<PAGE>
<TABLE>
<S> <C>
Rule 497(e):
File Nos. 33-1922; 811-4506
</TABLE>
<TABLE>
<S> <C>
THE PASADENA GROUP THE PASADENA
OF MUTUAL FUNDS-Registered Trademark- GLOBAL GROWTH
[Logo] FUND-SM-
THE PASADENA
SMALL & MID-CAP
GROWTH
FUND-SM-
</TABLE>
THE PASADENA GLOBAL GROWTH FUND seeks to achieve long-term growth of capital
by investing in a globally diversified portfolio of equity securities, which may
be traded in securities markets in foreign countries and the United States.
THE PASADENA SMALL & MID-CAP GROWTH FUND seeks to achieve long-term growth
of capital by investing primarily in a diversified portfolio of equity
securities of companies with market capitalizations below $1.5 billion.
Roger Engemann Management Co., Inc. is the investment manager for the Funds.
Each Fund is a separate series of the Pasadena Investment Trust (the "Trust"),
and each offers three classes of shares (Class A, Class B and Class C shares).
See "Synopsis -- Purchase and Redemption of Shares" below. The minimum initial
investment for each Fund is $1,000 per account ($250 for individual retirement
and minor's custodial accounts and for initial purchases under a Systematic
Purchase Plan). Minimum subsequent investments are $50. See "Purchase of
Shares."
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing. Please read it and retain it
for future reference. Additional information about the Funds and the Trust is
included in the Trust's Statement of Additional Information regarding the Funds
dated September 1, 1996, as it may be amended from time to time. The Statement
of Additional Information, which is incorporated by reference into this
Prospectus, has been filed with the Securities and Exchange Commission and is
available without charge upon request to the Trust at 600 North Rosemead
Boulevard, Pasadena, California 91107-2133 (telephone: (818) 351-9686 or (800)
648-8050).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS SEPTEMBER 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Synopsis.................................................... 2
Expense and Fee Tables...................................... 4
Financial Highlights........................................ 5
Investment Objectives and Policies.......................... 7
Alternative Purchase Arrangements........................... 14
Purchase of Shares.......................................... 15
Redemption of Shares........................................ 21
Management.................................................. 24
Dividends, Distributions and Taxes.......................... 26
Determination of Net Asset Value............................ 27
Performance Information..................................... 28
Description of the Trust.................................... 28
Shareholder Inquiries....................................... 29
General Information......................................... 29
Backup Withholding Instructions............................. 30
</TABLE>
REMCO-049
<PAGE>
SYNOPSIS
The following synopsis is qualified in its entirety by the detailed
information contained elsewhere in this Prospectus or the Statement of
Additional Information.
THE FUNDS. The Pasadena Group of Mutual Funds consists of five separate
series of the Pasadena Investment Trust (the "Trust"), a Massachusetts business
trust, organized as a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The two series (each, a "Fund," and collectively, the "Funds") described
in this single Prospectus are:
- The Pasadena Global Growth Fund (the "Global Growth Fund")
- The Pasadena Small & Mid-Cap Growth Fund (the "Small & Mid-Cap Growth
Fund")
The other series of the Trust, The Pasadena Growth Fund, The Pasadena Nifty
Fifty Fund and The Pasadena Balanced Return Fund, are covered by a separate
prospectus.
THE MANAGER. Roger Engemann Management Co., Inc. (the "Manager") provides
investment advice to the Funds and manages the Funds' investments. The Manager's
annual management fee, which is computed and prorated daily, for the Global
Growth Fund equals 1.10% of the average daily net assets of the Fund up to $50
million, plus 1.00% of net assets over $50 million up to $500 million, plus
0.90% of net assets over $500 million. The Manager's annual management fee for
the Small & Mid-Cap Growth Fund, which is computed and prorated daily, equals
1.00% of the average daily net assets of the Fund up to $50 million, plus 0.90%
of net assets over $50 million up to $500 million, plus 0.80% of net assets over
$500 million. The Manager also performs, and/or assumes the expenses for, the
Funds' administrative and most shareholder services, for which it receives an
annual administration fee equal to 0.60% of the average daily net assets of each
Fund up to $50 million, plus 0.50% over $50 million up to $500 million, plus
0.40% of net assets over $500 million. The combined rate of fees is higher than
that paid by most investment companies to their manager. However, the Funds will
not incur any other expenses in connection with its normal operations other than
(i) a fee paid by each class of shares to dealers and others, including the
Manager and its affiliates, for servicing shareholder accounts equal to 0.25%
per annum of the aggregate average daily net assets of each Fund attributable to
the class, and (ii) an ongoing distribution fee payable by Class B shares and
Class C shares at an annual rate of 0.75% of each Fund's average daily net
assets attributable to each such class. The management fee for each Fund also is
subject to a more restrictive limitation imposed by the law of a state in which
each Fund is registered to sell its shares. See "Management."
PURCHASE AND REDEMPTION OF SHARES. The Funds offer their shares
continuously and redeem their shares upon a shareholder's request. Each Fund
offers three classes of shares (each, a "Class"). Shares may be purchased
through authorized investment dealers at the public offering price next
determined after the Funds' sub-transfer agent, Boston Financial Data Services,
Inc. (the "Sub-Transfer Agent"), the Fund, or another authorized agent or
subagent of the Fund, receives a purchase order. The public offering price of
the Class A shares is the net asset value per share plus a maximum sales charge
of 5.50% of the offering price, reduced on purchases of $50,000 or more. The
public offering price of the Class B shares and Class C shares is their net
asset value per share. The Class B shares are subject to a contingent deferred
sales charge (sometimes referred to as the "CDSC") of up to 5% of the offering
price imposed on most redemptions made within four years of purchase. Orders for
Class B shares and Class C shares of more than $100,000 per Fund will not be
accepted. For more information about the different purchase arrangements, see
"Alternative Purchases Arrangements." For more information about the various
expenses borne by each Class, see "Comparison of Classes" and "Expense and Fee
Tables."
The minimum initial investment is $1,000 per account ($250 for individual
retirement and minor's custodial accounts and for initial purchases under a
Systematic Purchase Plan). Minimum subsequent investments are $50. See "Purchase
of Shares."
2
<PAGE>
Shares are redeemed at their net asset value per share next determined after the
Sub-Transfer Agent, the Fund, or another authorized agent or subagent of the
Fund, receives a redemption request in proper form (less the CDSC, if any, with
respect to the Class B shares). See "Redemption of Shares."
COMPARISON OF CLASSES. The following table compares certain aspects
relating to the purchase of shares of the three Classes:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Sales Charges.................. Initial sales charge at CDSC of 5% to 3% applies to No initial sales charge; no
time of investment of up to any shares redeemed within CDSC.
