quick action by the Central Bank will most likely keep inflation in
check, alleviating the need for a series of rate increases. A flatter yield
curve may materialize in the final quarter of the year in response to controlled
economic growth.
We will maintain a cautious strategy until we see evidence of a slower economy.
For the first part of the year, we plan to shorten the Funds' average maturities
to below neutral in anticipation of a potential Federal Reserve tightening. This
will be accomplished through maintaining a significant overnight position and
constraining our term purchases to one through three month investments. In
addition, we will look to increase our floating rate note positions.
- ------------
* Note: This move occurred in late March of 1997, subsequent to the close of
the Fund year.
** The composition of the Funds' holdings are subject to change.
20
<PAGE> 23
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (in thousands)
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP BOND
FUND FUND 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... $173,960 $274,278 $39,388
Receivable from Administrator..................... -- 115 10
Deferred organization costs, prepaid expenses and
other receivables............................... 22 25 36
-------- -------- -------
Total Assets........................................ 173,982 274,418 39,434
-------- -------- -------
LIABILITIES:
Reports to shareholders expense payable........... 44 48 49
Administration fees payable....................... 39 61 9
Shareholder service fees payable.................. 34 53 8
Custodian fees payable............................ 4 6 1
Audit fees payable................................ 10 11 10
Legal fees payable................................ 10 14 5
Other accrued expenses............................ 19 5 2
-------- -------- -------
Total Liabilities................................... 160 198 84
-------- -------- -------
NET ASSETS.......................................... $173,822 $274,220 $39,350
======== ======== =======
Shares Outstanding (no par value, unlimited number
of shares authorized)............................. 10,907 11,127 3,679
======== ======== =======
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE......................................... $ 15.94 $ 24.64 $ 10.70
======== ======== =======
COMPOSITION OF NET ASSETS:
Paid-in capital................................... $145,116 $189,975 $41,920
Accumulated net realized gains (losses) on
investment transactions......................... 11,252 33,987 (2,427)
Net unrealized appreciation (depreciation) on
investments..................................... 17,391 49,708 (185)
Undistributed net investment income............... 63 550 42
-------- -------- -------
NET ASSETS, FEBRUARY 28,1997........................ $173,822 $274,220 $39,350
======== ======== =======
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 24
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations (in thousands)
For the year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP BOND
FUND FUND 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 income................................................ $ 4,528 $ 407 $ 2,632
Dividend income................................................ 1,720 4,956 --
------- ------- ------
Total Income................................................... 6,248 5,363 2,632
------- ------- ------
Expenses....................................................... 1,195 2,124 276
Less: Fee waivers.............................................. (690) (673) (142)
------- ------- ------
505 1,451 134
------- ------- ------
Net Investment Income from Master Investment Trust, Series I --
Asset Allocation Portfolio, Blue Chip Portfolio and Investment
Grade Bond Portfolio, respectively............................... 5,743 3,912 2,498
------- ------- ------
EXPENSES:
Administration fees.............................................. 472 679 124
Shareholder service fees......................................... 408 585 107
Custodian fees and expenses...................................... 49 70 12
Legal fees....................................................... 34 47 20
Registration fees................................................ 18 33 13
Reports to shareholders.......................................... 26 19 27
Audit fees....................................................... 15 21 8
Trustees' fees................................................... 16 13 3
Amortization of organization costs............................... 8 8 6
Other operating expenses......................................... 22 27 23
------- ------- ------
Total Expenses............................................... 1,068 1,502 343
Less: Fee waivers................................................. (27) (799) (71)
------- ------- ------
Total Net Expenses 1,041 703 272
------- ------- ------
NET INVESTMENT INCOME............................................. 4,702 3,209 2,226
------- ------- ------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I--ASSET ALLOCATION PORTFOLIO, BLUE CHIP
PORTFOLIO AND INVESTMENT GRADE BOND PORTFOLIO, RESPECTIVELY
Net realized gains (losses) on investment transactions........... 19,788 45,672 (428)
Net change in unrealized appreciation (depreciation) on
investments.................................................... 2,766 9,802 (328)
------- ------- ------
Net realized/unrealized gains (losses) on investments from Master
Investment Trust, Series I -- Asset Allocation Portfolio, Blue
Chip
Portfolio and Investment Grade Bond Portfolio, respectively...... 22,554 55,474 (756)
------- ------- ------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 27,256 $ 58,683 $ 1,470
======= ======= ======
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 25
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
----------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ $ 4,702 $ 4,869
Net realized gains on investment transactions........ 19,788 18,289
Net change in unrealized appreciation on
investments........................................ 2,766 7,580
-------- --------
Change in net assets resulting from operations......... 27,256 30,738
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (4,682) (4,869)
Net realized gains from investment transactions...... (11,984) (10,103)
-------- --------
Change in net assets from shareholder distributions.... (16,666) (14,972)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.......................... 14,147 14,252
Dividends reinvested................................. 16,206 14,972
Cost of shares redeemed.............................. (25,606) (31,637)
-------- --------
Change in net assets from capital share transactions... 4,747 (2,413)
-------- --------
Change in net assets................................... 15,337 13,353
NET ASSETS:
Beginning of year.................................... 158,485 145,132
-------- --------
End of year.......................................... $173,822 $158,485
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 26
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP FUND
----------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ $ 3,209 $ 2,742
Net realized gains on investment transactions........ 45,672 19,935
Net change in unrealized appreciation on
investments........................................ 9,802 28,575
-------- --------
Change in net assets resulting from operations......... 58,683 51,252
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................. (3,145) (2,736)
Net realized gains from investment transactions.... (17,528) (14,510)
-------- --------
Change in net assets from shareholder distributions.... (20,673) (17,246)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.......................... 41,915 34,754
Dividends reinvested................................. 20,674 17,246
Cost of shares redeemed.............................. (32,599) (31,053)
-------- --------
Change in net assets from capital share transactions... 29,990 20,947
-------- --------
Change in net assets................................... 68,000 54,953
NET ASSETS:
Beginning of year.................................... 206,220 151,267
-------- --------
End of year.......................................... $274,220 $206,220
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 27
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (in thousands) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND FUND
----------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ $ 2,226 $ 2,970
Net realized gains (losses) on investment
transactions....................................... (428) 2,153
Net change in unrealized/depreciation on
investments........................................ (328) (139)
-------- --------
Change in net assets resulting from operations......... 1,470 4,984
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (2,207) (2,970)
-------- --------
Change in net assets from shareholder distributions.... (2,207) (2,970)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.......................... 2,592 3,242
Dividends reinvested................................. 2,054 2,970
Cost of Shares redeemed.............................. (11,621) (16,954)
-------- --------
Change in net assets from capital share transactions... (6,975) (10,742)
-------- --------
Change in net assets................................... (7,712) (8,728)
NET ASSETS:
Beginning of year.................................... 47,062 55,790
-------- --------
End of year.......................................... $ 39,350 $ 47,062
======== ========
</TABLE>
- ---------------
See Notes to Financial Statements.
24
<PAGE> 28
SEAFIRST RETIREMENT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
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 28, 1997, the Company
consisted of three funds--the Asset Allocation Fund, the Blue Chip Fund and the
Bond Fund (individually an "SRF Fund" and 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, (individually a "Portfolio" and collectively the
"Portfolios" ), that has the same investment objectives as that of the SRF
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 28, 1997, the SRF Funds held proportionate interests in the
corresponding Portfolios in the following amounts:
<TABLE>
<S> <C>
Asset Allocation Fund............................................ 82.9%
Blue Chip Fund................................................... 57.6%
Bond Fund........................................................ 28.3%
</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.
Bank of America National Trust and Savings Association ("Bank of America")
serves as the Company's administrator and Concord Financial Group, Inc. (the
"Distributor"), an indirect wholly-owned subsidiary of BISYS Fund Services,
Limited Partnership ("BISYS"), serves as the distributor of the Company's
shares. Bank of America also serves as transfer and dividend disbursing agents
of the SRF Funds.
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 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.
25
<PAGE> 29
INVESTMENT INCOME AND EXPENSES:
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 the value of their investments in each Portfolio. 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.
Expenses directly attributable to each SRF Fund are charged directly to the
respective SRF Fund, while general Company expenses attributed to more than one
SRF Fund of the Company are allocated among the respective SRF Funds.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The SRF Funds net investment income, if any is declared and paid as a
dividend quarterly for the Blue Chip Fund and monthly for the Asset Allocation
Fund and the Bond Fund to shareholders of record on the date of declaration. Net
realized gains on portfolio securities, if any, are distributed at least
annually. However, to the extent that net realized gains of an SRF Fund can be
offset by capital loss carryovers of the SRF Funds, such gains will not be
distributed. Dividends and distributions are recorded on the ex-dividend date.
The amount of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or 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.
As of February 28, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET REALIZED
NET INVESTMENT GAIN/(LOSS)
INCOME ON INVESTMENTS
-------------- --------------
<S> <C> <C>
Asset Allocation Fund................. $ 42,555 $(42,555)
Blue Chip Fund........................ 7,714 (938)
Bond Fund............................. 22,833 (11,531)
</TABLE>
26
<PAGE> 30
FEDERAL INCOME TAXES:
It is the policy of the SRF Funds to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute timely all of their net investment company taxable income to
shareholders. Therefore, no federal income tax provision is required.
At February 28, 1997, the Bond Fund had net capital loss carryovers in the
amount of $2,426,328 which may be used to offset any future net capital gains,
if any, to the extent provided by Treasury regulations. Any such unused capital
loss carryovers will expire as follows:
<TABLE>
<S> <C>
2003......................................................... $1,996,470
2005......................................................... 429,858
</TABLE>
To the extent that these carryovers are used to offset future capital gains, it
is probable that the gains so offset will not be distributed to shareholders.
OTHER:
The SRF Funds incurred certain costs in connection with their organization.
These costs have been deferred and are being amortized on a straight-line basis
through June 30, 1997 (see Note 5).
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The SRF Funds have an Administration Agreement with Bank of America and a
Distribution Agreement with the Distributor. In addition, Bank of America has
entered into a Sub-Administration Agreement with Concord Holding Corp.
("Concord"), a wholly owned subsidiary of BISYS.
As Administrator, Bank of America assists in supervising the operations of
the SRF Funds. Pursuant to the terms of the Administration Agreement, Bank of
America 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 the SRF Funds. Pursuant to the terms of the
Sub-Administration Agreement, Concord is entitled to a fee, payable by Bank of
America, 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.
Bank of America has agreed to reimburse the SRF Funds in such amounts as are
necessary to limit the expenses of the SRF Funds, including their pro rata
shares of the expenses incurred by the corresponding Portfolio, to specified
levels depending on the levels of assets of the Portfolios in which the SRF
Funds invest their assets. In any given fiscal year, Bank of America's
reimbursement will be in an amount sufficient to limit such expenses of
27
<PAGE> 31
each Fund to 0.95%, 0.85% or 0.75% of the Fund's average daily net assets if the
average daily net assets of the Portfolio in which the Fund invests in such year
are less than $250 million, between $250 million and $500 million, or more than
$500 million, respectively. For the year ended February 28, 1997, Bank of
America waived fees in the following amounts so that the SRF Funds could meet
this expense limitation:
<TABLE>
<S> <C>
Asset Allocation Fund......................................... $ 27,430
Blue Chip Fund................................................ 799,210
Bond Fund..................................................... 71,367
</TABLE>
The SRF Funds have a Shareholder Services Plan (the "Plan") under which each
SRF Fund pays the Distributor for shareholder servicing expenses incurred in
connection with shares of the SRF Funds. Under the Plan, payments for
shareholder servicing expenses may not exceed 0.25% (annualized) of each Fund's
average daily net assets. For the year ended February 28, 1997, the SRF Funds
paid the following amounts to Bank of America in connection with the Plan:
<TABLE>
<S> <C>
Asset Allocation Fund......................................... $407,605
Blue Chip Fund................................................ 585,325
Bond Fund..................................................... 106,690
</TABLE>
For services provided to the Company, each Trustee receives an annual fee of
$4,000 and a meeting fee of $500. For the year ended February 28, 1997 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......................................... $ 33,721
Blue Chip Fund................................................ 47,109
Bond Fund..................................................... 20,280
</TABLE>
Certain officers of the Company are affiliated with Concord. Such persons
are not paid directly by the Company for serving in these capacities.
NOTE 4 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the SRF Funds for the year ended February 28, 1997
are summarized below:
<TABLE>
<CAPTION>
ASSET
ALLOCATION BLUE CHIP BOND
---------- ---------- ----------
<S> <C> <C> <C>
Shares issued.................................. 921,852 1,876,665 241,564
Shares reinvested.............................. 1,055,522 916,735 192,180
Shares redeemed................................ (1,662,650) (1,444,910) (1,085,002)
---------- ---------- ----------
Net increase/(decrease)........................ 314,724 1,348,490 (651,258)
========== ========== ==========
</TABLE>
28
<PAGE> 32
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 issued.................................. 977,718 1,773,483 300,687
Shares reinvested.............................. 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 -- PROPOSED REORGANIZATION OF SEAFIRST FUNDS
On October 29, 1996, the Board of Trustees of the Seafirst Retirement Funds
and Board of Directors of the Pacific Horizon Funds, Inc., voted to approve the
merger of the Funds with respect to the Blue Chip, Asset Allocation and
Intermediate Bond portfolios of the Pacific Horizon Funds Inc. Under the terms
of the reorganization, the assets and liabilities of the Seafirst Blue Chip,
Seafirst Asset Allocation and Seafirst Bond Funds would be exchanged for a newly
formed class of shares of the Pacific Horizon Blue Chip, Pacific Horizon Asset
Allocation and Pacific Horizon Intermediate Bond Funds, respectively, and the
Seafirst Funds will be liquidated.
Upon consummation of the merger of the Seafirst Asset Allocation Fund into
the Pacific Horizon Asset Allocation Fund the combined fund will withdraw its
investment in the Asset Allocation Portfolio and engage Bank of America to
manage its assets directly.
The reorganization is subject to shareholder approval and, if approved, is
expected to be completed by June 30, 1997.
