<PAGE> 1
TIME HORIZON FUNDS
(THE "COMPANY")
TIME HORIZON PORTFOLIO 1
TIME HORIZON PORTFOLIO 2
TIME HORIZON PORTFOLIO 3
(COLLECTIVELY, THE "FUNDS" AND INDIVIDUALLY, A "FUND")
SUPPLEMENT DATED JULY 1, 1996
TO PROSPECTUS DATED FEBRUARY 5, 1996
1. CLASS K SHARES
Each Fund currently offers three classes of shares to provide investors
with different purchasing options. These are Class A shares and Class B shares,
which are described in the prospectus, and Class K shares, which are described
in the prospectus as supplemented hereby. The primary distinctions among the
classes lie in their initial and contingent deferred sales charge schedules and
in their ongoing expenses, including asset-based charges in the form of Rule
12b-1 distribution or administrative services fees. Class K shares are offered
at net asset value without an initial sales charge or a contingent deferred
sales charge, but subject to distribution and administrative services plan and
shareholder servicing fees. Class K Shares of the Fund may be exchanged for
Class K Shares of another Time Horizon Fund or Pacific Horizon Fund with no
sales charge.
Class K shares are available for purchase exclusively by the following
investors:
- business or other organizations that participate in the Daily
Advantage(R) Program sponsored by Bank of America;
- individuals investing the proceeds of a redemption from another open-end
investment company on which a front-end sales charge was paid if (i) such
redemption occurred within thirty (30) days prior to the date of the
purchase order, and (ii) such other open-end investment company was not
distributed and advised by Concord Financial Group, Inc. and Bank of
America, respectively, or their affiliates; and
- accounts opened for IRA rollovers from a 401(k) plan in which the assets
were held in a Time Horizon Fund or a Pacific Horizon Fund, another
open-end investment company managed by Bank of America (a "Pacific
Horizon Fund"), and subsequent purchases into such accounts.
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EXPENSE SUMMARY
<TABLE>
<CAPTION>
PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3
----------- ----------- -----------
SHAREHOLDER TRANSACTION EXPENSES CLASS K CLASS K CLASS K
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) (2)......... None None None
Sales Load Imposed on Reinvested Dividends........ None None None
Maximum Contingent Deferred Sales Load............ None None None
Redemption Fee.................................... None None None
Exchange Fee...................................... None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (After Fee Waivers*).............. 0.30% 0.30% 0.30%
12b-1 Fees (After Fee Waivers)(1)................. 0.50% 0.50% 0.50%
Administrative Service Fee (After Fee
Waivers)(1)..................................... 0.50% 0.50% 0.50%
Shareholder Service Payments (1).................. 0.25% 0.25% 0.25%
---- ---- ----
Total of all 12b-1 Fees OR Administrative Service
Fees and Shareholder Service Fees (After Fee
Waivers)(1)..................................... 0.75% 0.75% 0.75%
Other Estimated Expenses
(After Expense Reimbursements*)................. 0.45% 0.45% 0.45%
---- ---- ----
Total Estimated Fund Operating Expenses........... 1.50% 1.50% 1.50%
==== ==== ====
</TABLE>
- ---------
(1) Absent fee waivers, 12b-1 fees or administrative services fees would be
0.75% or 0.75%, respectively, of the Fund's average net assets (annualized).
The total of all 12b-1 fees, administrative service fees and shareholder
service fees may not exceed, in the aggregate, the annual rate of 1.00% of
the average net assets of each Fund's K shares. However, during the current
fiscal year, such fees will not exceed 0.75% of the average net assets of
each Fund's K shares. Because of the Rule 12b-1, administrative and/or
shareholder service fees paid by the Funds as shown in the above table,
long-term Class K shareholders may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. For a further description of shareholder
transaction expenses and the Funds' operating expenses, see the sections
entitled "Shareholder Guide," "The Business of the Funds" and "Plan
Payments" below.
(2) Bank of America will compensate Seafirst Investment Services, Inc. ("SIS")
and BA Investment Services, Inc. ("BAIS") (BAIS and SIS are collectively
referred to herein as "Affiliated Brokers") for their customers who have
invested in the Funds and are participants in the Daily Advantage(R)
Program. The Affiliated Brokers will be compensated by Bank of America at
the rate of 1.00% of the amount under $3 million, 0.50% of the next $47
million and 0.25% thereafter of combined Pacific Horizon Funds and Time
Horizon Funds K shares in each Daily Advantage(R) Program.