5.50%, depending on amount the first four years
of investment. following their purchase;
On investments of $1 no CDSC after four years.
million or more, no initial
sales charge.
12b-1 Distribution Fee......... None. 0.75% each year for the 0.75% each year. No
first six years. At the conversion to Class A
beginning of the seventh shares.
year, Class B shares
convert automatically to
Class A shares (with no
sales charge).
Service Fee ................... 0.25% each year. 0.25% each year. 0.25% each year.
</TABLE>
RISKS. Every investment carries some market risk. In addition to the risks
described under "Risk Considerations," an investment in a Fund is subject to the
inherent risk that market prices or interest rates will not agree with the
Manager's estimation of fundamental security values or market trends. The Funds
are designed to be long-term investments. Therefore, because each Fund's net
asset value per share will fluctuate with daily changes in the market prices of
its portfolio securities (as well as with changes in foreign currency exchange
rates for securities not traded in United States dollars), an investment in a
Fund may not be suitable for investors with specific short-term investment
return needs. Each Fund also may invest part of its assets in securities with
special risks, such as foreign securities (which may be denominated in foreign
currencies), and the Small & Mid-Cap Growth Fund may invest part of its assets
in securities representing special situations. See "Investment Objective and
Policies" and "Risk Considerations."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, and are not insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Shares of the Funds involve investment risk, including possible loss of
principal.
3
<PAGE>
EXPENSE AND FEE TABLES
Expenses are one of several factors to consider when investing in a Fund.
The purpose of the following table is to provide an understanding of the various
costs and expenses that shareholders of each Class will bear directly or
indirectly. Because Rule 12b-1 distribution charges are accounted for on a
Class-level basis (and not on an individual shareholder-level basis), individual
long-term investors in the Class B shares and Class C shares of a Fund may over
time pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc. ("NASD"), even
though all shareholders of those Classes in the aggregate will not. This is
recognized and permitted by the NASD.
<TABLE>
<CAPTION>
SMALL & MID-CAP
GLOBAL GROWTH FUND GROWTH FUND
--------------------- ---------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as percentage of offering
price)............................................................ 5.50% None None 5.50% None None
Maximum Sales Charge Imposed on Reinvestment of Distributions....... None None None None None None
Maximum Deferred Sales Charge....................................... None 5.00% None None 5.00% None
Redemption Fees+.................................................... None None None None None None
Exchange Fees....................................................... None None None None None None
ANNUAL FUND OPERATING EXPENSES*:
(Before Fee Waivers)
Management Fees..................................................... 1.10% 1.10% 1.10% 1.00% 1.00% 1.00%
Administration Fees................................................. 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
12b-1 Fees.......................................................... None 0.75% 0.75% None 0.75% 0.75%
Service Fees........................................................ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses................................... 1.95% 2.70% 2.70% 1.85% 2.60% 2.60%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
- ------------------------
+ A $10.00 fee may be charged for redemptions made by bank wire (see p. 22).
* Operating expense information for the Funds reflects the current fee schedule
for all Classes of shares under the Management, Administration and Services
Agreements, respectively, assuming each Fund's total assets do not exceed $50
million. Such information is also based on the current fee schedule for the
Class B shares and Class C shares under the Distribution Plan for each such
Class. All such fees for the fiscal year ended December 31, 1995 were waived
by the Manager.
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of a Fund over different time periods,
assuming a $1,000 investment, a 5% annual return, and redemption
at the end of each time period:
<TABLE>
<CAPTION>
SMALL & MID-CAP
GLOBAL GROWTH FUND GROWTH FUND
------------------------ ------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year............................ $ 74 $ 77 $ 27 $ 73 $ 76 $ 26
3 years........................... 113 114 84 110 111 81
5 years........................... 154 143 143 149 138 138
10 years........................... 270 269** 303 260 258** 293
</TABLE>
An investor would bear the following transaction and operating
expenses on the same $1,000 investment, assuming no redemption at
the end of each time period:
<TABLE>
<CAPTION>
SMALL & MID-CAP
GLOBAL GROWTH FUND GROWTH FUND
------------------------ ------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year............................ $ 74 $ 27 $ 27 $ 73 $ 26 $ 26
3 years........................... 113 84 84 110 81 81
5 years........................... 154 143 143 149 138 138
10 years........................... 270 269** 303 260 258** 293
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at end
of sixth year following the date of purchase.
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
IN ADDITION, FEDERAL REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL
RETURN, BUT THE ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "PURCHASE OF SHARES"
AND "MANAGEMENT."
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables contain information for one Class A share of beneficial
interest outstanding throughout each period for each of the Funds since the
inception of each Fund, which has been audited by Coopers & Lybrand L.L.P.,
independent accountants. The accountants' unqualified report for each of the
periods ended December 31 appears in each of the Fund's audited financial
statements for the year ended December 31, 1995. The financial highlights should
be read in conjunction with each of the Fund's audited financial statements for
the year ended December 31, 1995, which are incorporated by reference in the
Statement of Additional Information. No such information is presented for the
Funds' Class B shares or Class C shares because no such shares had been issued
as of December 31, 1995.
<TABLE>
<CAPTION>
THE PASADENA GLOBAL GROWTH FUND
-----------------------------------
INCEPTION
(NOVEMBER 1,
FOR THE YEAR ENDED 1993)
DECEMBER 31, TO
-------------------- DECEMBER 31,
1995 1994 1993
---------- ------- ------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period................. $ 14.06 $ 11.18 $ 10.00
---------- ------- ------------
Gain from Investment Operations:
Net investment income(1),(2) .24 .10 .01
Net realized and unrealized gain on investments...... 3.11 2.78 1.17
---------- ------- ------------
Total gain from investment operations................ 3.35 2.88 1.18
---------- ------- ------------
Less Dividends:
Dividends from net investment income................. (.14) -- --
---------- ------- ------------
Total dividends...................................... (.14) -- --
---------- ------- ------------
Net asset value, end of period......................... $ 17.27 $ 14.06 $ 11.18
---------- ------- ------------
---------- ------- ------------
Total Return(2),(3) 23.84% 25.76% 11.80%
Ratios/Supplemental Data:
Net assets, end of period............................ $3,203,426 $140,561 $ 111,814
Ratio of net expenses to average net assets(2)....... 0.0% 0.0% 0.0%(4)
Ratio of net investment income to average net
assets(2)........................................... 1.4% 0.8% 0.8%(4)
Portfolio turnover rate.............................. 29.0% 479.3% 215.8%
</TABLE>
- ------------------------------
Footnotes on next page
5
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA SMALL &
MID-CAP GROWTH FUND 6
---------------------------
INCEPTION
(OCTOBER 10,
FOR THE 1994)
YEAR ENDED TO
DECEMBER DECEMBER 31,
31, 1995 1994
----------- ------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period................. $ 12.07 $ 10.00
----------- ------------
Gain from Investment Operations:
Net investment income(1),(5) .22 .07
Net realized and unrealized gain on investments...... 2.87 2.00
----------- ------------
Total gain from investment operations.................. 3.09 2.07
----------- ------------
Less Dividends and Distributions to Shareholders:
Distributions from net investment income............. (.08) --
Distributions from capital gains..................... (.18) --
----------- ------------
Total distributions.................................. (.26) --
----------- ------------
Net asset value, end of period......................... $ 14.90 $ 12.07
----------- ------------
----------- ------------
Total Return(3),(5) 25.68% 20.70%
Ratios/Supplemental Data:
Net assets, end of period............................ $1,742,290 $ 120,729
Ratio of net expenses to average net assets(5)....... 0.0% 0.0%(4)
Ratio of net investment income to average net
assets(5)........................................... 1.5% 2.6%
Portfolio turnover rate.............................. 121.4% 157.9%
</TABLE>
- ------------------------------
(1) This information was prepared using the average number of shares
outstanding during each period.