NOTE 6 -- FEDERAL INCOME TAX INFORMATION (UNAUDITED)
During the year ended February 28, 1997, the following Funds declared
long-term capital distributions in the following amounts:
<TABLE>
<S> <C>
Asset Allocation Fund....................................... $ 7,408,230
Blue Chip Fund.............................................. 12,938,068
Bond Fund................................................... 0
</TABLE>
For the taxable year ended February 28, 1997, the following percentage of
income dividends paid by the SRF Funds qualify for the dividends received
deduction available to corporations:
<TABLE>
<CAPTION>
QUALIFIED
DIVIDEND INCOME
---------------
<S> <C>
Asset Allocation Fund.................................. 11.37%
Blue Chip Fund......................................... 31.66%
</TABLE>
29
<PAGE> 33
SEAFIRST RETIREMENT FUNDS -- ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
------------------------
DECEMBER JANUARY
6, 1,
YEAR ENDED 1993 1993 YEAR
--------------------------------------- THROUGH THROUGH ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY DECEMBER DECEMBER
28, 29, 28, 28, 5, 31,
1997 1996 1995 1994 1993(A) 1992(A)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR.............. $ 14.96 $ 13.48 $ 13.94 $ 13.86 $ 12.99 $ 12.75
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income.......... 0.45 0.47 0.46 0.05 0.43 0.46
Net realized and unrealized
gains on investments......... 2.13 2.49 0.12 0.08 0.87 0.24
-------- -------- -------- -------- -------- --------
Total income from investment
operations..................... 2.58 2.96 0.58 0.13 1.30 0.70
-------- -------- -------- -------- -------- --------
Less Dividends and
Distributions:
Dividends to shareholders from
net investment income........ (0.45) (0.47) (0.46) (0.05) (0.43) (0.46)
Distributions to shareholders
from net realized gains...... (1.15) (1.01) (0.58) -- -- --
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.................. (1.60) (1.48) (1.04) (0.05) (0.43) (0.46)
-------- -------- -------- -------- -------- --------
Net change in net asset value
per share...................... 0.98 1.48 (0.46) 0.08 0.87 0.24
-------- -------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR........................ $ 15.94 $ 14.96 $ 13.48 $ 13.94 $ 13.86 $ 12.99
======== ======== ======== ======== ======== ========
Total Return.................... 18.03% 22.44% 4.49% 0.94%** 10.15%** 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)................... $ 174 $ 158 $ 145 $ 157 $ 150 $ 107
Ratio of expenses to average net
assets......................... 0.95% 0.94% 0.78% 0.95%+ 0.95%+ 0.95%
Ratio of net investment income
to average net assets.......... 2.88% 3.19% 3.40% 2.64%+ 3.47%+ 3.68%
Ratio of expenses to average net
assets*........................ 1.39% 1.42% 1.38% 1.64%+ 0.95%+ 0.95%
Ratio of net investment income
to average net assets*......... 2.44% 2.71% 2.80% 1.95%+ 3.47%+ 3.68%
Portfolio turnover rate......... N/A N/A N/A N/A 79% 171%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
** Not annualized.
+ Annualized.
(a) 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.
See Notes to Financial Statements.
30
<PAGE> 34
SEAFIRST RETIREMENT FUNDS -- BLUE CHIP FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
------------------------
DECEMBER JANUARY
6, 1,
YEAR ENDED 1993 1993 YEAR
--------------------------------------- THROUGH THROUGH ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY DECEMBER DECEMBER
28, 29, 28, 28, 5, 31,
1997 1996 1995 1994 1993(A) 1992(A)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR.............. $ 21.09 $ 17.35 $ 17.75 $ 17.34 $ 15.65 $ 15.17
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income.......... 0.31 0.31 0.28 0.05 0.29 0.30
Net realized and unrealized
gains on investments......... 4.83 5.35 0.88 0.37 1.69 0.48
-------- -------- -------- -------- -------- --------
Total income from investment
operations..................... 5.14 5.66 1.16 0.42 1.98 0.78
-------- -------- -------- -------- -------- --------
Less Dividends and
Distributions:
Dividends to shareholders from
net investment income........ (0.31) (0.31) (0.26) (0.01) (0.29) (0.30)
Distributions to shareholders
from net realized gains...... (1.28) (1.61) (1.30) -- -- --
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.................. (1.59) (1.92) (1.56) (0.01) (0.29) (0.30)
-------- -------- -------- -------- -------- --------
Net change in net asset value
per share...................... 3.55 3.74 (0.40) 0.41 1.69 0.48
-------- -------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR........................ 24.64 $ 21.09 $ 17.35 $ 17.75 $ 17.34 $ 15.65
======== ======== ======== ======== ======== ========
Total Return.................... 27.42% 33.37% 6.95% 2.42%** 12.74%** 5.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)................... $ 274 $ 206 $ 151 $ 133 $ 123 $ 96
Ratio of expenses to average
net assets................... 0.92% 0.95% 0.82% 0.95%+ 0.95%+ 0.95%
Ratio of net investment income
to average net assets........ 1.37% 1.53% 1.64% 1.28%+ 1.91%+ 2.08%
Ratio of expenses to average
net assets*.................. 1.55% 1.54% 1.62% 1.88%* 0.95%+ 0.95%
Ratio of net investment income
to average net assets*....... 0.74% 0.94% 0.84% 0.35%* 1.91%+ 2.08%
Portfolio turnover rate........ N/A N/A N/A N/A 4% 27%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
** Not annualized.
+ Annualized.
(a) 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.
See Notes to Financial Statements.
31
<PAGE> 35
SEAFIRST RETIREMENT FUNDS -- BOND FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
------------------------
DECEMBER JANUARY
6, 1,
YEAR ENDED 1993 1993 YEAR
--------------------------------------- THROUGH THROUGH ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY DECEMBER DECEMBER
28, 29, 28, 28, 5, 31,
1997 1996 1995 1994 1993(A) 1992(A)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE,
BEGINNING OF YEAR.............. $ 10.87 $ 10.48 $ 11.00 $ 11.14 $ 10.99 $ 11.01
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income.......... 0.57 0.64 0.61 0.12 0.58 0.67
Net realized and unrealized
gain (loss) on securities.... (0.18) 0.39 (0.46) (0.14) 0.15 (0.02)
-------- -------- -------- -------- -------- --------
Total income (loss) from
investment operations.......... 0.39 1.03 0.15 (0.02) 0.73 0.65
-------- -------- -------- -------- -------- --------
Less Dividends and
Distributions:
Dividends to shareholders from
net investment income........ (0.56) (0.64) (0.61) (0.12) (0.58) (0.67)
Distributions to shareholders
from net realized gains...... -- -- (0.06) -- -- --
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions.................. (0.56) (0.64) (0.67) (0.12) (0.58) (0.67)
-------- -------- -------- -------- -------- --------
Net change in net asset value
per share...................... (0.17) 0.39 (0.52) (0.14) 0.15 (0.02)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END
OF YEAR........................ $ 10.70 $ 10.87 $ 10.48 $ 11.00 $ 11.14 $ 10.99
======== ======== ======== ======== ======== ========
Total Return.................... 3.74% 9.90% 1.57% (0.23)%** 6.80%** 6.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)................... $ 39 $ 47 $ 56 $ 77 $ 83 $ 74
Ratio of expenses to average
net assets................... 0.95% 0.95% 0.83% 0.95%+ 0.95%+ 0.95%
Ratio of net investment income
to average net assets........ 5.21% 5.74% 5.64% 4.38%+ 5.60%+ 6.15%
Ratio of expenses to average
net assets*.................. 1.45% 1.56% 1.41% 1.79%+ 0.95%+ 0.95%
Ratio of net investment income
to average net assets*....... 4.71% 5.13% 5.06% 3.54%+ 5.60%+ 6.15%
Portfolio turnover rate........ N/A N/A N/A N/A 95% 154%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
** Not annualized.
+ Annualized.
(a) 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.
See Notes to Financial Statements.
32
<PAGE> 36
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 28,
1997, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as 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 the
year ended December 31, 1992 were audited by other independent accountants whose
report dated December 30, 1993 expressed an unqualified opinion on those
financial highlights.
As more fully described in Note 6, a proposal to merge the Funds with an
affiliated fund group is under consideration.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 21, 1997
33
<PAGE> 37
MASTER INVESTMENT TRUST SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------ -----------
<S> <C> <C>
COMMON STOCKS -- 58.7%
AEROSPACE/AIRLINES -- 1.0%
AMR Corp.**............................................................. 5,300 $ 416,713
Boeing Co. ............................................................. 16,500 1,678,875
2,095,588
ALUMINUM -- 0.4%
Aluminum Co. of America ................................................ 12,400 883,500
AUTOMOBILES -- 1.2%
Ford Motor ............................................................. 28,400 933,650
General Motors Corp. ................................................... 26,700 1,545,263
2,478,913
AUTOMOBILE PARTS -- 0.1%
Cooper Tire & Rubber ................................................... 15,600 310,050
BANKS -- 3.9%
Banc One Corp. ......................................................... 50,300 2,219,488
Chase Manhattan Corp. .................................................. 18,700 1,872,337
CitiCorp. .............................................................. 15,800 1,844,650
Wells Fargo Co. ........................................................ 7,100 2,160,175
8,096,650
BEVERAGES -- 2.1%
Anheuser-Busch Co. ..................................................... 19,800 881,100
Coca-Cola Co. .......................................................... 43,800 2,671,800
Pepsico, Inc. .......................................................... 25,400 835,025
4,387,925
BROKERAGE -- 1.3%
Dean Witter ............................................................ 70,400 2,701,600
CHEMICALS -- 1.9%
E.I. Du Pont De Nemours & Co. .......................................... 19,900 2,134,275
Monsanto Corp. ......................................................... 52,100 1,895,138
4,029,413
COMPUTER SOFTWARE/HARDWARE -- 3.9%
Automatic Data Processing, Inc. ........................................ 15,900 677,737
Hewlett Packard Co. .................................................... 17,400 974,400
IBM..................................................................... 7,700 1,106,875
Microsoft Corp. ........................................................ 34,800 3,393,000
Silicon Graphics** ..................................................... 28,100 677,913
Seagate Technology** ................................................... 30,100 1,422,225
8,252,150
</TABLE>
- ---------------
See Notes to Financial Statements.
34
<PAGE> 38
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COSMETICS/HOUSEHOLD PRODUCTS -- 2.3%
Colgate-Palmolive Co. .................................................. 6,800 $ 703,800
Gillette Co. ........................................................... 13,300 1,052,363
Masco Corp. ............................................................ 16,200 569,025
Newell Co. ............................................................. 12,000 445,500
Proctor & Gamble Co. ................................................... 17,700 2,126,212
4,896,900
ELECTRICAL PRODUCTS -- 2.8%
Emerson Electric Co. ................................................... 15,000 1,485,000
General Electric Co. ................................................... 42,300 4,351,613
5,836,613
ELECTRONIC SEMICONDUCTORS -- 2.8%
Intel Corp. ............................................................ 34,000 4,823,750
National Semiconductors Corp. .......................................... 38,000 992,750
5,816,500
ELECTRIC UTILITIES -- 0.3%
Duke Power Co. ......................................................... 13,800 610,650
FINANCIAL SERVICES -- 2.9%
American Express ....................................................... 42,100 2,752,287
First Data Corp. ....................................................... 50,400 1,845,900
Household International, Inc.+ ......................................... 15,900 1,540,313
6,138,500
FOOD -- 1.9%
Archer Daniels Midland Co. ............................................. 19,100 353,350
Conagra, Inc. .......................................................... 18,900 1,001,700
Kellogg Co. ............................................................ 20,200 1,383,700
Ralston Purina Co. ..................................................... 14,500 1,190,813
3,929,563
GAS UTILITIES -- 1.0%
Columbia Gas Systems, Inc. ............................................. 31,900 1,874,125
Praxair, Inc. .......................................................... 4,600 223,675
2,097,800
HOSPITAL CARE -- 1.0%
Abbott Laboratories .................................................... 11,900 669,375
Becton Dickinson & Co. ................................................. 18,600 916,050
Johnson & Johnson ...................................................... 7,600 437,950
2,023,375
INSURANCE -- LIFE -- 0.4%
Providian Corp. ........................................................ 14,200 793,425
INSURANCE -- PROPERTY AND CASUALTY -- 1.0%
American Intl. Group, Inc.+ ............................................ 5,100 617,100
Chubb Corp. ............................................................ 26,300 1,541,838
2,158,938
LEISURE -- 0.80%
Disney Walt Co. ........................................................ 11,400 846,450
Hilton Hotels Corp. .................................................... 10,500 263,813
ITT Corp. .............................................................. 6,500 367,250
Mattel, Inc. ........................................................... 10,300 256,213
1,733,726
</TABLE>
- ---------------
See Notes to Financial Statements.
35
<PAGE> 39
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
MANUFACTURING -- MACHINERY -- 1.1%
General Signal Corp. ................................................... 20,000 $ 872,500
Illinois Tools Work, Inc. .............................................. 16,200 1,366,875
2,239,375
MEDIA -- 0.8%
ACNielsen .............................................................. 1 15
Gannett, Inc. .......................................................... 3,600 287,100
McGraw Hill Companies .................................................. 6,500 337,187
Time Warner, Inc. ...................................................... 14,400 590,400
Tribune Co. ............................................................ 14,400 565,200
1,779,902
MULTI INDUSTRIES -- 3.9%
Cognizant Corp. ........................................................ 7,600 265,050
Corning, Inc. .......................................................... 18,300 688,537
Pacific Enterprises .................................................... 25,100 765,550
Sherwin Williams ....................................................... 12,300 690,337
Tenneco, Inc. .......................................................... 20,800 819,000
TRW, Inc. .............................................................. 29,200 1,529,350
Tyco Labs, Inc. ........................................................ 32,700 1,929,300
Whitman Corp. .......................................................... 27,200 639,200
7,326,324
NATURAL ENERGY -- 0.8%
Coastal Corp. .......................................................... 19,000 864,500
Panenergy Corp. ........................................................ 19,400 826,925
1,691,425
OIL INTERNATIONAL -- 3.0%
Chevron Corp. .......................................................... 11,600 748,200
Exxon Corp. ............................................................ 18,500 1,847,688
Mobil Corp. ............................................................ 8,700 1,067,925
Texaco, Inc. ........................................................... 8,500 840,438
USX Marathon Corp. ..................................................... 22,800 607,050
Williams Co. ........................................................... 25,050 1,095,938
6,207,239
OIL SERVICE -- 0.6%
Schlumberger Ltd. ...................................................... 6,500 654,063
Haliburton Co. ......................................................... 12,000 775,495
1,429,558
PAPER PRODUCTS -- 1.6%
Kimberly Clark Corp. ................................................... 8,400 890,400
Ikon Office Solutions, Inc. ............................................ 44,000 1,815,000
International Paper Co.+ ............................................... 14,500 605,375
3,310,775
PHARMACEUTICALS -- 5.7%
American Home Products Corp. ........................................... 19,900 1,273,600
Amgen, Inc. ............................................................ 9,500 580,688
Bristol-Meyers ......................................................... 15,700 2,048,850
Lilly (Eli) & Co. ...................................................... 18,700 1,633,913
Medtronic, Inc. ........................................................ 7,700 498,575
Merck & Co., Inc. ...................................................... 28,700 2,640,400
Pfizer, Inc. ........................................................... 15,700 1,438,513
Schering Plough Corp. .................................................. 9,800 750,925
Warner Lambert Co. ..................................................... 12,700 1,066,800
11,932,264
</TABLE>
- ---------------
See Notes to Financial Statements.