* The Manager has currently agreed to reduce its fees and absorb other
operating expenses to ensure that the operating expenses for each Fund
(other than interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses) will
not exceed 1.50% of the average net assets of each Fund's Class K shares on
an annual basis. Absent fee waivers and expense reimbursements, management
fees would be 0.60% of average net assets, "Other Estimated Expenses" would
be 1.75% of average net assets (annualized), and "Total Estimated Fund
Operating Expenses" would be 3.35% of average net assets (annualized).
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<PAGE> 3
EXAMPLE: Assume the annual return is 5% and operating expenses are the same as
those stated above. For every $1,000 you invest in a Fund, for example, here's
how much you would have paid in total expenses if you closed your account after
the number of years indicated:
<TABLE>
<CAPTION>
AFTER 1 YEAR AFTER 3 YEARS
------------ ------------
<S> <C> <C>
Class K shares.................................................... $15 $47
</TABLE>
- ---------
Note: The preceding example should not be considered representative of future
investment returns and operating expenses. Class K shares are new and the
above figures are based on estimated expenses for the first twelve months
after their initial offering. Actual investment returns and operating
expenses may be more of less than those shown.
This expense information is provided to help you understand the expenses
you would bear either directly (as with transaction expenses) or indirectly (as
with annual operating expenses) as a Class K shareholder.
The Company has adopted an Administrative and Shareholder Services Plan for
Class K shares, under which the Class K shares of the Funds may reimburse the
Distributor for administrative and shareholder servicing expenses incurred. The
Company has also adopted a Distribution and Administrative Services Plan
pursuant to Rule 12b-1 under the 1940 Act, under which the Class K shares of
each Fund may compensate the Distributor for administrative and other services
rendered and costs incurred in connection with distribution of the Class K
shares. The total of all 12b-1 fees, administrative services fees and
shareholder services fees paid under both the Administrative and Shareholder
Services Plan and the Distribution and Administrative Services Plan may not
exceed, in the aggregate, the annual rate of 1.00% of the average daily net
assets of a Fund's K shares. To compensate certain brokers whose customers
purchase Class K shares, Bank of America pays Affiliated Brokers at the rate of
1.00% of the purchase price under $3 million, 0.50% of the next $47 million and
0.25% thereafter.
THE ADMINISTRATIVE AND SHAREHOLDER SERVICES PLAN
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for support services for the beneficial owners of a Fund's shares,
such as establishing and maintaining accounts and records relating to the
Service Organization's clients who invest in Fund shares; assisting those
clients in processing exchange and redemption requests and in changing dividend
options and account designations; and responding to inquiries from clients
concerning their investments.
Administrative services expenses include processing dividend and
distribution payments from a Fund on behalf of clients, providing statements
periodically to clients, and forwarding shareholder communications such as
proxies, shareholder reports and annual and semi-annual reports to clients.
Under the Administrative and Shareholder Services Plan, payments by a Fund
for shareholder servicing expenses may not exceed 0.25% (annualized) of the
Fund's average daily net assets attributable to the Class K shares, and payments
by a Fund for administrative services may not exceed 0.75% (annualized) of the
Fund's average daily net assets attributable to the Class K shares.
If in any month the Distributor is due more monies than are immediately
payable because of the percentage limitation described above, the unpaid amount
is "carried forward" from month to month while the Administrative and
Shareholder Services Plan is in effect until such time when it may be paid.
However, any "carried forward" amounts will not be payable beyond the fiscal
year during which the amounts are
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<PAGE> 4
accrued. No interest, carrying or other finance charge is borne by a Fund with
respect to the amount "carried forward."
Banks may act as Service Organizations. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Service Organization its shareholder clients would be permitted to remain
Company shareholders and alternative means for continuing the servicing of such
shareholders would be sought. In such event, changes in the operation of the
Company might occur and a shareholder serviced by such bank might no longer be
able to avail itself of the automatic investment or other services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of these occurrences.
THE DISTRIBUTION AND ADMINISTRATIVE SERVICES PLAN
Distribution expenses include advertising and marketing expenses,
commissions and other payments to broker-dealers and others which have entered
into agreements with the Distributor, the expenses of preparing, printing and
distributing prospectuses, and indirect and overhead costs associated with the
sale of Class K shares.
Administrative services expenses include processing dividend and
distribution payments from a Fund on behalf of clients, providing statements
periodically to clients, and forwarding shareholder communications such as
proxies, shareholder reports and annual and semi-annual reports to clients.
Under the Distribution and Administrative Services Plan, payments made by
the Class K shares of a Fund for distribution and administrative expenses may
not exceed the rate of 0.75% (annualized) of the average daily net assets of the
Fund attributable to the Class K shares. This amount may be reduced pursuant to
the undertakings by the Distributor.