(2) These amounts reflect a waiver of Manager fees of $42,545, $2,784 and $410
for the periods ended December 31, 1995, December 31, 1994 and December 31,
1993, respectively, and the Manager's reimbursement for income taxes
totaling $13,109 during 1994. Had the waivers and reimbursement not been
made, net investment income (loss) per share, total return (not annualized
for the period ended December 31, 1993) and the ratios of net expenses and
net investment income (loss) to average net assets (annualized for the
period ended December 31, 1993) would have been ($.15), 22.88%, 2.3% and
(0.9%), respectively, for the period ended December 31, 1995, ($.21),
14.40%, 10.4% (2.3% if only normal and recurring expenses are taken into
account) and (1.7%), respectively, for the period ended December 31, 1994
and ($.03), 11.40%, 2.3% and (1.5%), respectively, for the period ended
December 31, 1993.
(3) Total return measures the change in the value of an investment during the
period indicated and does not include the impact of paying any sales charge.
Total return for the Global Growth Fund for the period from inception
(November 1, 1993) through December 31, 1993 and for the Small & Mid-Cap
Growth Fund for the period from inception (October 10, 1994) through
December 31, 1994 has not been annualized. Prior to September 1, 1996, the
Funds' shares were not offered to the public and, although each Fund's
portfolio was managed substantially in accordance with the investment
objectives and policies described in this Prospectus during that period,
some management differences did occur due primarily to each Fund's small
asset size. Accordingly, each Fund's performance during periods prior to
September 1, 1996 may not be relevant to an assessment of such Fund's
performance subsequent to such date. Additionally, the Manager waived all
management, administrative and service fees otherwise payable to it by each
Fund for the indicated periods, which had the effect of increasing such
Fund's total return for those periods.
(4) Annualized.
(5) These amounts reflect the impact of a waiver of Manager fees of $13,443
and $585 for the periods ended December 31, 1995, and December 31, 1994,
respectively, and the Manager's reimbursement for income taxes of $6,654
during 1994. Had the waivers and reimbursement not been made, net investment
income (loss) per share, total return (not annualized for the period ended
December 31, 1994) and the ratios of expenses and net investment income
(loss) to average net assets (annualized for the period ended December 31,
1994) would have been ($.11), 23.40%, 2.3% and (.8%), respectively, and
($.01), 15.10%, 22.1% (2.3% if only normal and recurring expenses are taken
into account) and (0.4%), respectively, for the periods ended December 31,
1995 and December 31, 1994, respectively.
(6) Prior to September 1, 1996, this fund was called The Pasadena Small &
Mid-Cap Fund.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND STRATEGIES
The investment objective of each Fund is long-term growth of capital. The
investment objective for each Fund is "fundamental," meaning that it will not be
changed without the approval of a majority of that Fund's voting securities, as
defined in the 1940 Act. There is, of course, no assurance that either of the
Funds will achieve its investment objective, although each Fund will always
follow the investment strategies discussed below.
THE GLOBAL GROWTH FUND. The Global Growth Fund seeks to achieve its
objective through investments in a diversified portfolio of marketable
securities of issuers which are organized or domiciled in the United States and
in foreign countries. Dividend or interest income will be incidental to any
investment decision.
In seeking growth of capital, the Global Growth Fund follows a global
investment strategy of investing primarily in the equity securities of U.S. and
foreign companies which may be traded in securities markets located throughout
the world. This global investment approach seeks to take advantage of the
growing investment opportunities created by a global economy that has become
more highly integrated in economic, industrial and financial terms, resulting in
an increase in growth stocks from developed and developing countries worldwide.
For these purposes the Global Growth Fund defines an emerging or developing
country as having an economy and market that are or would be considered by the
World Bank or the United Nations to be emerging or developing.
The Global Growth Fund will under normal market conditions invest at least
65% of its total assets in securities of companies located in at least three
different countries, one of which typically will be the United States, although
it may at times invest up to 100% of its total assets in securities principally
traded in securities markets outside the United States. In unusual market
circumstances when the Manager believes that foreign investing may involve undue
risks, up to 100% of the Global Growth Fund's total assets may be invested
temporarily in securities of issuers organized or domiciled in the United
States. The Global Growth Fund also may invest a portion of its assets in cash
or money market instruments (up to 100% of its total assets) for temporary
defensive purposes. Securities of foreign issuers may be owned by the Global
Growth Fund through the purchase of Depositary Receipts (e.g., American,
European, Global, Continental, etc.), which are traded in the United States
securities markets or foreign markets and denominated in U.S. dollars or foreign
currencies. The Global Growth Fund may invest up to 100% of its total assets in
Depositary Receipts.
The Global Growth Fund is not required to maintain any particular geographic
or currency mix of its investments, and there is no limitation or requirement on
the percentage of its assets which may be invested in securities of companies
domiciled in any one country. Historically, the Global Growth Fund has invested
a substantial percentage of its assets in companies organized or domiciled in
the United States. The Global Growth Fund is intended to provide investors with
the opportunity to invest in a portfolio of equity securities of companies
located and/or doing business throughout the world.
The Global Growth Fund intends to primarily invest in securities of
companies located in developed countries, but reserves the right to invest in
emerging or developing countries, without limitation. Emerging or developing
countries may have relatively unstable governments, economies based on only a
few industries, and less developed securities exchanges or markets which trade a
small number of securities. Although prices on these exchanges tend to be
volatile, in the past they have offered greater potential for gain, as well as
loss, than exchanges in developed countries. It is possible that certain Global
Growth Fund investments could be subject to foreign expropriation or exchange
control restrictions. See "Risk Considerations."