36
<PAGE> 40
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
PHOTOGRAPHY -- 0.2%
Eastman Kodak Co. ...................................................... 4,500 $ 403,313
RAILROAD -- 0.7%
Burlington Northern Santa Fe ........................................... 6,800 566,100
Caliber Systems, Inc. .................................................. 16,000 364,000
Union Pacific Corp. .................................................... 7,200 433,800
1,363,900
RETAIL -- 1.8%
Home Depot, Inc. ....................................................... 21,800 1,188,100
May Dept. Stores ....................................................... 16,700 778,638
Wal-Mart Stores, Inc. .................................................. 68,000 1,793,500
3,760,238
RETAIL -- MANUFACTURING -- 0.3%
Costco Companies, Inc. ................................................. 27,900 714,933
TELECOMMUNICATIONS -- 1.6%
3 Com Corp.** .......................................................... 10,400 344,338
Cisco Systems .......................................................... 21,800 1,212,625
Lucent Technologies .................................................... 17,700 953,588
Motorola, Inc. ......................................................... 13,700 765,488
3,276,039
TELEPHONE -- 2.9%
GTE .................................................................... 28,500 1,332,375
MCI Communications Corp. ............................................... 63,700 2,277,275
Worldcom, Inc. ......................................................... 90,500 2,409,563
6,019,213
TOBACCO -- 1.1%
Philip Morris Cos., Inc. ............................................... 17,600 2,378,200
Total Common Stocks
(cost $102,858,429) .................................................. 123,104,477
</TABLE>
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- 2.2%
Cargill ..................... AAA/Aaa* 5.35% 03/03/97 $2,000,000 $ 2,000,000
Philip Morris ............... AAA/Aaa* 5.36% 03/03/97 2,700,000 2,700,000
------------
Total Commercial Paper
(cost $4,700,000) ........... 4,700,000
------------
CORPORATE OBLIGATIONS -- 16.4%
CORPORATE BONDS -- 10.2%
Lehman Brothers ............. A/Baa1 5.75% 11/15/98 1,000,000 989,920
Ford Motor Credit ........... A+/A1 9.50% 04/15/00 2,750,000 2,966,562
General Motors .............. A-/A3 6.88% 07/15/01 2,000,000 2,002,500
Morgan Stanley .............. A+/A1+ 8.88% 10/15/01 3,800,000 4,113,500
NationsBank Credit
Transfer .................. AAA/Aaa 6.45% 04/15/03 3,500,000 3,504,563
The Money Storetrust
1996-B .................... AAA/Aaa 7.38% 05/15/17 3,500,000 3,544,040
Cook Co. .................... AAA/Aaa 5.00% 11/15/23 800,000 716,000
First Union Corp. ........... A-/A2 6.55% 10/15/35 3,600,000 3,528,000
------------
21,365,085
------------
</TABLE>
- ---------------
See Notes to Financial Statements.
37
<PAGE> 41
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
MEDIUM TERM NOTES -- 6.2%
Province of Quebec+ ......... A+/A1 7.98% 04/01/99 $3,000,000 $ 3,090,000
Bank of Novia Scotia ........ A+/A1 9.00% 10/01/99 1,400,000 1,482,250
General Motors Accept
Corp. ..................... A-/A3 7.38% 04/25/00 2,000,000 2,040,000
International Lease
Finance ................... A+/A1 5.71% 02/01/00 1,600,000 1,560,000
Chrysler Financial Corp. .... A-/A3 5.63% 02/16/01 2,500,000 2,403,125
PaineWebber Group ........... BBB+/Baa1 7.02% 02/10/04 2,500,000 2,481,250
------------
13,056,625
------------
Total Corporate Obligations
(cost $34,375,810) .......... 34,421,710
------------
EUROPEAN GOVERNMENT BONDS -- 1.3%
Republic of Italy Z.C.B.+
(cost $2,689,776)............ AA/Aa3 0.00% 01/10/01 3,500,000 2,712,483
------------
2,712,483
------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 8.6%
U.S. TREASURY BONDS -- 6.1%
U.S. Treasury Bond .......... 8.13%* 08/15/21 $4,500,000 $ 5,120,325
U.S. Treasury Bond .......... 10.38%* 11/15/12 6,100,000 7,766,215
------------
12,886,540
------------
U.S. TREASURY NOTES -- 2.5%
U.S. Treasury Note .......... 7.75%* 01/31/00 1,000,000 1,039,810
U.S. Treasury Note .......... 7.88%* 11/15/04 2,000,000 2,159,199
U.S. Treasury Note .......... 6.25%* 02/15/07 2,000,000 1,956,680
------------
5,155,689
------------
Total U.S. Government Obligations
(cost $18,104,061) .......... 18,042,229
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 12.3%
Federal Home Loan Mortage
Corporation Pool #G10304... 6.50% 04/01/09 834,572 821,010
Federal Home Loan Mortage
Corporation Pool #E60891... 6.50% 07/01/10 2,990,553 2,941,957
Federal Home Loan Mortage
Corporation Pool #297505... 8.00% 06/01/17 12,091 12,458
Federal Home Loan Mortage
Corporation Pool #533301... 10.50% 04/01/19 32,105 35,516
Federal Home Loan Mortage
Corporation Pool #544066... 8.00% 12/01/19 9,681 9,950
FNCL Pool #325602............ 6.50% 10/01/10 541,479 530,311
FNCL Pool #313349............ 10.00% 01/01/27 1,435,941 1,570,113
Government National Mortage
Association Pool #146301... 10.00% 02/15/16 88,721 98,010
GNSF Pool #278853............ 9.00% 11/15/19 363,928 389,176
GNSF Pool #276635............ 9.00% 12/15/19 261,749 279,909
GNSF Pool #780330............ 9.00% 12/15/19 1,337,058 1,426,474
GNSF Pool #283578............ 8.00% 01/15/20 86,356 89,190
GNSF Pool #231236............ 9.00% 01/15/20 235,714 252,067
GNSF Pool #258039............ 9.00% 01/15/20 244,249 261,194
GNSF Pool #234214............ 8.00% 03/15/20 99,933 103,213
GNSF Pool #318567............ 8.00% 01/15/20 15,326 15,724
GNSF Pool #317275............ 8.00% 02/15/22 14,361 14,724
</TABLE>
- ---------------
See Notes to Financial Statements.
38
<PAGE> 42
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
GNSF Pool #312656............ 8.00% 02/15/22 $ 508,868 $ 521,908
GNSF Pool #316108............ 8.00% 03/15/22 469,731 481,621
GNSF Pool #316859............ 8.00% 03/15/22 733,202 751,761
GNSF Pool #311456............ 8.00% 04/15/22 583,346 598,113
GNSF Pool #321799............ 8.00% 04/15/22 432,745 443,699
GNSF Pool #323085............ 8.00% 05/15/22 930,574 954,130
GNSF Pool #373336............ 7.50% 05/15/22 712,481 714,709
GNSF Pool #373346............ 7.50% 06/15/22 831,715 834,315
GNSF Pool #388995............ 7.50% 07/15/22 848,858 851,511
GNSF Pool #389002............ 7.50% 08/15/22 663,282 665,356
GNSF Pool #342065............ 8.00% 11/15/22 354,092 362,944
GNSF Pool #295283............ 7.50% 11/15/22 971,224 974,563
GNSF Pool #780227............ 8.00% 12/15/22 194,181 198,733
GNSF Pool #350519............ 7.00% 06/15/23 17,744 17,384
GNSF Pool #326465............ 7.00% 11/15/23 1,076,065 1,054,208
GNSF Pool #369671............ 7.00% 12/15/23 2,361,236 2,313,274
GNSF Pool #371045............ 8.00% 02/15/24 284,104 291,119
FGLMC Pool #D66935........... 7.50% 01/01/26 389,133 389,499
FGLMC Pool #D66969........... 7.50% 01/01/26 855,984 857,589
FGLMC Pool #D68671........... 7.50% 02/01/26 595,875 596,434
FGLMC Pool #D69671........... 7.50% 03/01/26 33,129 33,182
FGLMC Pool #D70402........... 7.50% 03/01/26 99,467 99,592
FGLMC Pool #D69839........... 7.50% 04/01/26 475,749 476,492
FGLMC Pool #D69930........... 7.50% 04/01/26 455,003 455,714
FGLMC Pool #D70086 .......... 7.50% 04/01/26 574,719 575,617
FGLMC Pool #D71116 .......... 7.50% 05/01/26 97,413 97,565
FGLMC Pool #D71404 .......... 7.50% 05/01/26 1,263,897 1,265,873
------------
Total U.S. Government Agency
Obligations (cost
$25,725,743) ................ 25,727,901
------------
TOTAL INVESTMENTS -- 99.5%
(COST $188,453,819)(A)....... 208,708,800
Other assets in excess of
liabilities -- 0.5% ......... 1,060,303
------------
NET ASSETS -- 100.0% $209,769,103
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $209,769,103.
(a) Represents cost for federal income tax and book purposes and differs from
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation ................................................... $22,060,999
Unrealized depreciation ................................................... (1,806,018)
-----------
Net unrealized appreciation ............................................... $20,254,981
===========
</TABLE>
Z.C.B. -- Zero Coupon Bond.
+ Foreign issuer
* Effective yield
** Non-income producing security
- ---------------
See Notes to Financial Statements.
39
<PAGE> 43
MASTER INVESTMENT TRUST SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------- -----------
<S> <C> <C>
COMMON STOCKS -- 97.2%
AEROSPACE/DEFENSE -- 1.7%
Lockheed Martin Corp. ................................................. 49,500 $ 4,380,750
Rockwell International ................................................ 55,600 3,600,100
7,980,850
AIRLINES -- 0.3%
Delta Airlines ........................................................ 17,900 1,440,950
APPAREL -- 0.9%
Nike, Inc. ............................................................ 57,600 4,140,000
AUTOMOBILES -- 1.8%
Chrysler Corp. ........................................................ 132,900 4,501,988
General Motors Corp. .................................................. 67,100 3,883,412
8,385,400
BANKS -- 9.3%
Bank of Boston Corp. .................................................. 102,800 7,748,550
Barnett Banks, Inc. ................................................... 74,600 3,450,250
Chase Manhattan Corp. ................................................. 73,600 7,369,200
Citicorp .............................................................. 34,600 4,039,550
Comerica .............................................................. 88,600 5,327,075
First Union Corp. ..................................................... 83,900 7,362,225
Mellon Bank Corp. ..................................................... 67,700 5,441,388
Nations Bank Corp. .................................................... 61,000 3,652,375
44,390,613
BEVERAGES-SOFT DRINKS -- 3.1%
Coca-Cola Co. ......................................................... 242,400 14,786,400
BROKERAGE -- 1.3%
Dean Witter ........................................................... 162,100 6,220,588
BUILDING MATERIALS -- 0.4%
Armstrong World Industries ............................................ 28,400 1,956,050
CHEMICALS -- 2.1%
E.I. Du Pont de Nemours & Co. ......................................... 94,500 10,135,125
COMPUTERS -- 10.0%
Compaq Computer Corp.** ............................................... 86,000 6,815,500
Computer Associates ................................................... 49,200 2,140,200
Dell Computer ** ...................................................... 89,900 6,394,138
Intel Corp. ........................................................... 100,700 14,286,813
Microsoft Corp. ....................................................... 138,800 13,533,000
Seagate Technology ** ................................................. 47,200 2,230,200
Sun Microsystems, Inc.** .............................................. 71,800 2,216,825
47,616,676
ELECTRICAL EQUIPMENT -- 0.3%
Applied Materials, Inc.** ............................................. 27,500 1,392,183
</TABLE>
- ---------------
See Notes to Financial Statements.
40
<PAGE> 44
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
FOOD -- 2.4%
Conagra, Inc. ......................................................... 82,400 $ 4,367,200
Hershey Foods Corp. ................................................... 70,000 3,193,750
Sara Lee Corp. ........................................................ 105,600 4,092,000
11,652,950
FOREST PRODUCTS -- 1.1%
Bemis Co., Inc. ....................................................... 45,200 1,870,150
James River Corp. ..................................................... 103,800 3,399,450
5,269,600
HEALTHCARE -- 0.9%
Tenet Healthcare ** ................................................... 155,900 4,228,788
HOUSEHOLD PRODUCTS -- GENERAL -- 4.1%
Avon Products, Inc. ................................................... 105,400 6,139,550
Clorox ................................................................ 34,800 4,158,600
Proctor & Gamble ...................................................... 75,700 9,093,463
19,391,613
INSURANCE -- 4.6%
Aetna Life & Casualty Co. ............................................. 15,322 1,269,811
Allstate .............................................................. 65,997 4,182,560
Cigna ................................................................. 36,200 5,534,075
Conseco, Inc. ......................................................... 88,400 3,469,700
General Re Corp.** .................................................... 18,000 3,053,250
Travellers Group ...................................................... 83,100 4,456,238
21,965,634
LEISURE -- 2.2%
Walt Disney Co. ....................................................... 75,878 5,633,942
King World Productions, Inc.** ........................................ 31,700 1,176,863
Hospitality Franchise** ............................................... 51,200 3,507,200
10,318,005
MACHINERY & EQUIPMENT -- 1.0%
Caterpillar, Inc. ..................................................... 31,500 2,468,813
Ingersoll Rand Co. .................................................... 45,300 2,151,750
4,620,563
MANUFACTURING -- DIVERSE -- 4.0%
Air Products & Chemicals, Inc. ........................................ 51,200 3,795,200
General Electric Co. .................................................. 127,800 13,147,425
Johnson Controls, Inc. ................................................ 27,100 2,283,175
19,225,800
MANUFACTURING TOYS -- 0.4%
Hasbro, Inc. .......................................................... 48,500 2,073,375
MEDIA -- PUBLISHING -- 0.9%
New York Times Co. .................................................... 101,100 4,498,950
METALS -- 1.4%
Phelps Dodge Corp. .................................................... 52,500 3,753,750
USX-Steel Group. ...................................................... 89,900 2,820,613
6,574,363
MULTI-INDUSTRY -- 2.7%
Anheuser Busch Companies, Inc. ........................................ 54,800 2,438,600
Honeywell, Inc. ....................................................... 83,400 5,931,820
Tyco Labs, Inc. ....................................................... 77,900 4,596,100
12,966,520
</TABLE>
- ---------------
See Notes to Financial Statements.
41
<PAGE> 45
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------ ------- -----------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
OFFICE EQUIPMENT -- 2.5%
Cisco Systems** ....................................................... 105,000 $ 5,840,625
Emc Corp/Mass** ....................................................... 71,400 2,570,400
Harris Corp. .......................................................... 46,800 3,451,500
11,862,525
OIL -- 8.2%
Amoco Corp. ........................................................... 36,600 3,092,700
Exxon Corp. ........................................................... 94,400 9,428,200
Mobil Corp. ........................................................... 48,200 5,916,550
Phillips Petroleum Co. ................................................ 67,700 2,801,088
Royal Dutch Pete Co. ADR + ............................................ 27,300 4,722,900
Schlumberger Ltd. ..................................................... 45,000 4,528,125
Texaco, Inc. .......................................................... 57,100 5,645,763
USX Marathon Group .................................................... 124,800 3,322,800
39,458,126
PHARMACEUTICALS -- 9.9%
Abbott Laboratories ................................................... 95,100 5,349,375
Bristol-Meyers ........................................................ 63,400 8,273,700
Johnson & Johnson ..................................................... 155,700 8,972,213
Merck & Co., Inc. ..................................................... 154,400 14,204,800
Pfizer, Inc. .......................................................... 47,500 4,352,188
Schering Plough Corp. ................................................. 75,900 5,815,839
46,968,115
RAILROAD -- 1.0%
Norfolk Southern Corp. ................................................ 53,100 4,838,738
RETAIL -- 4.7%
American Stores Co. ................................................... 108,500 4,855,375
Gap, Inc. ............................................................. 154,900 5,111,700
Home Depot, Inc. ...................................................... 52,900 2,883,050
Sears Roebuck & Co. ................................................... 103,700 5,625,725
TJX Cos, Inc. ......................................................... 94,300 3,937,025
22,412,875
TECHNOLOGY -- 1.7%
United Technologies Corp. ............................................. 104,700 7,878,675
TOBACCO -- 2.3%
Philip Morris Cos, Inc. ............................................... 79,700 10,769,463
UTILITIES-ELECTRIC -- 2.9%
Consolidated Edison Co. ............................................... 192,400 5,940,350
FPL Group, Inc. ....................................................... 58,900 2,679,950
General Public Utilities, Inc. ........................................ 151,900 5,316,500
13,936,800
UTILITIES -- GAS -- 0.7%
Pacific Enterprises ................................................... 110,100 3,358,050
UTILITIES -- TELECOMMUNICATIONS -- 6.4%
Ameritech Corp. ....................................................... 103,600 6,604,500
AT&T .................................................................. 95,100 3,792,114
Bell Atlantic ......................................................... 43,800 3,027,675
Bellsouth Corp. ....................................................... 143,600 6,731,250
GTE Corp. ............................................................. 141,700 6,624,475
Nynex Corp. ........................................................... 71,500 3,682,250
30,462,264
TOTAL COMMON STOCKS -- 97.2%
(cost $390,585,504) ................................................... 463,176,627
</TABLE>
- ---------------
See Notes to Financial Statements.