The Distribution and Administrative Services Plan is a "compensation" plan,
which means that the fees paid to the Distributor under the plan are intended to
compensate the Distributor for services rendered and expenses borne even if the
amounts paid exceed the Distributor's actual expenses (in which case the
Distributor would realize a profit). If in any month the Distributor's expenses
incurred in connection with the distribution and administration of a Fund's
Class K shares exceed the fees paid by the Fund, the Distributor will recover
the excess only if the Distribution and Administrative Services Plan with
respect to such shares continues to be in effect in some later year when the
fees exceed the Distributor's expenses. No interest, carrying or other finance
charge is borne by a Fund with respect to any amounts "carried forward," and no
Fund will be obligated to pay any unreimbursed expenses that may exist at such
time, if any, as the Distribution and Administrative Services Plan is
terminated.
FINANCIAL HIGHLIGHTS
No financial information is presented for Class K shares since Class K
shares were first offered on
July 1, 1996.
2. CLASS A SHARES--LARGE PURCHASE EXEMPTION
The sales load structure with respect to each Fund is amended as follows:
There is no front-end sales load on A shares you purchase if you have
either a combined purchase of A shares of the Company of $1,000,000 or more or
if the aggregate value of A shares that you beneficially own
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<PAGE> 5
in any Time Horizon Fund or Pacific Horizon Fund, equals or exceeds $1,000,000
("Large Purchase Exemption"). Unless you participated in the Bank of America
Daily Advantage(R) or Advantage Plus(TM) programs, Class A shares purchased
under the Large Purchase Exemption are subject to a contingent-deferred sales
charge of 1.00% and 0.50%, respectively, on redemptions within one and two years
after purchase. The contingent-deferred sales charge is paid to the Distributor.
Class A shares cannot be purchased under the Large Purchase Exemption if there
is another Class A no-load exemption available. Accordingly, Class A shares
purchased under another Class A no-load exemption are not subject to a
contingent-deferred sales charge.
Neither a contingent-deferred sales charge nor a front-end sales load will
be imposed upon exchanges, at the time of the exchange, if a shareholder who has
entered a Fund under the Large Purchase Exemption exchanges shares between funds
of the Company or Pacific Horizon Funds, Inc. However, shares acquired in the
exchange will remain subject to the contingent-deferred sales charge discussed
above and will retain their original cost and purchase date for purposes of
calculating the contingent-deferred sales charge.
The contingent-deferred sales charge is calculated as a percentage of the
lesser of the current market value or the cost of the shares being redeemed.
This means that this charge will not be imposed upon increases in net asset
value above the initial purchase price or upon reinvested dividends. In
determining whether a contingent-deferred sales charge is applicable to a
redemption of such shares, the calculation will be made in a manner that results
in the lowest possible rate. It will be assumed that the redemption is made
first of amounts representing shares acquired pursuant to the reinvestment of
dividends and distributions; then of amounts representing the increase in net
asset value of your holdings of shares above the total amount of payments for
the purchase of shares during the preceding 2 years; then of amounts
representing the cost of shares held beyond the applicable contingent-deferred
sales charge period; and finally, of amounts representing the cost of the shares
held for the longest period of time.
Despite the fact that no front-end sales load will be paid on Class A
shares purchased under the Large Purchase Exemption, the Distributor will
compensate brokers whose customers purchase such shares at the following rates:
1.00% of the amount under $3 million, .50% of the next $47 million and 0.25%
thereafter.
The preceding paragraphs are inserted immediately below the table entitled
"SHAREHOLDER TRANSACTION EXPENSES" under the heading "EXPENSE SUMMARY" and also
under the heading "SHAREHOLDER GUIDE--HOW TO BUY SHARES." The
contingent-deferred sales charge has not been included in calculating the
expenses in the "EXPENSE SUMMARY" sections.
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<PAGE> 6
3. The chart under the heading "SHAREHOLDER GUIDE--HOW TO BUY SHARES--HOW ARE
SHARES PRICED?--CLASS A SALES LOAD" is amended and restated in its entirety
for each Fund as follows:
<TABLE>
<CAPTION>
AS A % AS A %
OF OF DEALER'S
OFFERING NET ASSET REALLOWANCE
PRICE VALUE AS A % OF
AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE*
--------------------- --------- --------- ---------------
<S> <C> <C> <C>
Less Than $100,000......................... 4.50 4.71 4.00
$100,000 but less than $250,000............ 3.75 3.90 3.35
$250,000 but less than $500,000............ 2.50 2.56 2.20
$500,000 but less than $750,000............ 2.00 2.04 1.75
$750,000 but less than $1,000,000.......... 1.00 1.01 0.90
$1,000,000 or more......................... 0.00** 0.00** 0.00**
</TABLE>
- ---------
* Dealer's reallowance may be changed periodically.