In analyzing companies for investment, the Manager generally will look for
one or more of the following characteristics: above-average earnings growth
potential; predictable and sustainable earnings growth; high profitability;
strength of management; overall financial strength; significant competitive
advantages; dominant market share; and where possible, limited regulation -- all
in relation to the prevailing prices of the securities of such companies. When
appropriate, the Global Growth Fund may invest in new issues that the Manager
believes offer good long-term investment prospects or an opportunity for
immediate price appreciation.
7
<PAGE>
The Global Growth Fund is permitted to invest on a worldwide basis in
companies and other organizations of any size, regardless of country of
organization or place of principal business activity.
At times the Manager may judge that conditions in the international
securities markets make pursuing the Global Growth Fund's basic investment
strategy inconsistent with the best interests of the Global Growth Fund's
shareholders. At such times the Manager may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the value of the Global
Growth Fund's assets. In implementing these "defensive" strategies, the Global
Growth Fund may invest solely in equity securities traded primarily in U.S.
markets, or in domestic or foreign debt securities, preferred stocks, cash or
money market instruments, or in other securities the Manager considers to be
consistent with such defensive strategies. It is impossible to predict when, or
for how long, the Global Growth Fund will use these alternative strategies. In
addition, during its start-up phase, when the Manager is assembling the Global
Growth Fund's core portfolio, the Fund may have a larger than usual cash
position.
The Global Growth Fund is designed for long-term investors who can accept
international investment risk. The Global Growth Fund's share price will reflect
the price movements of the different securities markets in which it is invested
as well as the currencies in which its investments are denominated. The strength
or weakness of the U.S. dollar against foreign currencies also may account for
part of the Global Growth Fund's investment performance. As with any long-term
investment, the value of the Global Growth Fund's shares when sold may be higher
or lower than when they were purchased. Because of the Global Growth Fund's
global investment policies and the investment considerations discussed above,
investment in shares of the Global Growth Fund should not be considered a
complete investment program.
THE SMALL & MID-CAP GROWTH FUND. The Small & Mid-Cap Growth Fund seeks to
achieve its objective by investing primarily in equity securities of those small
to mid-capitalized companies that the Manager believes may be the leading
companies of tomorrow. The Small & Mid-Cap Growth Fund will select its portfolio
investments primarily from among U.S. and foreign companies and will emphasize
companies with market capitalizations below $1.5 billion. Under normal market
conditions, the Small & Mid-Cap Growth Fund will invest at least 65% of its
total assets in equity securities of companies that are in that market
capitalization range at the time of purchase. Depending upon market conditions,
the remaining portion of the Small & Mid-Cap Growth Fund's investment portfolio
(up to 35% of its total assets) will be invested in a similar manner or in the
equity securities of companies that, at the time of investment, have a larger
market capitalization. The Small & Mid-Cap Growth Fund may continue to hold its
investment in a company whose capitalization subsequently increases to $1.5
billion or more if the company continues to satisfy the Small & Mid-Cap Growth
Fund's other investment policies. When appropriate, the Small & Mid-Cap Growth
Fund may invest in new issues that the Manager believes offer good long-term
investment prospects or an opportunity for immediate price appreciation.
The Small & Mid-Cap Growth Fund emphasizes the purchase of equity securities
of companies with rapidly growing earnings per share. The Small & Mid-Cap Growth
Fund also invests in companies that, although not growing rapidly, are
undervalued by other criteria compared to the Manager's opinion of their
fundamental net worth.
The Small & Mid-Cap Growth Fund may invest in the securities of companies
listed on any exchange or traded in the over-the-counter market, and is expected
to invest principally in common stocks. In addition to common stocks, the Small
& Mid-Cap Growth Fund's investments may also include other types of securities
with equity characteristics such as preferred stocks, warrants, options on
stocks and stock indices, and convertible debt obligations that, in the
Manager's opinion, offer the possibility of capital appreciation over the course
of approximately two or more years because of the timing of such investments. In
addition to the interest received from such debt instruments, if interest rates
fall these instruments are likely to increase in value. Conversely, if interest
rates rise a decrease in value can be expected. The Small & Mid-Cap Growth Fund
does not, however, anticipate investing a significant portion of its total
assets in such instruments. Dividend and interest income received from portfolio
securities is largely incidental.
Except for temporary defensive and liquidity purposes and its investments in
convertible debt securities described above, the Small & Mid-Cap Growth Fund
will not under normal market conditions invest in debt securities. While the
Small & Mid-Cap
8
<PAGE>
Growth Fund primarily emphasizes investments in U.S. companies, it can invest up
to 50% of its total assets in securities of foreign companies (directly or
through Depositary Receipts) which meet the same criteria applicable to domestic
investments. During its start-up phase, when the Manager is assembling the Small
& Mid-Cap Growth Fund's core portfolio, the Fund may have a larger than usual
cash position.
The Small & Mid-Cap Growth Fund may also (subject to the limitations
described herein) invest in unseasoned companies and special situations. Such
securities often involve greater risks than investments in more established
domestic companies, primarily because they may be more likely to experience
unexpected fluctuations in price. See "Investment Policies" below for a further
discussion of the policies regarding investments in unseasoned companies and
special situations.
Because prices of common stocks and other securities fluctuate, the value of
an investment in the Small & Mid-Cap Growth Fund will vary, based upon the Small
& Mid-Cap Growth Fund's investment performance. The volatility of the Small &
Mid-Cap Growth Fund's investment portfolio is likely to be greater than that of
the Standard & Poor's 500 Stock Index. For this and other reasons described
below in "Investment Policies" and "Risk Considerations," the net asset value
per share of the Small & Mid-Cap Growth Fund may fluctuate substantially, and
the Small & Mid-Cap Growth Fund may not be appropriate for short-term investors.
There is, of course, no assurance that the Small & Mid-Cap Growth Fund will
achieve its investment objective. The Small & Mid-Cap Growth Fund attempts to
reduce its overall exposure to risk from declines in individual securities by
spreading its investments over different companies and a variety of industries.
From time to time, depending on the Manager's analysis of market and other
considerations, all or part of the assets of the Small & Mid-Cap Growth Fund may
be held in cash and short-term money market instruments, including obligations
of the U.S. Government, high quality commercial paper, certificates of deposit,
bankers' acceptances, bank interest-bearing demand accounts, and repurchase
agreements secured by U.S. Government or agency securities. All such investments
will be made for temporary defensive purposes to protect against the erosion of
capital and pending investment in other securities. In any repurchase
transaction in which the Small & Mid-Cap Growth Fund engages, the Small &
Mid-Cap Growth Fund's position during the entire term of the repurchase
agreement will be fully collateralized.