42
<PAGE> 46
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
- ------------------------------------------- ---- -------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 3.8%
U.S. Treasury Bill........................ 4.96%* 03/20/97 $ 465,000 $ 463,758
U.S. Treasury Bill........................ 4.97%* 04/03/97 4,597,000 4,575,456
U.S. Treasury Bill........................ 5.00%* 04/03/97 180,000 179,157
U.S. Treasury Bill........................ 4.98%* 04/03/97 461,000 458,840
U.S. Treasury Bill........................ 4.93%* 04/03/97 379,000 377,287
U.S. Treasury Bill........................ 4.98%* 05/08/97 748,000 740,803
U.S. Treasury Bill........................ 4.97%* 05/08/97 417,000 412,988
U.S. Treasury Bill........................ 4.97%* 05/08/97 317,000 313,950
U.S. Treasury Bill........................ 4.98%* 05/08/97 606,000 600,169
U.S. Treasury Bill........................ 5.00%* 05/08/97 2,068,000 2,048,102
U.S. Treasury Bill........................ 4.98%* 05/08/97 907,000 898,273
U.S. Treasury Bill........................ 4.93%* 05/08/97 585,000 579,371
U.S. Treasury Bill........................ 4.90%* 05/08/97 399,000 395,161
U.S. Treasury Bill........................ 4.89%* 05/08/97 621,000 615,025
U.S. Treasury Bill........................ 4.88%* 05/08/97 560,000 554,612
U.S. Treasury Bill........................ 4.87%* 05/08/97 752,000 744,764
U.S. Treasury Bill........................ 4.90%* 05/08/97 1,023,000 1,013,157
U.S. Treasury Bill........................ 4.98%* 05/08/97 3,176,000 3,145,442
Total U.S. Government Obligations
(cost $18,120,273)............................................................ 18,116,315
TOTAL INVESTMENTS -- 101.0%
(cost $408,705,777) (a)....................................................... 481,292,942
Liabilities in excess of other assets -- (1.0)%................................ (4,726,372)
NET ASSETS -- 100.0% ............ $476,566,570
</TABLE>
- ---------------
Percentages indicated are based on net assets of $476,566,570.
(a) Represents cost for federal income tax and book purposes and differs from
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $75,273,544
Unrealized depreciation.......................................... (2,686,379)
----------
Net unrealized appreciation...................................... $72,587,165
==========
ADR -- American Depository Receipt
+ Foreign issuer
* Effective yield
** Non-income producing security
</TABLE>
SCHEDULE OF OPEN FINANCIAL FUTURES CONTRACTS PURCHASED
<TABLE>
<CAPTION>
NET UNREALIZED
EXPIRATION NUMBER OF CONTRACT DEPRECIATION
DATE CONTRACTS CONTRACTS VALUE OF CONTRACTS
- ---------- --------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
S&P 500 -- March
03/21/97 20 1997................. $7,925,000 $(21,000)
S&P 500 -- March
03/21/97 5 1997................. 1,982,750 (5,250)
---------
Net unrealized depreciation on Open Futures Contracts........... $(26,250)
=========
</TABLE>
- ---------------
See Notes to Financial Statements.
43
<PAGE> 47
MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 7.4%
Contimortgage Home Equity.... AAA/Aaa 6.60% 10/15/11 $2,000,000 $ 1,975,607
Nationsbank Credit Card
Master..................... AAA/Aaa 6.45% 04/15/03 2,700,000 2,703,520
Standard Credit Card Master.. AAA/Aaa 7.85% 02/07/02 2,500,000 2,588,630
The Money Store.............. AAA/Aaa 7.07% 12/15/16 2,000,000 2,015,625
The Money Store Trust
1996 -- B.................. AAA/Aaa 7.38% 05/15/17 1,000,000 1,012,583
------------
Total Asset-Backed Securities
(cost $10,379,814)........... 10,295,965
------------
CORPORATE BONDS -- 8.2%
Eaton Off Shore Ltd.+........ A/A2 9.00% 02/15/01 4,500,000 4,848,750
General Motors............... A-/A3 6.88% 07/15/01 2,000,000 2,002,500
Household Finance Co. ....... A/A2 6.45% 03/15/01 2,000,000 1,982,500
Texas Instruments............ A/A3 6.88% 07/15/00 2,500,000 2,518,750
------------
Total Corporate Bonds
(cost $11,439,260)........... 11,352,500
------------
EUROPEAN GOVERNMENT BONDS -- 1.8%
Republic of Italy Z.C.B+
(cost $2,536,075)............ AA/Aa3 0.00% 01/10/01 3,300,000 2,557,484
------------
MEDIUM TERM NOTES -- 21.2%
Associates Corp. N.A. ....... AA-/Aa3 6.35% 06/29/00 3,000,000 2,977,500
General Motors............... A-/A3 7.38% 04/25/00 3,000,000 3,060,000
Heller Financial............. BBB+/A2 6.88% 09/13/99 3,000,000 3,022,500
International Lease
Finance+................... A+/A1 6.18% 06/01/00 4,500,000 4,432,500
John Deere................... A/A2 5.76% 01/08/01 5,000,000 4,850,000
McDonnell Douglas Finance
Corp. ..................... A-/Baa2+ 6.05% 12/06/99 2,000,000 1,965,000
PaineWebber Group............ BBB+/Baa1 7.31% 08/09/00 3,000,000 3,041,250
Sears Roebuck Co. ........... A-/A2 6.58% 06/15/00 2,000,000 1,992,500
USL Capital Corp. ........... A+/A1 8.13% 02/15/00 4,000,000 4,145,000
------------
Total Medium Term Notes
(cost $29,712,091)........... 29,486,250
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 2.7%
Federal Home Loan Mortgage
Corp. Pool #160034......... 8.50% 12/01/07 62,311 65,154
Federal Home Loan Mortgage
Corp. Pool #549837......... 8.00% 07/01/10 192,547 198,505
Federal Home Loan Mortgage
Corp. Pool #284343......... 8.00% 12/01/16 9,209 9,448
Federal Home Loan Mortgage
Corp. Pool #297505......... 8.00% 06/01/17 17,858 18,400
Federal National Mortgage
Association Pool #3023528.. 6.00% 08/01/01 2,127,442 2,067,607
Federal National Mortgage
Association Pool #131579 .. 6.50% 07/01/04 141,889 134,883
Federal National Mortgage
Association Pool #286087... 8.00% 06/01/24 748,784 763,526
</TABLE>
- ---------------
See Notes to Financial Statements.
44
<PAGE> 48
<TABLE>
<CAPTION>
RATINGS
S&P/MOODY'S MATURITY PRINCIPAL VALUE
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ------------------------------ ------------ ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
Government National Mortgage
Association
Pool #136688............... 10.00% 09/15/15 $ 26,058 $ 28,786
Government National Mortgage
Association
Pool #166744............... 10.00% 07/15/16 261,117 288,454
Government National Mortgage
Association
Pool #209480............... 10.00% 07/15/17 79,571 87,902
Government National Mortgage
Association
Pool #227082............... 10.00% 08/15/17 112,422 124,192
------------
Total U.S. Government Agency Obligations
(cost $3,752,039)............ 3,786,857
------------
U.S. TREASURY BOND -- 3.3%
U.S. Treasury Bond
(cost $4,873,362)............ 10.38% 11/15/09 3,800,000 4,649,414
------------
U.S. TREASURY NOTES -- 51.6%
U.S. Treasury Note .......... 7.75%* 11/30/99 4,500,000 4,670,415
U.S. Treasury Note .......... 7.75%* 01/31/00 18,500,000 19,236,483
U.S. Treasury Note .......... 5.88%* 06/30/00 17,000,000 16,799,400
U.S. Treasury Note .......... 5.63%* 11/30/00 22,500,000 21,976,200
U.S. Treasury Note .......... 7.88%* 11/15/04 5,500,000 5,937,799
U.S. Treasury Note .......... 7.00%* 07/15/06 3,000,000 3,082,710
------------
Total U.S. Treasury Notes
(cost $71,768,176) 71,703,007
------------
COMMERCIAL PAPER -- 2.8%
Philip Morris................
(cost $3,910,000)............ AAA/Aaa 5.36% 03/03/97 3,910,000 3,910,000
------------
TOTAL INVESTMENTS -- 99.0%
(cost $138,370,817)(a)....... 137,741,477
Other assets in excess of
liabilities -- 1.0%........ 1,415,442
------------
NET ASSETS -- 100.0% $139,156,919
============
</TABLE>
- ---------------
Percentages indicated are based on net assets of $139,156,919.
(a) Represents cost for federal income tax and book purposes and differs from
value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................................................... $ 380,170
Unrealized depreciation.................................................... (1,009,510)
-----------
Net unrealized depreciation................................................ $ (629,340)
===========
</TABLE>
Z.C.B. -- Zero Coupon Bond.
+ Foreign issuer
* Effective yield
- ---------------
See Notes to Financial Statements.
45
<PAGE> 49
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET INVESTMENT
ALLOCATION BLUE CHIP GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost
$188,453,819, $408,705,777 and $138,370,817,
respectively)...................................... $208,708,800 $481,292,942 $137,741,477
Cash................................................. 64,405 -- 28,324
Receivable for investment securities sold............ 2,411,748 386,641 --
Contribution receivable.............................. 228,912 2,680,008 129,051
Dividends receivable................................. 253,309 960,007 --
Interest receivable.................................. 1,043,502 -- 1,810,436
Deferred organization costs.......................... 24,235 24,305 24,236
Prepaid expenses..................................... 3,043 1,120 1,113
------------ ------------ ------------
Total Assets.......................................... 212,737,954 485,345,023 139,734,637
============ ============ ============
LIABILITIES:
Withdrawal payable................................... 130,746 1,025,347 484,123
Payable for investment securities purchased.......... 2,733,318 7,349,877 --
Cash overdraft....................................... -- 23,721 --
Variation margin payable on futures contracts........ -- 26,250 --
Advisory fees payable................................ 21,718 203,561 31,710
Audit fees payable................................... 29,875 30,207 29,875
Fund accounting fees payable......................... 21,971 33,348 11,883
Custodian fees payable............................... 9,722 26,438 4,309
Legal fees payable................................... 8,488 15,415 5,311
Administration fees payable.......................... 1,517 13,588 3,380
Other accrued expenses............................... 11,496 30,701 7,127
------------ ------------ ------------
Total Liabilities..................................... 2,968,851 8,778,453 577,718
------------ ------------ ------------
NET ASSETS, FEBRUARY 28, 1997......................... $209,769,103 $476,566,570 $139,156,919
============ ============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
46
<PAGE> 50
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET INVESTMENT
ALLOCATION BLUE CHIP GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income.......................................... $ 5,301,048 $ 619,448 $ 5,908,449
Dividend income (net of foreign withholding tax $0,
$141,881 and $0, respectively)......................... 2,012,465 7,463,844 --
------------ ------------ ------------
Total Income........................................... 7,313,513 8,083,292 5,908,449
------------ ------------ ------------
EXPENSES:
Advisory fees............................................ 1,046,406 2,701,648 428,287
Administration fees...................................... 94,685 180,110 47,588
Fund accounting fees and expenses........................ 131,743 195,906 66,719
Audit fees............................................... 34,173 34,644 34,602
Custodian fees and expenses.............................. 30,367 64,109 14,502
Legal fees............................................... 18,307 36,994 6,797
Trustees' fees........................................... 11,048 17,115 4,660
Amortization of organization costs....................... 13,860 13,848 13,860
Other operating expenses................................. 17,138 18,057 513
------------ ------------ ------------
Total Expenses....................................... 1,397,727 3,262,431 617,528
Less: Fee waivers........................................ (802,751) (1,025,006) (284,947)
------------ ------------ ------------
Total Net Expenses........................................ 594,976 2,237,425 332,581
------------ ------------ ------------
NET INVESTMENT INCOME..................................... 6,718,537 5,845,867 5,575,868
------------ ------------ ------------
NET REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment transactions... 22,245,042 62,491,398 (535,492)
Net change in unrealized appreciation (depreciation) on
investments............................................ 4,290,246 26,358,970 (681,210)
------------ ------------ ------------
Net realized/unrealized gains (losses) on investments..... 26,535,288 88,850,368 (1,216,702)
------------ ------------ ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $33,253,825 $94,696,235 $ 4,359,166
============ ============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
47
<PAGE> 51
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
-----------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................................... $ 6,718,537 $ 6,425,653
Net realized gains on investment transactions............ 22,245,042 19,223,012
Net change in unrealized appreciation on investments..... 4,290,246 8,662,241
------------ ------------
Change in net assets resulting from operations............ 33,253,825 34,310,906
------------ ------------
TRUST SHARE TRANSACTIONS:
Contributions............................................ 29,793,268 31,372,458
Withdrawals.............................................. (34,332,404) (35,499,213)
------------ ------------
Change in net assets resulting from trust
share transactions....................................... (4,539,136) (4,126,755)
------------ ------------
Change in net assets...................................... 28,714,689 30,184,151
NET ASSETS:
Beginning of year........................................ 181,054,414 150,870,263
------------ ------------
End of year.............................................. $209,769,103 $181,054,414
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
48
<PAGE> 52
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP PORTFOLIO
-----------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................................... $ 5,845,867 $ 4,528,400
Net realized gains on investment transactions............ 62,491,398 21,310,546
Net change in unrealized appreciation on investments..... 26,358,970 34,689,746
------------ ------------
Change in net assets resulting from operations............ 94,696,235 60,528,692
------------ ------------
TRUST SHARE TRANSACTIONS:
Contributions............................................ 176,422,520 96,776,148
Withdrawals.............................................. (70,074,459) (39,120,232)
------------ ------------
Change in net assets resulting from trust
share transactions....................................... 106,348,061 57,655,916
------------ ------------
Change in net assets...................................... 201,044,296 118,184,608
NET ASSETS
Beginning of year........................................ 275,522,274 157,337,666
------------ ------------
End of year.............................................. $476,566,570 $275,522,274
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
49
<PAGE> 53
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
PORTFOLIO
-----------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................................... $ 5,575,868 $ 3,879,980
Net realized gains (losses) on securities transactions... (535,492) 2,336,008
Net change in unrealized depreciation on investments..... (681,210) (247,652)
------------ ------------
Change in net assets resulting from operations............ 4,359,166 5,968,336
------------ ------------
TRUST SHARE TRANSACTIONS:
Contributions............................................ 94,643,822 21,358,278
Withdrawals.............................................. (26,135,644) (18,755,421)
------------ ------------
Change in net assets resulting from trust
share transactions....................................... 68,508,178 2,602,857
------------ ------------
Change in net assets...................................... 72,867,344 8,571,193
NET ASSETS:
Beginning of year........................................ 66,289,575 57,718,382
------------ ------------
End of year.............................................. $139,156,919 $66,289,575
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
50
<PAGE> 54
MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
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 28, 1997 the Trust
consisted of three portfolios; the Asset Allocation Portfolio (the "Asset
Allocation Portfolio"), the Blue Chip Portfolio (the "Blue Chip Portfolio") and
Investment Grade Bond Portfolio, (the "Bond Portfolio") (collectively the
"Portfolios").