** See 2 above for a description of the contingent-deferred sales charge.
From time to time, the Fund's Distributor will make or allow additional
payments or promotional incentives in the form of cash or other compensation
such as trips to sales seminars, tickets to sporting and other entertainment
events and gifts of merchandise to firms that sell shares of the Funds.
4. The following exemption is deleted with respect to each Fund from the list of
types of transactions exempt from the Class A share front-end sales load
appearing below the heading "SHAREHOLDER GUIDE-- HOW TO BUY SHARES--HOW ARE
SHARES PRICED?--WHEN NO SALES LOAD IS APPLIED":
- employer-sponsored employee pension or retirement plans making direct
investments in a Fund.
5. The contingent-deferred sales charge on Class A shares purchased under the
Large Purchase Exemption will be waived under the same circumstances
specified for Class B shares under the heading "SHAREHOLDER GUIDE--HOW TO BUY
SHARES--HOW ARE SHARES PRICED?--WHEN NO CONTINGENT--DEFERRED SALES CHARGE IS
APPLIED."
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TIME HORIZON FUNDS
(THE "COMPANY")
TIME HORIZON PORTFOLIO 1
TIME HORIZON PORTFOLIO 2
TIME HORIZON PORTFOLIO 3
SUPPLEMENT DATED JULY 1, 1996
TO STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 5, 1996
MANAGEMENT
The listing of officers of the Company is amended to read as follows:
<TABLE>
<CAPTION>
POSITION
NAME AND ADDRESS WITH COMPANY PRINCIPAL OCCUPATION AND AGE
---------------- ------------ ----------------------------
<S> <C> <C>
J. David Huber President Senior Vice President of Client Services, BISYS
BISYS Fund Services Fund Services since 1987. Age: 50.
3435 Stelzer Road
Columbus, Ohio 43219
Irimga McKay Vice President Senior Vice President, July 1993 to date, prior
1230 Columbia Street thereto First Vice President of the Administrator
5th Floor, Suite 500 and Distributor, November 1988 to July 1993;
San Diego, CA 92037 Regional Vice President, Continental Equities,
June 1987 to November 1988; Assistant Wholesaler,
VMS Realty Partners (a real estate limited
partnership), May 1986 to June 1987. Age: 35
Stephanie L. Blaha Vice President Manager of Client Services of the Administrator,
BISYS Fund Services March 1995 to date, prior thereto Assistant Vice
3435 Stelzer Road President of the Administrator and Distributor,
Columbus, Ohio 43219 October 1991 to March 1995; Account Manager, AT&T
American Transtech, Mutual Fund Division, July
1989 to October 1991. Age: 36.
George O. Martinez Secretary Senior Vice President and Director of Legal and
BISYS Fund Services Compliance Services, of the Administrator since
3435 Stelzer Road April 1995; prior thereto, Vice President and
Columbus, Ohio 43219 Associate General Counsel, Alliance Capital
Management, L.P. Age: 35.
Mark E. Nagle Treasurer Senior Vice President, Fund Accounting Services
BISYS Fund Services The BISYS Group, Inc., September 1995 to Present;
3435 Stelzer Road Senior Vice President Fidelity Institutional
Columbus, Ohio 43219 Retirement Services (1993 to September 1995);
Fidelity Accounting & Custody Services (1981 to
1993). Age: 36.
</TABLE>
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<PAGE> 8
The listing beginning on page 30 of persons who owned of record 5% or more
of the outstanding share of any Fund is replaced by the following list, which is
as of May 23, 1996:
<TABLE>
<CAPTION>
TOTAL
NAME AND ADDRESS SHARES % OWNED FUND CLASS
---------------- ------ ------- ---- -----
<S> <C> <C> <C> <C>
Bank of America-Illinois 194,930.107 31.345 Portfolio 1 A
FBO UPS IRA's
P.O Box 5747
Denver, CO 80217-5747
Bank of America-Illinois 137,130.525 20.709 Portfolio 2 A
FBO UPS IRA's
P.O Box 5747
Denver, CO 80217-5747
BA Investment Services Inc. 40,791.411 6.160 Portfolio 2 A
FBO 201926211
185 Berry Street
3rd Floor 2640
San Francisco, CA 94104
Bank of America Illinois 37,043.632 7.190 Portfolio 3 A
PO Box 5747
Denver, CO 80217-5747
</TABLE>
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TMH-0028