RISK CONSIDERATIONS
FOREIGN SECURITIES
The Global Growth Fund may invest up to 100% of its assets and the Small &
Mid-Cap Growth Fund may invest up to 50% of its assets in foreign securities,
including those traded on foreign markets denominated in foreign currencies.
Securities of foreign issuers may be owned through the purchase of Depositary
Receipts.
Because foreign securities are normally denominated and traded in foreign
currencies, the value of the assets of a Fund may be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations. There may be less information publicly available about a foreign
company than about a U.S. company, and the information that is available may not
be of the same quality. Foreign companies are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States. The securities of some foreign companies are less
liquid and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in payment or delivery of securities or in
the recovery of a Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, limitations on the removal
of securities or other assets, confiscatory taxation, political, social or
financial instability, and diplomatic developments which could affect the value
of a Fund's investments in certain foreign countries. Legal remedies available
to investors in certain foreign countries may be more limited than those
available with respect to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit a Fund's ability to
invest in securities of
9
<PAGE>
certain issuers located in those foreign countries, and special tax
considerations apply to foreign securities, including withholding of foreign
taxes on dividends and interest paid with respect to a Fund's portfolio
investments in such countries. These risks may be enhanced for investments in
emerging or developing countries.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may engage in various foreign currency exchange transactions to
protect itself against adverse changes in exchange rates. Each Fund may engage
in foreign currency exchange transactions both in connection with the purchase
and sale of portfolio securities ("transaction hedging"), and to protect itself
against changes in the value of specific portfolio positions ("position
hedging"). However, because of the long-term nature of each Fund's investments,
it is not likely that a Fund regularly will engage in these types of
transactions. Accordingly, any such transactions may be limited and there can be
no assurance that even if utilized, they will be successful.
Transaction hedging is designed to protect against a change in foreign
currency exchange rates between the date on which a Fund contracts to purchase
or sell a security and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign currency. Each Fund
may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency.
If conditions warrant, each Fund may also enter into contracts to purchase
or sell foreign currencies at a future date ("forward contracts") and purchase
and sell foreign currency futures contracts as a hedge against changes in
foreign currency exchange rates between the trade and settlement dates on
particular transactions and not for speculation. A foreign currency forward
contract is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign currency
futures contracts are standardized exchange-traded contracts and have margin
requirements. For transaction hedging purposes each Fund may also purchase or
sell exchange-listed and over-the-counter put and call options on foreign
currency futures contracts and on foreign currencies.
Position hedging is intended to protect against a decline relative to the
U.S. dollar in the value of the currencies in which a Fund's portfolio
securities are denominated or quoted (or against an increase in the value of the
currencies in which the securities a Fund intends to buy are denominated, when
such Fund holds cash or short-term investments). For position hedging purposes,
each Fund may purchase or sell foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency futures contracts and
on foreign currencies on exchanges or in over-the-counter markets. In connection
with position hedging, each Fund may also purchase or sell foreign currency on a
spot basis.
A Fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency, and may at times not
involve currencies in which its portfolio securities are then denominated. The
Manager will engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for a Fund. Cross
hedging transactions by a Fund involve the risk of imperfect correlation between
changes in the values of the currencies to which such transactions relate and
changes in the value of the currency or other asset or liability which is the
subject of the hedge.
Hedging transactions involve costs and may result in losses. Each Fund will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Manager, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. There is no
assurance that appropriate foreign currency exchange transactions will be
available with respect to all currencies in which such Fund's investments may be
denominated. Each Fund's ability to engage in hedging transactions also may be
limited by tax considerations, and such Fund's hedging transactions may affect
the character or amount of such Fund's distributions.
A more detailed explanation of foreign investments and foreign currency
exchange transactions, and the risks and special tax considerations associated
with them, is included in the Statement of Additional Information.
10
<PAGE>
DERIVATIVES
The Funds may use derivatives to complement their basic investment strategy.
These derivatives include foreign currency exchange instruments, and options on
securities indices. These instruments and their rates are described in this
Prospectus. These derivatives do not exhibit extreme sensitivity to interest
rates and are commonly used by investment professionals. No Fund will invest
more than 5% of its total assets in these securities.
SPECIAL SITUATIONS
The Small & Mid-Cap Growth Fund's investment in special situations often
involves much greater risk than is inherent in ordinary investment securities
due to the often unusual circumstances surrounding each special situation.
SMALL CAP AND UNSEASONED COMPANIES
The Small & Mid-Cap Growth Fund's investment in small cap or unseasoned
companies carries more risk than investments in larger or more established
companies. Reliance by small cap or unseasoned companies on limited product
lines, management, markets, financial resources and other factors may make them
more susceptible to market or economic setbacks or downturns. Also, the
securities of small cap or unseasoned companies may trade less frequently and in
limited volume, and only in the over-the-counter market or a regional securities
exchange. As a result, the stock prices of small cap or unseasoned companies may
be particularly volatile.
OTHER INVESTMENT PRACTICES
Each Fund may also engage to a limited extent in the following investment
practices, each of which involves certain special risks. As with foreign
currency exchange transactions, it is not expected that such practices will be
utilized by a Fund to any great extent, if at all.
OPTIONS. Each Fund may buy and sell put and call options for hedging
purposes, and may also seek to increase its return by writing covered put and
call options on securities it owns or in which it may invest. A Fund receives a
premium from writing a put or call option, which increases such Fund's return if
the option expires unexercised or is closed out at a net profit. When a Fund
writes a call option, it gives up the opportunity to profit from any increase in
the price of the underlying security above the exercise price of the option and
the premium received; when it writes a put option, a Fund takes the risk that it
will be required to purchase the underlying security from the option holder at a
price above the current market price of the security and the premium received. A
Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. The aggregate value of the
securities underlying options may not exceed 25% of a Fund's assets. Each Fund's
use of these strategies also may be limited by applicable law.
OPTIONS ON SECURITIES INDICES AND PUT AND CALL WARRANTS. Each Fund may buy
and sell options on domestic and foreign securities indices for hedging
purposes. A securities index represents a numerical measure of the changes in
value of the securities comprising the index. An option on a securities index
gives the holder the right, in return for the premium paid for the option, to
buy (in the case of a call option) or sell (in the case of a put option) units
of a particular index at an agreed price during the term of the option. The
holder of the option does not receive the right to take or make delivery of the
actual securities making up the index, but has the right instead to receive a
cash settlement amount based on the change, if any, in the value of the index
during the term of the option.