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 government 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 subsidiary of BankAmerica Corporation, serves as the Portfolios' investment
adviser. The BISYS Group, Inc. ("BISYS") through its wholly owned subsidiary,
BISYS Fund Services, Limited Partnership serves as the Portfolios' administrator
.
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.
PORTFOLIO VALUATIONS:
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 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
51
<PAGE> 55
used when no ask price is available. 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.
FUTURES:
A futures contract is an agreement to purchase/sell a specified quantity of
an underlying instrument at a specified future date or to make/receive a cash
payment based on the value of a securities index. The price at which the
purchase and sale will take place is fixed when the Blue Chip Portfolio enters
into the contract. Upon entering into such a contract the Blue Chip Portfolio is
required to pledge to the broker an amount of cash and/or securities equal to
the minimum "initial margin" requirements of the exchange. Pursuant to the
contract, the Blue Chip Portfolio agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin" and are recorded by the
Blue Chip Portfolio as unrealized gains or losses. When the contract is closed,
the Blue Chip Portfolio records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time when it was closed. The Blue Chip Portfolio invests in futures contracts
solely for the purpose of hedging its existing portfolio securities, or
securities the Blue Chip Portfolio intends to purchase, against fluctuations in
value caused by changes in prevailing market interest rates. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets, and
the possible inability of counterparties to meet the terms of their contracts.
The summary of open financial futures contracts at February 28, 1997 is included
in the Blue Chip Portfolio's Schedule of Investments which is included elsewhere
in this report.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Dividend income is recorded on the ex-dividend date. Realized gains and
losses on securities transactions are recorded on an identified cost basis.
EXPENSES:
Expenses directly attributable to a Portfolio are charged to that Portfolio,
while general Trust expenses are allocated among the respective portfolios of
the Trust.
52
<PAGE> 56
FEDERAL INCOME TAXES:
The Portfolios will be treated as a partnership 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 BISYS.
As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolios in conformity with the stated objectives and
policies of the Portfolios. Pursuant to the terms of the Investment Advisory
Agreement, Bank of America is entitled to a fee, which is 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 28, 1997, Bank of America
waived the following fees as Adviser for each Portfolio.
<TABLE>
<S> <C>
Asset Allocation............................................. $ 735,797
Blue Chip.................................................... 961,001
Bond......................................................... 256,439
</TABLE>
As Administrator, BISYS assists in supervising the operations of the
Portfolios. Pursuant to the terms of the Administration Agreement, BISYS is
entitled to a fee from each Portfolio which is 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 28, 1997, BISYS waived the following fees as
Administrator for each Portfolio.
<TABLE>
<S> <C>
Asset Allocation.............................................. $ 66,954
Blue Chip..................................................... 64,005
Bond.......................................................... 28,508
</TABLE>
For services provided to all three of the portfolios constituting the Trust,
each Trustee receives an annual fee of $3,000 and a meeting fee of $500.
For the year ended February 28, 1997, the Asset Allocation Portfolio, Blue
Chip Portfolio and Bond Portfolio incurred legal expenses of $18,307, $36,994
and $6,797, which were earned by a law firm, a partner of which serves as
Secretary of the Trust. Certain officers of the Trust are affiliated with BISYS.
Such persons are not paid directly by the Trust for serving in these capacities.
53
<PAGE> 57
NOTE 4 -- SECURITIES TRANSACTIONS
During the year ended February 28, 1997, 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........................................ $ 50,943,913 $ 52,593,283
Other.................................................. 169,694,792 161,995,504
------------ ------------
Total.................................................. $220,638,705 $214,588,787
============ ============
BLUE CHIP PORTFOLIO
Common Stocks.......................................... $412,047,868 $316,168,358
============ ============
BOND PORTFOLIO
U.S. Government........................................ $116,263,811 $ 52,673,446
Other.................................................. 32,420,943 23,288 268
------------ ------------
Total.................................................. $148,684,754 $ 75,961,714
============ ============
</TABLE>
54
<PAGE> 58
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Asset Allocation Portfolio had the following concentrations by industry
sector at February 28, 1997 (as a percentage of total investments):
<TABLE>
<S> <C>
Commercial Paper............................................................ 2.2%
Corporate Bonds............................................................. 10.3
Medium Term Notes........................................................... 6.2
Euro Bonds.................................................................. 1.3
U.S. Treasury Bonds......................................................... 6.1
U.S. Treasury Notes......................................................... 2.5
U.S. Government Agency Obligations.......................................... 12.4
Aerospace/Airlines.......................................................... 1.0
Aluminium................................................................... 0.4
Automobiles................................................................. 1.2
Automobile Parts............................................................ 0.1
Banks....................................................................... 3.9
Beverages................................................................... 2.1
Brokerage................................................................... 1.3
Chemicals................................................................... 1.9
Computer Software/Hardware.................................................. 3.9
Cosmetics/Household Products................................................ 2.3
Electrical Products......................................................... 2.8
Electronic Semiconductors................................................... 2.8
Electric Utilities.......................................................... 0.3
Financial services.......................................................... 2.9
Food........................................................................ 1.9
Gas Utilities............................................................... 1.0
Hospital Care............................................................... 1.0
Insurance-Life.............................................................. 0.4
Insurance-Property and Casualty............................................. 1.0
Leisure..................................................................... 0.8
Manufacturing-Machinery..................................................... 1.1
Media....................................................................... 0.8
Multi Industries............................................................ 3.5
Natural Energy.............................................................. 0.8
Oil-International........................................................... 3.1
Oil Service................................................................. 0.4
Paper Products.............................................................. 1.6
Pharmaceuticals............................................................. 6.0
Photography................................................................. 0.2
Railroad.................................................................... 0.7
Retail...................................................................... 1.8
Retail-Manufacturing........................................................ 0.3
Telecommunications.......................................................... 1.6
Telephone................................................................... 3.0
Tobacco..................................................................... 1.1
------
100.0%
======
</TABLE>
55
<PAGE> 59
The Bond Portfolio had the following concentrations by security type at
February 28, 1997 (as a percentage of total investments):
<TABLE>
<S> <C>
Asset-Backed Securities..................................................... 7.5%
Commercial Paper............................................................ 2.8
Corporate Bonds............................................................. 8.3
Euro Bonds.................................................................. 1.9
Medium Term Notes........................................................... 21.4
U.S. Government Agency Obligations.......................................... 2.7
U.S. Treasury Bond.......................................................... 3.4
U.S. Treasury Notes......................................................... 52.0
------
100.0%
======
</TABLE>
NOTE 6 -- PROPOSED REORGANIZATION OF SEAFIRST FUNDS
On October 29, 1996, the Board of Trustees of the Seafirst Retirement Funds
and Board of Directors of the Pacific Horizon Funds, Inc., voted to approve the
merger of the Funds with respect to the Blue Chip, Asset Allocation and
Intermediate Bond portfolios of the Pacific Horizon Funds Inc. Under the terms
of the reorganization, the assets and liabilities of the Seafirst Blue Chip,
Seafirst Asset Allocation and Seafirst Bond Funds would be exchanged for a newly
formed class of shares of the Pacific Horizon Blue Chip, Pacific Horizon Asset
Allocation and Pacific Horizon Intermediate Bond Funds, respectively, and the
Seafirst Funds will be liquidated.
Upon consummation of the merger of the Seafirst Asset Allocation Fund into
the Pacific Horizon Asset Allocation Fund the combined fund will withdraw its
investment in the Asset Allocation Portfolio and engage Bank of America to
manage its assets directly.
The reorganization is subject to shareholder approval and, if approved, is
expected to be completed by June 30, 1997.
56
<PAGE> 60
MASTER INVESTMENT TRUST SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR PERIOD
YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets....... 0.31% 0.26% 0.17% 0.24%**
Ratio of net investment
income to average net
assets................... 3.51% 3.87% 4.01% 3.35%**
Ratio of expenses to
average net assets (a)... 0.73% 0.73% 0.77% 0.27%**
Ratio of net investment
income to average net
assets(a)................ 3.09% 3.40% 3.41% 3.32%**
Portfolio Turnover......... 116% 157% 142% 67%
Average Commission rate
paid (b)................. $0.044 -- -- --
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
(b) 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.
* For the period December 6, 1993 ( commencement of operations) through February
28, 1994
** Annualized
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 61
MASTER INVESTMENT TRUST SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR PERIOD
YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets....... 0.62% 0.31% 0.17% 0.27%**
Ratio of net investment
income to average net
assets................... 1.62% 2.16% 2.30% 1.97%**
Ratio of expenses to
average net assets (a)... 0.90% 0.90% 0.97% 1.07%**
Ratio of net investment
income to average net
assets (a)............... 1.34% 1.57% 1.50% 1.17%**
Portfolio Turnover......... 91% 108% 44% 86%
Average Commission rate
paid (b)................. $0.053 -- -- --
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
(b) 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.
* For the period December 6, 1993 ( commencement of operations) through February
28, 1994
** Annualized
</TABLE>
See Notes to Financial Statements.
58
<PAGE> 62
MASTER INVESTMENT TRUST SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR PERIOD
YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of expenses to
average net assets....... 0.35% 0.18% 0.25% 0.41%**
Ratio of net investment
income to average net
assets................... 5.86% 6.47% 6.22% 4.93%**
Ratio of expenses to
average net assets (a)... 0.65% 0.68% 0.75% 0.91%**
Ratio of net investment
income to average net
assets (a)............... 5.56% 5.97% 5.72% 4.43%**
Portfolio Turnover......... 83% 172% 240% 32%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
* For the period December 6, 1993 ( commencement of operations) through February
28, 1994
** Annualized
</TABLE>
See Notes to Financial Statements.
59
<PAGE> 63
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 28, 1997, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended, and their 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 Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1997 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.
As more fully described in Note 6, a proposal to liquidate the Asset Allocation
Portfolio is under consideration.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 21, 1997
60
<PAGE> 64
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ----------- ----- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BANK NOTES -- 4.4%
DOMESTIC -- 3.7%
American Express Centurion Bank
Monthly Variable Rate (final
maturity 1/9/98)*.............. A1/P1 5.41% 3/10/97 $ 25,000,000 $ 24,998,352
Bank One, Dayton N.A. ........... A1+/P1 5.56% 3/25/97 25,000,000 24,998,145
FCC National Bank................ A1+/P1 5.64% 4/17/97 25,000,000 24,993,061
FCC National Bank................ A1+/P1 5.70% 5/22/97 25,000,000 24,987,764
FCC National Bank................ A1+/P1 5.76% 8/15/97 25,000,000 24,993,429
Huntington National Bank,
Columbus....................... A1/P1 6.20% 7/8/97 40,000,000 40,054,311
PNC Bank, N.A., Monthly Variable
Rate (final maturity
7/1/97)*....................... A1/P1 5.34% 3/3/97 25,000,000 24,991,761
PNC Bank, N.A., Monthly Variable
Rate (final maturity
10/1/97)*...................... A1/P1 5.34% 3/3/97 25,000,000 24,988,457
PNC Bank, N.A., Monthly Variable
Rate (final maturity
11/25/97)*..................... A1/P1 5.28% 3/25/97 50,000,000 49,963,450
--------------
Total Domestic Bank Notes
(amortized cost $264,968,730) 264,968,730
--------------
FOREIGN -- 0.7%
Abbey National Treasury Services,
PLC, Monthly Variable Rate
(final maturity 7/17/97)*...... A1+/P1 5.31% 3/17/97 50,000,000 49,987,599
--------------
Total Bank Notes
(amortized cost $314,956,329) 314,956,329
--------------
CERTIFICATES OF DEPOSIT -- 18.0%
DOMESTIC -- 4.2%
Bankers Trust, Daily Variable
Rate (final maturity 6/3/97)*.. A1/P1 5.45% 3/3/97 50,000,000 49,993,777
Bankers Trust, Daily Variable
Rate (final maturity 7/2/97)*.. A1/P1 5.43% 3/3/97 25,000,000 24,996,741
Bankers Trust, Daily Variable
Rate (final maturity
9/30/97)*...................... A1/P1 5.30% 3/3/97 50,000,000 49,983,068
Bankers Trust, Weekly Variable
Rate, (final maturity
10/16/97)*..................... A1/P1 5.38% 3/4/97 25,000,000 24,985,440
Bankers Trust, Weekly Variable
Rate, (final maturity
12/10/97)*..................... A1/P1 5.44% 3/4/97 25,000,000 24,990,274
Crestar Bank..................... A1/P1 5.33% 4/22/97 50,000,000 50,000,000
Crestar Bank..................... A1/P1 5.41% 4/23/97 50,000,000 49,999,274
Crestar Bank..................... A1/P1 5.49% 9/19/97 25,000,000 25,000,000
--------------
299,948,574
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
61
<PAGE> 65
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ---------- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT, CONTINUED:
EURO -- 1.0%
Abbey National Treasury Services,
PLC............................ A1+/P1 5.37% 5/19/97 $ 25,000,000 $ 25,000,824
Dai-Ichi Kangyo Bank, Ltd.,
London......................... A1/P1 5.55% 3/12/97 25,000,000 24,998,823
Sumitomo Bank, Ltd., London...... A1/P1 5.61% 4/7/97 25,000,000 25,001,202
--------------
75,000,849
--------------
YANKEE -- 12.8%
ABN-AMRO Bank, Chicago........... A1+/P1 5.75% 4/10/97 25,000,000 24,998,688
Bank of Tokyo Mitsubishi, New
York........................... A1/P1 5.73% 3/27/97 50,000,000 50,000,000
Bank of Tokyo Mitsubishi, New
York........................... A1/P1 5.68% 7/14/97 25,000,000 25,000,000
Bank of Tokyo Mitsubishi, New
York........................... A1/P1 5.85% 1/7/98 25,000,000 24,991,625
Bank of Tokyo Mitsubishi, New
York........................... A1/P1 5.88% 1/13/98 25,000,000 24,995,833
Banque National de Paris, New
York........................... A1/P1 5.50% 3/12/97 25,000,000 25,000,145
Banque National de Paris, New
York........................... A1/P1 5.75% 4/11/97 45,000,000 45,002,279
Banque National de Paris, New
York........................... A1/P1 5.75% 2/26/98 25,000,000 24,987,907
Dai-Ichi Kangyo Bank, Ltd., New
York........................... A1/P1 5.70% 4/4/97 25,000,000 25,000,229
Dai-Ichi Kangyo Bank, Ltd., New
York........................... A1/P1 5.56% 4/7/97 20,000,000 19,999,065
Dai-Ichi Kangyo Bank, Ltd., New
York........................... A1/P1 5.63% 5/5/97 25,000,000 25,001,335
Industrial Bank of Japan, New
York........................... A1/P1 5.56% 4/7/97 50,000,000 49,998,743
National Australia Bank, New
York........................... A1+/P1 5.80% 10/3/97 25,000,000 24,998,940
Royal Bank of Canada, New York... A1+/P1 5.73% 8/13/97 25,000,000 24,992,425
Royal Bank of Canada, New York... A1+/P1 5.58% 12/11/97 25,000,000 24,977,379
Royal Bank of Canada, New York... A1+/P1 5.65% 3/3/98 80,000,000 79,885,476
Sanwa Bank Ltd., New York........ A1/P1 5.51% 5/19/97 25,000,000 25,000,541
Societe Generale Bank, New York.. A1+/P1 5.72% 4/28/97 50,000,000 49,997,717
Societe Generale Bank, New York.. A1+/P1 5.78% 8/20/97 25,000,000 24,997,638
Societe Generale Bank, New York.. A1+/P1 5.73% 10/15/97 15,000,000 15,011,235
Societe Generale Bank, New York.. A1+/P1 5.59% 11/14/97 30,000,000 30,004,472
Societe Generale Bank, New York.. A1+/P1 5.77% 1/7/98 25,000,000 24,993,861
Societe Generale Bank, New York.. A1+/P1 5.77% 1/9/98 25,000,000 24,991,763
Societe Generale Bank, New York,
Quarterly Variable Rate (final
maturity 12/24/97)*............ A1+/P1 5.49% 3/24/97 25,000,000 24,985,712
Societe Generale Bank, New York,
Daily Variable Rate (final
maturity 1/15/98)*............. A1+/P1 5.38% 3/3/97 25,000,000 24,986,599
Sumitomo Bank Ltd., New York..... A1/P1 5.55% 4/10/97 25,000,000 24,998,044
Sumitomo Bank Ltd., New York..... A1/P1 5.65% 4/15/97 25,000,000 25,000,308
Sumitomo Bank Ltd., New York..... A1/P1 5.63% 4/15/97 25,000,000 25,000,308
Sumitomo Bank Ltd., New York..... A1/P1 5.54% 5/19/97 25,000,000 25,002,165
</TABLE>
- ---------------
See Notes to Financial Statements.