Depending on the change in the value of the underlying index during the term
of the option, the holder may either exercise the option at a profit or permit
the option to expire worthless. For example, if a Fund were to sell a call
option on an index and the value of the index were to increase during the term
of the option, the holder of the index would likely exercise the option and
receive a cash payment from such Fund. If, on the other hand, the value of the
index were to decrease, the option would likely expire worthless, and such Fund
would realize a profit in the amount of the premium received by it when it sold
the option (less any transaction costs). Each Fund will only purchase or sell
options on a securities index to the extent that it holds securities in its
portfolio whose price changes, in the Manager's judgment, should correlate
closely with changes in the index. No Fund will
11
<PAGE>
purchase or sell options on securities indices if as a result the sum of the
premiums paid and premiums received by a Fund on outstanding options would
exceed 5% of such Fund's total assets.
Each Fund may also purchase put and call warrants issued by banks and other
financial institutions, whose values are based on the values from time to time
of one or more foreign securities indices. Each Fund's use of such warrants
would be similar to its use of options on securities indices.
SECURITIES LOANS AND FORWARD COMMITMENTS. Each Fund may lend portfolio
securities amounting to not more than 25% of its total assets to broker-dealers,
so long as they are fully collateralized at all times. This may involve some
risk to a Fund because the other party might default on its obligation, which
would cause such Fund to be delayed or prevented from recovering the collateral.
Each Fund may also purchase securities for future delivery, which may increase
its overall investment exposure and involves a risk of loss if the value of the
securities declines before the settlement date.
INVESTMENT POLICIES
In addition to the investment criteria described above, the Funds will
follow the investment policies set forth below which, unless otherwise indicated
as an operating policy, are fundamental policies that may not be changed without
prior shareholder approval as defined in the 1940 Act. References below to
certain percentages of a Fund's total assets mean the total assets at the time
the percentage is determined.
(a) DIVERSIFICATION OF INVESTMENTS.
With respect to at least 75% of each Fund's total assets, a Fund will not
invest more than 5% of its total assets in the securities of any one issuer,
other than obligations either issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. This limitation does not apply with respect to
the remaining 25% of a Fund's total assets.
(b) CONCENTRATION OF INVESTMENTS IN AN INDUSTRY.
Each Fund will not invest more than 25% of its total assets in the
securities of issuers in any one industry.
(c) LIMITATION ON PERCENTAGE OWNERSHIP OF AN ISSUER.
With respect to at least 75% of each Fund's total assets, a Fund will not
acquire more than 10% of the outstanding voting securities or of any one class
of securities of any one issuer. This limitation does not apply with respect to
the remaining 25% of a Fund's assets (the holdings by other series of the Trust
in the same issuer will be included for purposes of this limitation).
(d) SPECIAL SITUATIONS.
As a matter of operating policy, the Small & Mid-Cap Growth Fund may invest
in special situations which the Manager believes present opportunities for
capital growth. A special situation arises when, in the opinion of the Manager,
the securities of a particular company will, within a reasonable period of time,
be accorded market recognition at an appreciated value solely by reason of a
development particularly or uniquely applicable to that company and regardless
of general business conditions or movements of the market as a whole.
Developments creating special situations might include, among others, the
following: liquidations, reorganizations, recapitalizations, mergers or tender
offers; material litigation or resolution thereof; technological breakthroughs;
and new management or management policies. Investments by the Small & Mid-Cap
Growth Fund in special situations may not exceed 35% of its total assets.
(e) UNSEASONED COMPANIES.
As a matter of operating policy, the Funds may invest to a limited extent in
securities of unseasoned companies and new issues. The Manager regards a company
as unseasoned when, for example, it is relatively new to or not yet well
established in its primary line of business. Such companies generally are
smaller and younger than companies whose shares are traded on the major stock
exchanges. Accordingly, their shares are often traded over-the-counter and their
share prices may be more volatile
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<PAGE>
than those of larger, exchange-listed companies. In order to avoid undue risks,
a Fund will not invest more than 5% of its total assets in securities of any one
company with a record of fewer than three years' continuous operation (including
that of predecessors.)
(f) WARRANTS.
As a matter of operating policy, each Fund will not invest more than 5% of
its net assets in warrants, subject to the restriction that not more than 2% may
be in warrants not listed on the New York or American Stock Exchanges. While any
warrants purchased by a Fund have a readily determined market value which will
generally move in correlation with the market price of the underlying equity
security, warrants nevertheless become worthless if they are not sold or
exercised prior to their designated expiration date.
(g) TEMPORARY DEFENSIVE INVESTMENTS.
From time to time, depending on the Manager's analysis of market and other
considerations, all or part of the assets of a Fund may be held in cash and
short-term money market instruments, including obligations of the U.S.
Government, high quality commercial paper, certificates of deposit, bankers'
acceptances, bank interest-bearing demand accounts, and repurchase agreements
secured by U.S. Government securities. All such investments will be made for
temporary defensive purposes to protect against the erosion of capital and
pending investment in other securities. Under a repurchase agreement, a Fund
acquires a U.S. Government security from a financial institution that
simultaneously agrees to repurchase the same security at a specified time and
price. The repurchase price reflects an agreed-upon rate of return not
determined by the coupon rate on the underlying security. Under the 1940 Act,
repurchase agreements are considered to be loans by a Fund. In any repurchase
transaction in which a Fund engages, such Fund's position during the entire term
of the repurchase agreement will be fully collateralized. If the seller defaults
on its obligation to repurchase the underlying security, a Fund may experience
delay or difficulty in exercising its rights to realize upon the security, may
incur a loss if the value of the security declines and may incur disposition
costs in liquidating the security.
(h) INVESTMENT IN OTHER INVESTMENT COMPANIES.
As a matter of operating policy, each Fund may invest in securities issued
by other investment companies which principally invest in securities of foreign
issuers, within the limits contained in the 1940 Act. Pursuant to such limits, a
Fund currently may not invest in such securities if, at the time of purchase,
(i) more than 5% of the Fund's total assets are invested in any one investment
company, (ii) more than 3% of the total voting stock of any one investment
company is owned by the Fund, and (iii) more than 10% of the Fund's total assets
are in the aggregate invested in such investment companies.
(i) OTHER INVESTMENT RESTRICTIONS.
Each Fund has adopted additional restrictions, both fundamental and
operating, that prohibit or restrict certain investments or practices, including
the investment of not more than 15% of its net assets in illiquid securities,
prohibiting the purchase of securities of issuers in which officers or trustees
of the Trust or the Manager have certain interests, and the borrowing of not
more than 20% of its total assets for temporary or emergency purposes only.
These additional restrictions are described in the Statement of Additional
Information under "Investment Objective and Policies."