62
<PAGE> 66
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ----------- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT, CONTINUED:
YANKEE -- (CONTINUED)
Sumitomo Bank Ltd., New York..... A1/P1 5.54% 5/19/97 $ 25,000,000 $ 25,002,165
Westpac Banking Corp., New
York........................... A1+/P1 5.83% 1/22/98 25,000,000 24,995,713
--------------
914,798,310
--------------
Total Certificates of Deposit
(amortized cost $1,289,747,733) 1,289,747,733
--------------
COMMERCIAL PAPER -- 37.5%
DOMESTIC -- 29.6%
ASSET-BACKED -- 6.0%
Asset Securitization Cooperative
Corp.(b)....................... A1+/P1 5.35% 3/19/97 50,000,000 49,866,250
Asset Securitization Cooperative
Corp.(b)....................... A1+/P1 5.34% 3/21/97 75,000,000 74,776,944
Ciesco, L.P...................... A1/P1 5.35% 5/7/97 25,000,000 24,751,076
Enterprise Funding Corp.(b)...... A1+/P1 5.37% 3/12/97 25,000,000 24,958,979
Enterprise Funding Corp.(b)...... A1+/P1 5.35% 4/2/97 25,401,000 25,280,204
Enterprise Funding Corp.(b)...... A1+/P1 5.33% 4/17/97 57,225,000 56,826,793
Enterprise Funding Corp.(b)...... A1+/P1 5.36% 5/2/97 35,693,000 35,363,514
Golden Managers Acceptance
Corp........................... A1+/D1+ 5.33% 3/19/97 40,000,000 39,893,400
Gotham Funding Corp.(b).......... A1/P1 5.42% 3/10/97 24,167,000 24,134,254
Gotham Funding Corp.(b).......... A1/P1 5.58% 3/21/97 43,781,000 43,645,147
Gotham Funding Corp.(b).......... A1/P1 5.40% 4/14/97 31,429,000 31,221,569
--------------
430,718,130
--------------
AUTOMOBILES -- 4.3%
American Honda Finance Corp...... F1/P1 5.33% 4/25/97 25,000,000 24,796,424
American Honda Finance Corp...... F1/P1 5.39% 4/28/97 35,000,000 34,696,064
American Honda Finance Corp...... F1/P1 5.35% 5/20/97 40,000,000 39,524,444
American Honda Finance Corp...... F1/P1 5.32% 6/4/97 30,000,000 29,578,833
Daimler-Benz North America
Corp........................... A1/P1 5.36% 3/25/97 25,000,000 24,910,667
Daimler-Benz North America
Corp........................... A1/P1 5.37% 3/27/97 25,000,000 24,903,042
Daimler-Benz North America
Corp........................... A1/P1 5.29% 6/18/97 60,000,000 59,036,713
General Motors Acceptance Corp... P1/D1 5.44% 4/7/97 25,000,000 24,860,351
General Motors Acceptance Corp... P1/D1 5.40% 9/12/97 50,000,000 48,537,500
--------------
310,844,038
--------------
BANKING -- 2.5%
Bankers Trust, Daily Variable
Rate, (final maturity
11/7/97)*...................... A1/P1 5.47% 3/3/97 25,000,000 25,000,000
Corestates Capital Corp., Monthly
Variable Rate, (final maturity
3/17/97)*...................... A1/P1 5.38% 3/17/97 25,000,000 25,000,000
Cregem North America, Inc........ A1+/P1 5.29% 5/27/97 25,000,000 24,680,396
Cregem North America, Inc........ A1+/P1 5.29% 6/17/97 25,000,000 24,603,250
Svenska Handelsbanken, Inc....... A1/P1 5.35% 4/16/97 35,000,000 34,760,736
Unifunding, Inc.................. A1/P1 5.28% 5/21/97 21,000,000 20,750,520
Westpac Capital Corp............. A1+/P1 5.38% 3/10/97 25,000,000 24,966,375
--------------
179,761,277
--------------
BROKERAGE SERVICES -- 2.3%
Bear Stearns Companies, Inc.(b).. A1/P1 5.36% 3/19/97 25,000,000 24,933,000
C.S. First Boston, Inc........... A1+/P1 5.28% 5/14/97 25,000,000 24,728,667
</TABLE>
- ---------------
See Notes to Financial Statements.
63
<PAGE> 67
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ----------- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER, CONTINUED:
BROKERAGE SERVICES -- (CONTINUED)
C.S. First Boston, Inc........... A1+/P1 5.27% 5/29/97 $ 40,000,000 $ 39,478,856
C.S. First Boston, Inc.(b)....... A1+/P1 5.35% 3/11/97 25,000,000 24,962,847
Merrill Lynch & Co. Inc.......... A1+/P1 5.33% 5/28/97 50,000,000 49,348,556
--------------
163,451,926
--------------
CHEMICALS -- DIVERSIFIED -- 1.0%
AKZO Nobel, Inc.................. A1/P1 5.34% 5/7/97 32,000,000 31,681,973
AKZO Nobel, Inc.................. A1/P1 5.37% 5/16/97 20,000,000 19,773,267
AKZO Nobel, Inc.................. A1/P1 5.36% 5/23/97 18,000,000 17,777,560
--------------
69,232,800
--------------
CONGLOMERATES -- 2.2%
B.A.T. Capital Corp.............. A1/P1 5.32% 3/27/97 25,000,000 24,903,944
B.A.T. Capital Corp.............. A1/P1 5.28% 4/21/97 23,000,000 22,827,960
BTR Dunlop Finance, Inc.(b)...... A1/P1 5.45% 3/26/97 50,000,000 49,810,764
BTR Dunlop Finance, Inc.(b)...... A1/P1 5.35% 4/7/97 37,321,000 37,115,786
BTR Dunlop Finance, Inc.(b)...... A1/P1 5.37% 5/27/97 25,000,000 24,675,563
--------------
159,334,017
--------------
FINANCE COMPANIES -- 5.2%
Associates Corp., North America.. A1+/P1 5.35% 7/28/97 20,000,000 19,557,139
Countrywide Home Loans, Inc...... A1/F1 5.37% 3/12/97 25,000,000 24,958,979
Countrywide Home Loans, Inc...... A1/F1 5.37% 4/8/97 30,000,000 29,829,950
Countrywide Home Loans, Inc...... A1/F1 5.38% 4/29/97 45,500,000 45,098,816
Dean Witter Discover & Co........ A1/F1+ 5.35% 5/1/97 25,000,000 24,773,368
Dean Witter Discover & Co........ A1/F1+ 5.27% 5/21/97 50,000,000 49,407,125
General Electric Capital Corp.... A1+/P1 5.44% 4/3/97 50,000,000 49,750,667
General Electric Capital Corp.,
Quarterly Variable Rate (final
maturity 7/18/97)*............. A1+/P1 5.50% 4/21/97 50,000,000 50,000,000
General Electric Capital
Services, Inc.................. A1+/P1 5.36% 4/9/97 25,000,000 24,854,833
General Electric Capital
Services, Inc.................. A1+/P1 5.40% 5/13/97 25,000,000 24,726,250
National Rural Utilities
Cooperative Finance Corp....... A1+/P1 5.43% 3/27/97 26,600,000 26,495,684
--------------
369,452,811
--------------
LEASING -- 1.5%
International Lease Finance
Corp........................... A1/P1 5.35% 4/18/97 40,000,000 39,714,667
International Lease Finance
Corp........................... A1/P1 5.37% 6/16/97 30,000,000 29,521,175
International Lease Finance
Corp........................... A1/P1 5.37% 7/2/97 40,000,000 39,266,100
--------------
108,501,942
--------------
MINING -- 0.3%
RTZ America, Inc.(b)............. A1+/P1 5.58% 3/17/97 20,800,000 20,749,988
--------------
RELOCATION SERVICES -- 1.4%
PHH Corporation.................. A1/P1 5.30% 3/14/97 25,000,000 24,952,153
PHH Corporation.................. A1/P1 5.30% 4/1/97 25,000,000 24,885,903
PHH Corporation.................. A1/P1 5.33% 4/8/97 50,000,000 49,718,694
--------------
99,556,750
--------------
RETAIL -- 1.4%
JC Penney Funding Corp........... A1/P1 5.40% 3/10/97 50,000,000 49,932,500
Sears Roebuck Acceptance Corp.... D1/P1 5.34% 3/14/97 50,000,000 49,903,583
--------------
99,836,083
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
64
<PAGE> 68
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ----------- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER, CONTINUED:
SOVEREIGN ISSUES -- 1.5%
Government Development Bank of
Puerto Rico, Mato Rey.......... A1+/TBW1 5.35% 3/12/97 $ 25,000,000 $ 24,959,132
Government Development Bank of
Puerto Rico, Mato Rey.......... A1+/TBW1 5.41% 3/25/97 37,300,000 37,165,471
Government Development Bank of
Puerto Rico, Mato Rey.......... A1+/TBW1 5.35% 5/7/97 23,500,000 23,266,012
Government Development Bank of
Puerto Rico, Mato Rey.......... A1+/TBW1 5.32% 5/12/97 21,000,000 20,776,560
--------------
106,167,175
--------------
Total Domestic Commercial Paper
(amortized cost $2,117,606,937) 2,117,606,937
--------------
FOREIGN -- 7.9%
AUTOMOBILES -- 1.0%
Ford Credit Europe............... A1/P1 5.41% 3/24/97 25,000,000 24,913,590
Ford Credit Europe............... A1/P1 5.51% 3/26/97 25,000,000 24,904,340
Ford Credit Europe............... A1/P1 5.35% 4/28/97 25,000,000 24,784,514
--------------
74,602,444
--------------
BUILDING SOCIETY -- 1.4%
Bradford & Bingley Building
Society........................ A1/P1 5.48% 4/3/97 50,000,000 49,748,833
Nationwide Building Society...... A1/P1 5.40% 7/21/97 25,000,000 24,467,500
Nationwide Building Society...... A1/P1 5.40% 7/23/97 25,000,000 24,460,000
--------------
98,676,333
--------------
OIL & GAS -- 0.7%
Repsol International Finance,
B.V............................ A1+/P1 5.37% 4/10/97 25,000,000 24,850,833
Repsol International Finance,
B.V............................ A1+/P1 5.39% 7/15/97 25,000,000 24,490,944
--------------
49,341,777
--------------
PHARMACEUTICALS -- 0.3%
Glaxo Wellcome, PLC (b).......... A1+/P1 5.35% 4/14/97 20,000,000 19,869,222
--------------
SOVEREIGN -- 3.8%
Cades............................ A1+/P1 5.30% 3/6/97 50,000,000 49,963,194
Cades............................ A1+/P1 5.40% 5/2/97 50,000,000 49,535,000
Cades............................ A1+/P1 5.39% 10/3/97 50,000,000 48,384,500
Cades............................ A1+/P1 5.41% 10/10/97 25,000,000 24,162,201
Cades............................ A1+/P1 5.44% 11/14/97 50,000,000 48,050,667
Kingdom of Sweden................ A1+/P1 5.43% 3/27/97 50,000,000 49,803,917
--------------
269,899,479
--------------
TELECOMMUNICATIONS -- 0.7%
Alcatel Alsthom, Inc............. A1+/P1 5.36% 4/21/97 50,000,000 49,620,333
--------------
Total Foreign Commercial Paper
(amortized cost $562,009,588) 562,009,588
--------------
Total Commercial Paper
(amortized cost $2,679,616,525) 2,679,616,525
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
65
<PAGE> 69
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ----------- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 12.2%
ASSET BACKED SECURITIES -- 2.1%
Ciesco, L.P., Monthly Variable
Rate, 144A (final maturity
8/14/97)*...................... A1+/P1 5.39% 3/14/97 $ 75,000,000 $ 74,996,589
Ciesco, L.P., Monthly Variable
Rate, 144A (final maturity
2/10/98)*...................... A1+/P1 5.41% 3/12/97 75,000,000 74,992,890
--------------
149,989,479
--------------
AUTOMOBILES -- 1.5%
Ford Motor Credit Corporation.... A1/P1 7.125% 12/1/97 25,000,000 25,270,945
General Motors Acceptance
Corporation, Daily Variable
Rate, (final maturity
4/21/97)*...................... P1/D1 5.45% 3/3/97 40,000,000 39,992,430
General Motors Acceptance
Corporation, Quarterly Variable
Rate, (final maturity
6/4/97)*....................... P1/D1 5.37% 3/4/97 25,000,000 24,990,145
General Motors Acceptance
Corporation, Quarterly Variable
Rate, (final maturity
1/20/98)*...................... P1/D1 5.64% 4/21/97 20,000,000 20,011,457
--------------
110,264,977
--------------
BROKERAGE SERVICES -- 3.8%
Bear Stearns Companies, Inc.,
Series B, Monthly Variable
Rate, (final maturity
4/1/98)*....................... A1/P1 5.59% 3/3/97 18,000,000 18,028,548
Bear Stearns Companies, Inc.,
Series B, Monthly Variable
Rate, (final maturity
5/16/97)*...................... A1/P1 5.48% 3/17/97 25,000,000 25,000,000
C.S. First Boston, Inc.,
Quarterly Variable Rate, 144A
(final maturity 3/3/97)*....... A1+/P1 5.54% 3/3/97 25,000,000 25,000,000
C.S. First Boston, Inc., Daily
Variable Rate, 144A (final
maturity 3/25/97)*............. A1+/P1 5.46% 3/3/97 25,000,000 25,000,000
Merrill Lynch & Co., Inc......... A1+/P1 5.78% 8/12/97 25,000,000 24,998,540
Merrill Lynch & Co., Inc., Weekly
Variable Rate, (final maturity
11/20/97)*..................... A1+/P1 5.44% 3/4/97 50,000,000 49,992,984
Merrill Lynch & Co., Inc., Weekly
Variable Rate, (final maturity
1/29/98)*...................... A1+/P1 5.47% 3/4/97 50,000,000 49,991,092
Merrill Lynch & Co., Inc.,
Quarterly Variable Rate, (final
maturity 11/13/97)*............ A1+/P1 5.43% 5/13/97 50,000,000 49,989,467
--------------
268,000,631
--------------
BUSINESS SERVICES -- 0.3%
Xerox Credit Corp, Series C,
Weekly Variable Rate, (final
maturity 5/13/97)*............. A1/P1 5.44% 3/4/97 25,000,000 24,999,687
--------------
FINANCE COMPANIES -- 2.7%
Associates Corp., North America.. A1+/P1 6.63% 11/15/97 20,000,000 20,130,566
CIT Group Holdings, Inc.......... A1/P1 7.00% 9/30/97 29,700,000 29,912,614
CIT Group Holdings, Inc., Daily
Variable Rate, (final maturity
5/1/97)*....................... A1/P1 5.35% 3/3/97 50,000,000 49,990,007
</TABLE>
- ---------------
See Notes to Financial Statements.