Each Fund has reserved the right, if approved by the Board of Trustees, to
convert in the future to a "feeder" fund which would invest all of its assets in
a "master" fund having substantially the same investment objective, policies and
restrictions as currently exist for the respective Fund. Prior notice of any
such action would be given to all shareholders if and when such a proposal is
approved, although no such action has been proposed as of the date of this
Prospectus.
PORTFOLIO TURNOVER
Each Fund may purchase and sell securities without regard to the length of
time the security is to be held or has been held, subject to a limit in the
Internal Revenue Code of 1986, as amended (the "Code") on the amount of income
that may be realized on the sale of assets held for less than three months. This
factor, together with the adjustment of the investment portfolio whenever deemed
advisable, may, from time to time, result in a relatively high rate of portfolio
turnover. (The
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<PAGE>
portfolio turnover rate is computed by dividing the lesser of total purchases or
proceeds of sales effected during the period, excluding short-term securities,
by the monthly average of the value of portfolio securities during that period.)
The annual portfolio turnover rate for the Global Growth Fund is expected to be
between 20% to 100%. The annual portfolio turnover rate for the Small & Mid-Cap
Growth Fund is not expected to exceed 150%. However, from time to time, the
annual portfolio turnover rate for each Fund may be higher than these
projections. High portfolio activity increases a Fund's transaction costs,
including brokerage commissions. See "Financial Highlights" above.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund offers investors three Classes of shares which bear sales and
distribution charges in different forms and amounts:
CLASS A SHARES. An investor who purchases Class A shares pays an up-front
sales charge at the time of purchase of up to 5.50% of the public offering price
per share. Certain purchases of Class A shares may also qualify for reduced
sales charges, and purchases of $1 million or more are made at net asset value
with no sales charge. Class A shares are not subject to any charges when they
are redeemed, nor are they subject to a 12b-1 distribution fee. Accordingly,
Class A shares pay correspondingly higher dividends per share, to the extent any
dividends are paid, than Class B shares or Class C shares. However, because
initial sales charges are deducted at the time of purchase, investors purchasing
Class A shares would not have all of their funds invested initially and,
therefore, would initially own fewer shares. See "Purchase of Shares -- Initial
Sales Charge Alternative -- Class A Shares."
CLASS B SHARES. Class B shares are sold without an initial sales charge,
but are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within four years of purchase. Class B shares are subject to a 12b-1
distribution fee at the annual rate of 0.75% of the average net assets
attributable to the Class B shares. Class B shares will automatically convert
into Class A shares, based on relative net asset values, at the beginning of the
seventh year after purchase. Class B shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion into Class A shares which do not pay a 12b-1
distribution fee) will have a higher expense ratio and pay lower dividends than
Class A shares due to the Class B 12b-1 distribution fee. Pasadena Fund
Services, Inc. (the "Distributor") will pay out of its own resources to the
selling dealer a commission equal to 4.25% of the amount of the purchase. See
"Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares."
CLASS C SHARES. Class C shares are sold without an initial sales charge or
a CDSC. Instead, investors pay-as-they-go in the form of an ongoing 12b-1
distribution fee at the annual rate of 0.75% of the average net assets
attributable to the Class C shares. Class C shares have no conversion feature,
and therefore purchasers of Class C shares should expect to pay the 12b-1
distribution fee for as long as the shares are owned. The distribution fee paid
by Class C shares will cause them to have a higher expense ratio and to pay
lower dividends, to the extent any dividends are paid, than Class A shares. The
Distributor will pay out of its own resources to the selling dealer a commission
equal to 1% of the amount of the purchase. See "Purchase of Shares --
Pay-As-You-Go Alternative -- Class C Shares."
WHICH PURCHASE ARRANGEMENT IS BETTER FOR YOU? The decision as to which
Class of shares provides a more suitable investment for a particular investor
depends on a number of factors, including the amount and intended length of the
investment, whether the investor wishes to receive distributions in cash or to
reinvest them in additional shares of a Fund, and other circumstances. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge and who are not sure of
their intended holding period might consider Class C shares. To assist investors
in making this determination, the tables under the caption "Expense and Fee
Tables" show examples of the charges applicable to each Class of each Fund.
Orders for Class B or Class C shares for more than $100,000 will not be
accepted. Selling dealers and sales personnel may receive different compensation
depending on which Class of shares they sell.
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PURCHASE OF SHARES
GENERAL
Shares of the Funds are offered continuously for purchase through investment
dealers at the public offering price next determined after a purchase order in
proper form is received by the Sub-Transfer Agent, the Fund, or another
authorized agent or subagent of the Fund. The public offering price is effective
for orders received by the Sub-Transfer Agent, the Fund, or another authorized
agent or subagent of the Fund, prior to the time of the next determination of
the applicable Fund's net asset value. Orders received after the time of the
next determination of the applicable Fund's net asset value will be entered at
the next calculated public offering price. WHEN PURCHASING SHARES OF A FUND, YOU
MUST SPECIFY WHETHER YOU WISH TO PURCHASE CLASS A, CLASS B OR CLASS C SHARES. An
unspecified purchase order will be considered an order for Class A shares.
The public offering price per share is equal to the net asset value per
share, plus a sales charge in the case of Class A Shares as described below.
Reduced sales charges apply to quantity purchases of Class A shares made at one
time by (i) an individual, (ii) members of a family (I.E., an individual, spouse
and children or grandchildren under age 21), or (iii) a trustee or fiduciary of
a single trust estate or a single fiduciary account. (See also "Rights of
Accumulation" below.) For Class B shares and Class C shares, the public offering
price is equal to the net asset value per share with no initial sales charge.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the net asset value per share plus a sales
charge depending upon the amount purchased, as described in the following table.
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
-------------------
PUBLIC NET DEALER COMMISSION
AMOUNT OF PURCHASE OFFERING AMOUNT AS PERCENTAGE OF
AT THE PUBLIC OFFERING PRICE PRICE INVESTED THE PUBLIC OFFERING PRICE
-------------------------- -------- -------- -------------------------
<S> <C> <C> <C>
Less than $50,000...................................... 5.50% 5.82% 5.00%
$50,000 but less than $100,000......................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000........................ 3.75% 3.90% 3.25%
$250,000 but less than $500,000........................ 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000...................... 2.00% 2.04% 1.75%
$1,000,000 or more..................................... None None 1.00%*
</TABLE>
- ------------------------------
* Paid by the Manager from its own resources, as described below under "Purchase
at Net Asset Value -- Class A Shares."