66
<PAGE> 70
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ----------- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS, CONTINUED:
FINANCE COMPANIES -- (CONTINUED)
Dean Witter Discover & Co.,
Monthly Variable Rate, (final
maturity 8/1/97)*.............. A1/P1 5.37% 3/19/97 $ 25,000,000 $ 24,997,904
Dean Witter Discover & Co.,...... A1/P1 6.00% 3/1/98 15,000,000 15,019,350
Household Finance Corp., Daily
Variable Rate, (final maturity
5/28/97)*...................... A1/P1 5.46% 3/3/97 50,000,000 50,000,000
--------------
190,050,441
--------------
LEASING -- 0.6%
Sanwa Business Credit Corp.,
Daily Variable Rate, 144A
(final maturity 7/17/97)*...... P1/D1 5.59% 3/3/97 18,000,000 18,007,711
Sanwa Business Credit Corp.,
Quarterly Variable Rate, 144A
(final maturity 2/6/98)*....... P1/D1 5.56% 6/6/97 25,000,000 24,997,658
--------------
43,005,369
--------------
PUBLISHING -- 0.4%
Reed Elsevier, Inc., 144A........ A1+/P1 7.11% 6/26/97 25,000,000 25,109,334
--------------
RELOCATION SERVICES -- 0.8%
PHH Corporation, Monthly Variable
Rate, (final maturity
6/11/97)*...................... A1/P1 5.39% 3/11/97 25,000,000 24,999,462
PHH Corporation, Monthly Variable
Rate, (final maturity
8/12/97)*...................... A1/P1 5.35% 3/19/97 35,000,000 34,995,656
--------------
59,995,118
--------------
Total Corporate Obligations
(amortized cost $871,415,036) 871,415,036
--------------
MASTER NOTES -- 7.7%
Goldman Sachs Group L.P. (final
maturity 4/22/97)*............. A1+/P1 5.59% 3/3/97 300,000,000 300,000,000
Morgan Stanley Group, Inc. (final
maturity 6/27/97)*............. A1/P1 5.73% 3/3/97 250,000,000 250,000,000
--------------
Total Master Notes
(amortized cost $550,000,000) 550,000,000
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 0.7%
Federal National Mortgage
Association, Discount Note..... A1+/P1 5.38% 3/14/97 25,000,000 24,951,431
Federal National Mortgage
Association, Discount Note..... A1+/P1 5.24% 5/23/97 25,000,000 24,697,972
--------------
Total U.S. Government Agency
Obligations (amortized cost $49,649,403) 49,649,403
--------------
U.S. TREASURY OBLIGATION -- 0.3%
U.S. Treasury Bill............... A1+/P1 5.61%** 3/5/98 20,000,000 18,925,694
--------------
Total U.S. Treasury Obligation
(amortized cost $18,925,694) 18,925,694
--------------
</TABLE>
- ---------------
See Notes to Financial Statements.
67
<PAGE> 71
<TABLE>
<CAPTION>
RATINGS
ASSIGNED BY AMORTIZED
N.R.S.R.O. MATURITY PRINCIPAL COST
DESCRIPTION (UNAUDITED) RATE DATE AMOUNT (NOTE 2)
- ---------------------------------- ----------- ----- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
YANKEE BANKER'S ACCEPTANCES -- 1.3%
Sanwa Bank Ltd., New York........ A1/P1 5.53% 3/6/97 $ 25,700,000 $ 25,680,261
Sanwa Bank Ltd., New York........ A1/P1 5.53% 4/7/97 20,000,000 19,886,328
Dai-Ichi Kangyo Bank Ltd., New
York........................... A1/P1 5.37% 5/22/97 50,000,000 49,388,416
--------------
Total Yankee Banker's Acceptances
(amortized cost $94,955,005) 94,955,005
--------------
REPURCHASE AGREEMENTS (C) -- 18.4%
First Chicago Capital Markets, Inc., dated
2/28/97, with a maturity value of
$225,101,813 (Collateralized by $231,585,000
various U.S. Government Agency securities,
0.00% -- 7.00%, 3/26/97 -- 3/3/98, market
value -- $229,504,577) 5.43% 3/3/97 225,000,000 225,000,000
Fuji Securities, Inc., dated 2/28/97, with a
maturity value of $300,135,750
(Collateralized by $312,790,000 various U.S.
Government securities, 0.00% -- 10.75%,
3/3/97 -- 8/15/26, market
value -- $306,000,340) 5.43% 3/3/97 300,000,000 300,000,000
J.P. Morgan Securities, Inc., dated 2/28/97,
with a maturity value of $290,315,066
(Collateralized by $308,105,389 Government
National Mortgage Association Notes,
6.50% -- 10.00%, 1/1/00 -- 2/15/27, market
value $295,995,054) 5.42% 3/3/97 290,184,000 290,184,000
NationsBanc, Inc., dated 2/28/97, with a
maturity value of $100,045,250
(Collateralized by $103,283,662 various U.S.
Government Agency securities,
0.00% -- 11.90%, 3/3/97 -- 10/30/03, market
value -- $102,001,976) 5.43% 3/3/97 100,000,000 100,000,000
Nomura Securities, Inc., dated 2/28/97, with a
maturity value of $100,045,250
(Collateralized by $102,271,108 Government
National Mortgage Association Notes,
5.50% -- 6.00%, 8/20/26 -- 10/20/26, market
value -- $102,009,536) 5.43% 3/3/97 100,000,000 100,000,000
Prudential Securities, Inc., dated 2/28/97,
with a maturity value of $300,135,750
(Collateralized by $359,569,000 various U.S.
Government securities, 0.00% -- 9.35%,
3/24/97 -- 1/30/12, market $306,003,545) 5.43% 3/3/97 300,000,000 300,000,000
--------------
Total Repurchase Agreements
(cost $1,315,184,000)............ 1,315,184,000
--------------
TOTAL INVESTMENTS -- 100.5%
(AMORTIZED COST $7,184,449,725) (A)............ 7,184,449,725
Liabilities in excess of other
assets -- (0.5%)............... (33,740,503)
--------------
NET ASSETS -- 100.0%.............. $7,150,709,222
==============
</TABLE>
- ---------------
See Notes to Financial Statements.
68
<PAGE> 72
- ---------------
Percentages indicated are based on net assets of $7,150,709,222.
(a) Cost for federal income tax and financial reporting purposes are
substantially the same.
(b) Private placement security.
(c) The range of coupon rates and maturity dates are shown.
144A Security which is restricted as to resale only to qualified
institutional investors.
PLC Public Liability Company.
N.R.S.R.O. Nationally Recognized Statistical Rating Organization. Rating
agencies that are included within the N.R.S.R.O. category are: S&P,
Moody's, Fitch Investors Services, Duff & Phelps, IBCA, and Thomsons
Bank Watch.
A1 -- Highest rating assigned by S&P and IBCA.
P1 -- Highest rating assigned by Moody's.
F1 -- Highest rating assigned by Fitch Investors.
D1 -- Highest rating assigned by Duff.
TBW1 -- Highest rating assigned by Thomsons Bank Watch.
Note: S&P and Moody's ratings have been used, unless another service has
assigned the security a higher rating.
* Variable rate security. Maturity date reflects the next interest rate
change date.
** Rate represents effective yield at date of purchase.
See Notes to Financial Statements.
69
<PAGE> 73
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (amortized cost $5,869,265,725)............. $5,869,265,725
Repurchase agreements (cost $1,315,184,000)..................................... 1,315,184,000
Interest receivable............................................................. 33,341,214
Receivable for capital shares sold.............................................. 9,044
Prepaid expenses................................................................ 232,031
Deferred organization costs..................................................... --
--------------
Total Assets..................................................................... 7,218,032,014
--------------
LIABILITIES:
Dividends payable............................................................... 12,496,680
Payable for investment securities purchased..................................... 51,973,592
Payable for capital shares redeemed............................................. 22,402
Investment advisory fees payable................................................ 508,692
Administration fees payable..................................................... 556,936
Special management fees payable
(Pacific Horizon Shares)...................................................... 563,855
Shareholder service fees payable
(Horizon Service Shares)...................................................... 552,216
Shareholder service fees payable (X Shares)..................................... 52,932
12b-1 fees payable (X Shares)................................................... 44,962
Custodian and fund accounting fees payable...................................... 176,086
Transfer agent fees payable..................................................... 55,739
Audit fees payable.............................................................. 47,759
Legal fees payable.............................................................. 83,489
Other accrued expenses.......................................................... 187,452
--------------
Total Liabilities................................................................ 67,322,792
--------------
NET ASSETS....................................................................... $7,150,709,222
==============
Net Assets:
Pacific Horizon Shares.......................................................... $2,292,347,988
Horizon Shares.................................................................. 1,709,511,739
Horizon Service Shares.......................................................... 2,945,057,701
X Shares........................................................................ 203,791,794
--------------
Total............................................................................ $7,150,709,222
==============
Shares Outstanding ($0.001 par value, 58 billion shares authorized):
Pacific Horizon Shares.......................................................... 2,292,756,828
Horizon Shares.................................................................. 1,709,948,074
Horizon Service Shares.......................................................... 2,945,184,722
X Shares........................................................................ 203,780,871
--------------
Total............................................................................ 7,151,670,495
==============
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE.................. $1.00
====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par.................................................. $ 7,151,670
Additional paid-in capital...................................................... 7,144,119,252
Accumulated undistributed net investment income................................. 2,908,438
Accumulated net realized losses on investment transactions...................... (3,470,138)
--------------
NET ASSETS, FEBRUARY 28, 1997.................................................... $7,150,709,222
==============
</TABLE>
- ---------------
See Notes to Financial Statements.
70
<PAGE> 74
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $341,737,525
------------
EXPENSES:
Investment advisory fees........................................... 5,792,971
Administration fees................................................ 6,236,990
Special management fees
(Pacific Horizon Shares)......................................... 7,225,077
Shareholder service fees
(Horizon Service Shares)......................................... 6,017,363
Shareholder service fees
(X Shares)....................................................... 123,320
12b-1 fees (X Shares).............................................. 147,984
Custodian and fund accounting fees................................. 566,015
Transfer agent fees................................................ 276,958
Legal fees......................................................... 381,684
Other expenses..................................................... 1,352,595
------------
Total Expenses................................................... 28,120,957
Less: Fee waivers.................................................... --
Expenses paid by third parties................................... (10,912)
------------
Total Net Expenses................................................... 28,110,045
------------
NET INVESTMENT INCOME................................................ 313,627,480
------------
NET REALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions...................... 172,885
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $313,800,365
============
</TABLE>
- ---------------
See Notes to Financial Statements.
71
<PAGE> 75
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
---------------- ----------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income...................... $ 313,627,480 $ 223,096,543
Net realized gains on investment
transactions............................. 172,885 277,551
---------------- ----------------
Change in net assets resulting from
operations................................. 313,800,365 223,374,094
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME:
Pacific Horizon Shares..................... (110,595,534) (87,771,565)
Horizon Shares............................. (79,709,197) (66,852,421)
Horizon Service Shares..................... (119,808,778) (67,741,940)
X Shares................................... (2,322,836)(a) --
---------------- ----------------
Change in net assets from shareholder
distributions.............................. (312,436,345) (222,365,926)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................ 42,442,585,809 31,908,025,354
Dividends reinvested....................... 177,262,119 113,292,127
Cost of shares redeemed.................... (40,881,572,699) (29,226,683,074)
---------------- ----------------
Change in net assets from capital share
transactions............................... 1,738,275,229 2,794,634,407
---------------- ----------------
Change in net assets......................... 1,739,639,249 2,795,642,575
NET ASSETS
Beginning of Year.......................... 5,411,069,973 2,615,427,398
---------------- ----------------
End of Year................................ $ 7,150,709,222 $ 5,411,069,973
================ ================
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date of fund) to February 28, 1997.
See Notes to Financial Statements.
72
<PAGE> 76
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 28, 1997, the Company
operated as a series company comprised of seventeen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Prime Fund (the
"Prime Fund"). The investment objective of the Prime Fund is to seek high
current income and stability of principal by investing in a broad range of
government, bank and commercial obligations available in the money markets as
well as repurchase agreements relating to such obligations.
The Prime Fund issues four classes of shares (Pacific Horizon Shares,
Horizon Shares, Horizon Service Shares and, effective July 22, 1996, X Shares).
The Prime Fund is also authorized to issue S Shares, which are not available for
purchase as of the date of this report. Pacific Horizon Shares have a Special
Management Services Plan while the Horizon Service Shares have a Shareholder
Services Plan. X and S Shares have a Distribution and Services Plan.
Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Prime Fund's investment
adviser. The BISYS Group, Inc. ("BISYS"), through its wholly-owned subsidiary
BISYS Fund Services, Limited Partnership, serves as the Prime Fund's
administrator. Concord Financial Group, Inc. (the "Distributor"), an indirect,
wholly-owned subsidiary of BISYS, serves as the distributor of the Prime Fund's
shares. BISYS Fund Services, Inc. ("BISYS Ohio"), also a wholly-owned subsidiary
of BISYS, serves as transfer agent and dividend disbursing agent of the Prime
Fund.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Prime Fund in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
The securities of the Prime Fund 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 and thereafter assuming a constant
amortization to maturity of the difference
73
<PAGE> 77
between the principal amount due at maturity and cost. In addition, the Prime
Fund may not (a) purchase any instrument with a remaining maturity greater than
thirteen months unless such instrument is subject to a demand feature, or (b)
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Prime Fund records security transactions on a trade date basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily. Realized gains and losses from security transactions are recorded on an
identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations
of each fund. Direct expenses of a fund are charged to that fund while general
Company expenses are allocated among the Company's respective portfolios.
The investment income and expenses of a fund (other than class specific
expenses) and realized and unrealized gains and losses on investments of a fund
are allocated to each class of shares based upon their relative net asset value
on the date income is earned or expenses and realized and unrealized gains and
losses are incurred.
REPURCHASE AGREEMENTS:
The Prime Fund's custodian and other banks acting in a sub-custodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default of the obligation to repurchase, the
Prime Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Prime Fund's net investment income is declared as a dividend daily, and
paid monthly, to shareholders of record at the close of business on record date.
Net realized gains on portfolio securities, if any, are distributed at least
annually. However, to the extent that net realized gains can be offset by
capital loss carryovers, such gains will not be distributed. Dividends and
distributions are recorded by the Prime Fund on the ex-dividend date.
The amount of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either
74
<PAGE> 78
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the composition of net
assets based on their federal tax-basis treatment; temporary differences do not
require reclassification. Dividends and distributions to shareholders which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized gains. To
the extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of capital.
As of February 28, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET REALIZED
NET INVESTMENT INCOME GAIN/(LOSS) ON INVESTMENTS
- ----------------------------------------------- -----------------------------------------------
<S> <C>
$2,742 $182,342
</TABLE>
FEDERAL INCOME TAXES:
It is the Prime Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute timely, all of its net investment company taxable income and net
capital gains to shareholders. Therefore, no federal income tax provision is
required.
At February 28, 1997, the Prime Fund had the following capital loss
carryovers:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION DATE
- ----------------------------------------------- -----------------------------------------------
<S> <C>
$ 744,962 2002
2,725,176 2003
--------
$3,470,138
========
</TABLE>
To the extent that these carryovers are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to shareholders.
Additionally, during the year ended February 28, 1997, the Prime Fund utilized
$172,885 of its available capital loss carryover to offset realized capital
gains for Federal income tax purposes.
OTHER:
The Prime Fund maintains a cash balance with its custodian and receives
reductions of custody fees and expenses for the amount of interest earned on
such uninvested cash balances. For financial reporting purposes for the year
ended February 28, 1997, custodian fees and expenses paid by third parties were
increased by $10,912. There was no effect on net investment income. The Prime
Fund could have invested such cash balances in income producing assets if they
had not agreed to a reduction of fees or expenses under the expense offset
arrangement with their custodian.
75
<PAGE> 79
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Prime Fund has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with BISYS. Bank of America is entitled to a fee
from the Prime Fund, which is accrued daily and payable monthly, at an annual
rate of 0.10% of the Prime Fund's first $3 billion of net assets, plus 0.09% of
the next $2 billion of net assets, plus 0.08% of net assets in excess of $5
billion. BISYS is entitled to a fee from the Prime Fund which is accrued daily
and payable monthly, at an annual rate of 0.10% of the Prime Fund's first $7
billion of net assets, plus 0.09% of that Fund's next $3 billion of net assets,
plus 0.08% of net assets in excess of $10 billion.
The Prime Fund has entered into a Special Management Services Agreement (the
"Services Agreement") pursuant to which it agrees to pay Bank of America and
BISYS a fee for various services relating to Pacific Horizon Shares. The special
management services fee is accrued daily at an annual rate of 0.32% of the
average daily net assets of the outstanding Pacific Horizon Shares of the Prime
Fund, borne solely by the Pacific Horizon Shares.
Effective January 1997, the Services Agreement was terminated. The Prime
Fund has adopted a Special Management Services Plan (the "Services Plan")
pursuant to which Service Organizations agree to provide certain services to
their clients who are beneficial owners of Pacific Horizon Shares in return for
a payment by the Prime Fund of a fee at an annual rate 0.32% of the average
daily net assets of the outstanding Pacific Horizon Shares. Fees under the
Services Plan are borne solely by the Pacific Horizon Shares. Service
organizations include BISYS, Bank of America and its affiliates. For the year
ended February 28, 1997, the Prime Fund was advised that BISYS, Bank of America
and its affiliates earned the following amounts pursuant to the Services Plan:
<TABLE>
<CAPTION>
BANK OF AMERICA
AND AFFILIATES BISYS
- ----------------------------------------------- -----------------------------------------------
<S> <C>
$6,398,554 $48,060
</TABLE>
The Prime Fund has also adopted a Shareholder Services Plan (the "Horizon
Services Plan") pursuant to which Service Organizations agree to provide certain
services to their clients who are beneficial owners of Horizon Service Shares in
return for payment by the Prime Fund of a fee at an annual rate of 0.25% of the
average daily net assets of the Horizon Service Shares, which are borne solely
by the Horizon Service Shares. Service Organizations may include the
Distributor, Bank of America and its affiliates. For the year ended February 28,
1997, the Prime Fund was advised that BISYS, Bank of America and its affiliates
earned the following amounts pursuant to the Horizon Services Plan:
<TABLE>
<CAPTION>
BANK OF AMERICA
AND AFFILIATES BISYS
- ----------------------------------------------- -----------------------------------------------
<S> <C>
$5,113,436 $15,122
</TABLE>
The Prime Fund has adopted the Distribution and Services Plan under which
the Prime Fund pays the Distributor and Service Organizations for the provision
of support services with
76
<PAGE> 80
respect to the beneficial owners of X Shares. Payments for distribution expenses
and shareholder servicing expenses may not exceed the annual rate of 0.30% and
0.25%, respectively, of the average daily net assets of the Prime Fund's X
Shares. For the year ended February 28, 1997 the Prime Fund was advised that
Bank of America and its affiliates earned the following amounts pursuant to the
Distribution and Services Plan.
<TABLE>
<CAPTION>
BANK OF AMERICA
AND AFFILIATES
------------------------------
<S> <C>
$270,960
</TABLE>
BISYS Ohio serves the Prime Fund as transfer agent and dividend disbursing
agent. In these capacities, BISYS Ohio earned $276,958 from the Prime Fund for
the year ended February 28, 1997. For the period January 1, 1996 to December 31,
1996, BISYS Ohio agreed to voluntarily limit aggregate transfer agency fees.
Absent this voluntary limit the Prime Fund would have incurred an additional
cost of $55,259.
For the year ended February 28, 1997, the Prime Fund incurred legal charges
totaling $381,684 which were earned by a law firm, a partner of which serves as
Secretary of the Company.
Certain officers of the Company are affiliated with BISYS. Such persons are
not paid directly by the Company for serving in these capacities.
NOTE 4 -- DIRECTORS' COMPENSATION
Each Director of the Company is entitled to an annual retainer of $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 received an additional $40,000
per year through February 28, 1997 in consideration for 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 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
77
<PAGE> 81
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 $31,025 for the Prime Fund for the year ended
February 28, 1997.
78
<PAGE> 82
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of each Fund (at $1.00 per share) for the periods
indicated are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
PACIFIC HORIZON SHARES
Issued......................................... 4,320,031,345 6,558,828,164
Reinvested..................................... 99,202,915 63,228,495
Redeemed....................................... (4,326,928,364) (5,551,677,079)
-------------- --------------
Net increase..................................... 92,305,896 1,070,379,580
============== ==============
HORIZON SHARES
Issued......................................... 15,114,015,999 10,005,418,206
Reinvested..................................... 25,723,399 18,014,180
Issued in connection with reorganization of 231
Funds........................................ -- 971,168,989
Redeemed....................................... (15,081,065,299) (9,966,301,034)
-------------- --------------
Net increase..................................... 58,674,099 1,028,300,341
============== ==============
HORIZON SERVICE SHARES
Issued......................................... 22,771,276,975 14,233,621,259
Reinvested..................................... 50,011,411 32,049,452
Issued in connection with reorganization of 231
Funds........................................ -- 140,144,817
Redeemed....................................... (21,437,775,542) (13,708,704,961)
-------------- --------------
Net increase..................................... 1,383,512,844 697,110,567
============== ==============
X SHARES
Issued......................................... 237,259,971 --
Reinvested..................................... 2,324,394 --
Redeemed....................................... (35,803,494) --
-------------- --------------
Net increase..................................... 203,780,871(a) --
============== ==============
</TABLE>
- ---------------
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
79
<PAGE> 83
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 29, 28, 28, 28,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PACIFIC HORIZON SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
YEAR....................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income...................... 0.0492 0.0539 0.0424 0.0287 0.0340
Net realized gains/(losses) on investment
transactions............................. -- 0.0004 (0.0227) (0.0016) --
-------- -------- -------- -------- --------
Total income from investment operations..... 0.0492 0.0543 0.0197 0.0271 0.0340
Less dividends to shareholders from net
investment income.......................... (0.0490) (0.0539) (0.0422) (0.0287) (0.0341)
Increase due to voluntary capital
contribution from Investment Adviser....... -- -- 0.0233 -- --
-------- -------- -------- -------- --------
Net change in net asset value per share..... 0.0002 0.0004 0.0008 (0.0016) (0.0001)
-------- -------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF YEAR...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................................ 5.01% 5.53% 4.30%+ 2.91% 3.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions)....... $ 2,292 $ 2,200 $ 1,129 $ 1,216 $ 992
Ratio of expenses to average net assets.... 0.55% 0.55% 0.51% 0.52% 0.55%
Ratio of net investment income to average
net assets............................... 4.92% 5.37% 4.19% 2.86% 3.42%
Ratio of expenses to average net assets*... (b) 0.56% 0.56% 0.53% (a)
Ratio of net investment income to average
net assets*.............................. (b) 5.36% 4.14% 2.85% (a)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Total return includes the effect of the voluntary capital contribution from
the Investment Advisor. Without this capital contribution, the total return
would have been lower.
(a) There were no fee waivers or expense reimbursements during the period.
(b) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
80
<PAGE> 84
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 29, 28, 28, 28,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
HORIZON SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
YEAR...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income..................... 0.0524 0.0571 0.0461 0.0319 0.0372
Net realized gains/(losses) on investment
transactions............................ -- 0.0004 (0.0232) (0.0016) --
-------- -------- -------- --------
Total income from investment operations.... 0.0524 0.0575 0.0229 0.0303 0.0372
Less dividends to shareholders from net
investment income......................... (0.0522) (0.0571) (0.0454) (0.0319) (0.0372)
Increase due to voluntary capital
contribution from Investment Adviser...... -- -- 0.0233 -- --
-------- -------- -------- --------
Net change in net asset value per share.... 0.0002 0.0004 0.0008 (0.0016) --
-------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF YEAR..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return............................... 5.34% 5.86% 4.63%+ 3.24% 3.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions)...... $ 1,710 $ 1,651 $ 662 $ 3,840 $ 10,301
Ratio of expenses to average net assets... 0.23% 0.23% 0.16% 0.20% 0.23%
Ratio of net investment income to average
net assets.............................. 5.24% 5.69% 4.11% 3.19% 3.59%
Ratio of expenses to average net
assets*................................. (b) 0.24% 0.23% 0.21% (a)
Ratio of net investment income to average
net assets*............................. (b) 5.68% 4.04% 3.18% (a)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Total return includes the effect of the voluntary capital contribution from
the Investment Advisor. Without this capital contribution, the total return
would have been lower.
(a) There were no fee waivers or expense reimbursements during the period.
(b) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
81
<PAGE> 85
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 29, 28, 28, 28,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
HORIZON SERVICE SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF
YEAR...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income..................... 0.0499 0.0546 0.0431 0.0294 0.0345
Net realized gains/(losses) on investment
transactions............................ -- 0.0004 (0.0227) (0.0016) --
-------- -------- -------- --------
Total income from investment operations.... 0.0499 0.0550 0.0204 0.0278 0.0345
Less dividends to shareholders from net
investment income......................... (0.0497) (0.0546) (0.0429) (0.0294) (0.0347)
Increase due to voluntary capital
contribution from Investment Adviser...... -- -- 0.0233 -- --
-------- -------- -------- --------
Net change in net asset value per share.... 0.0002 0.0004 0.0008 (0.0016) (0.0002)
-------- -------- -------- --------
NET ASSET VALUE PER SHARE, END OF YEAR..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return............................... 5.08% 5.60% 4.37%+ 2.98% 3.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions)...... $ 2,945 $ 1,561 $ 864 $ 839 $ 793
Ratio of expenses to average net assets... 0.48% 0.48% 0.44% 0.45% 0.48%
Ratio of net investment income to average
net assets.............................. 5.00% 5.44% 4.31% 2.94% 3.49%
Ratio of expenses to average net
assets*................................. (b) 0.49% 0.48% 0.46% (a)
Ratio of net investment income to average
net assets*............................. (b) 5.43% 4.27% 2.93% (a)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Total return includes the effect of the voluntary capital contribution from
the Investment Advisor. Without this capital contribution, the total return
would have been lower.
(a) There were no fee waivers or expense reimbursements during the period.
(b) Fees paid by third parties had no effect on the ratios.
See Notes to Financial Statements.
82
<PAGE> 86
PACIFIC HORIZON PRIME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
ENDED
FEBRUARY
28,
1997(A)
---------
<S> <C>
X SHARES
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD...................... $ 1.00
--------
Income from Investment Operations:
Net investment income............................................. 0.0282
Net realized and unrealized gains/(losses) on investment
transactions.................................................... --
--------
Total income from investment operations............................. 0.0282
Less dividends to shareholders from net investment income........... (0.0281)
--------
Net change in net asset value per share............................. 0.0001
--------
NET ASSET VALUE PER SHARE, END OF PERIOD............................ $ 1.00
========
Total return........................................................ 2.84%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (millions).............................. 204
Ratio of expenses to average net assets........................... 0.78%(c)
Ratio of net investment income to average net assets.............. 4.73%(c)
Ratio of expenses to average net assets*.......................... (b)
Ratio of net investment income to average net assets*............. (b)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(a) Period from July 22, 1996 (inception date) to February 28, 1997.
(b) Fees paid by third parties had no effect on the ratios.
(c) Annualized.
(d) Not annualized.
See Notes to Financial Statements.
83
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pacific Horizon Prime Fund (one of
the portfolios constituting the Pacific Horizon Funds, Inc., hereafter referred
to as the "Fund") at February 28, 1997, 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, which included confirmation of securities at
February 28, 1997 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 21, 1997
84
<PAGE> 88
Concord Financial Group, Inc., Distributor
================================================================================
SEA-0010 4/97