RIGHTS OF ACCUMULATION -- CLASS A SHARES
The reduced sales charges applicable to purchases of Class A shares apply on
a cumulative basis over any period of time. Thus, the value of all Class A
shares of all of the funds in The Pasadena Group of Mutual Funds owned by an
investor (including the investor's own account, Individual Retirement Account
("IRA"), spousal or other account), taken at the current net asset value, can be
combined with a current purchase of Class A shares of any of the Funds to
determine the rate of sales charge applicable to the current purchase. In order
to receive the cumulative quantity reduction, the existing Class A shares of all
of the Trust's funds held by an investor must be called to the attention of the
Distributor at the time of the current purchase. Rights of accumulation are not
available for purchases of Class B shares or Class C shares.
LETTER OF INTENT -- CLASS A SHARES
An investor may qualify for an immediate reduced sales charge on a purchase
of Class A shares of any of the funds in The Pasadena Group of Mutual Funds by
completing the Letter of Intent section of the Investment Application (the
"Letter of Intent"), in which the investor states an intention to purchase
during the next 13 months a specified amount of Class A shares which, if made at
one time, would qualify for a reduced sales charge. Class A shares of any of the
Trust's funds acquired within 90 days prior to the first order under the Letter
of Intent may be used to satisfy the intended purchase amount. The terms of the
Letter of
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<PAGE>
Intent include provisions granting a security interest to the Distributor in 5%
of the amount of the investor's total intended purchase to assure that the full
applicable sales charge will be paid if the investor does not complete the
intended purchase. A minimum initial investment equal to 5% of the total
intended amount is required in the Class A shares of one of the Trust's funds.
Additional information regarding the Letter of Intent is provided in the
Statement of Additional Information. Letters of Intent are not available for
purchases of Class B shares or Class C shares.
PURCHASE AT NET ASSET VALUE -- CLASS A SHARES
Class A shares may be purchased at net asset value by officers, trustees,
directors and full-time employees of the Trust, the Manager, the Distributor and
affiliates of such companies, by their family members, by direct investment
advisory clients of the Manager's affiliate Roger Engemann & Associates, Inc.
("REA") and their family members, and by such other persons who are determined
by the Trust's Board of Trustees to have acquired such shares under special
circumstances not involving any sales expense to the Fund or the Distributor.
Class A shares may also be purchased at net asset value by registered
broker-dealers and their affiliates, by their registered personnel and employees
and by their immediate family members, in accordance with the internal policies
and procedures of the broker-dealer. Class A shares may also be acquired at net
asset value by unit trusts, insurance companies or other separate accounts
including accounts at broker-dealers or advisers who provide additional
consulting or asset allocation services for the benefit of their clients and
funds organized and offered outside of the United States, and by broker-dealers
who charge their brokerage clients an asset-based fee in lieu of brokerage
commissions, and which acquire and hold such shares of the Trust's funds as part
of a program or separate offering being made by them.
Class A shares may be purchased at net asset value with no sales charge by
investors who are existing Class A shareholders of any of the Trust's funds if
their initial purchases (excluding shares of The Pasadena Balanced Return Fund
purchased at net asset value during the special 1992 and 1993 offering periods)
were made at net asset value; purchases at net asset value apply only to
purchases for preexisting accounts and new accounts which are directly or
indirectly beneficially owned by such shareholder. Such sales are made with the
understanding by the purchaser that the purchase is made for investment purposes
and that the shares will not be transferred or resold except through redemption
or repurchase by or on behalf of the Funds. An investor must indicate
eligibility for this privilege at the time of the investment. The Manager or the
Distributor may, in its discretion, waive the minimum initial investment
requirements for certain of these investors.
Class A shares may be purchased by any single purchaser at net asset value
with no sales charge in amounts of $1 million or more in one or more of the
Funds, and may also be purchased at net asset value by employee benefit plans
qualified under Section 401(a) of the Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to minimum requirements with
respect to number of employees or amount of purchase, which may be established
from time to time by the Distributor. Currently, the Distributor has not
established any such minimum requirements. Employee benefit plans not qualified
under Section 401(a) of the Code may be afforded the same privilege if they meet
the above requirements as well as the uniform criteria for qualified groups, if
any, established by the Distributor from time to time to enable the Distributor
to realize economies of scale in its sales efforts and sales-related expenses.
Class A shares may also be purchased at net asset value by trust companies
and other financial institutions, bank trust departments and fee-based financial
planners and investment advisors for funds or accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. Such purchases are also subject
to minimum requirements with respect to amount of purchase which may be
established by the Distributor from time to time. Currently, the Distributor has
not established any such minimum requirements. Such institutions may charge
their clients transaction or other fees connected with the purchase of Fund
shares.
If an investment in Class A shares meeting the above-referenced requirements
is made through a dealer who has executed a dealer agreement with respect to the
Funds, the Manager may pay out of its own resources a one-time fee to such
dealers, as follows: 1% on purchases up through $2 million, plus 0.80% on the
next $1 million, plus 0.20% on the next $2 million, and 0.10% on the excess over
$5 million. The entire amount of such fee will be paid following settlement of
each purchase. Such
16
<PAGE>
transactions must be brought to the attention of the Distributor at the time of
the initial investment. In lieu of this one-time fee, the Manager may pay out of
its own resources to dealers or other persons who provide certain recordkeeping
and administrative services related to qualified employee benefit plans invested
in the Funds, a continuing fee of up to 0.20% per annum of the Funds' assets
represented by such investments. In addition, the Manager currently pays to
Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("ML"), out of the Manager's
own resources for additional shareholder services and shareholder account
maintenance, a continuing quarterly fee of up to .15% per annum of the aggregate
net asset value of the Class A shares of any Fund held by customers of ML for
more than four years.
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
GENERAL. Investors choosing the deferred sales charge alternative may
purchase Class B shares of any Fund at net asset value per share without the
imposition of a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund and the investor will
realize the effect of having the full amount of the investor's purchase payment
available for investment by the Fund.
Proceeds from the CDSC assessed on shares redeemed within four years from
the date of purchase will be paid to the Distributor and used in whole or in
part by the Distributor to defray its expenses in providing distribution-related
services to the Funds in connection with the sale of its Class B shares, such as
the payments of an up-front commission by the Distributor to selected dealers
and agents for selling Class B shares. The combination of the CDSC and the Class
B distribution fee facilitates the ability of the Funds to sell the Class B
shares without a sales charge being deducted at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed within
four years of purchase will be subject to a CDSC at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the original cost of the shares
being redeemed or their net asset value at the time of redemption. Accordingly,
no sales charge will be imposed on increases in net asset value above the
initial purchase price. In addition, no sales charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares (the "CDSC Period"), as described below:
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
- ----------------------------------------------------------------- -------------
<S> <C>
First............................................................ 5%
Second........................................................... 4%
Third............................................................ 3%
Fourth........................................................... 3%
Fifth and Thereafter............................................. None
</TABLE>
In determining whether a CDSC is applicable to a redemption of Class B
shares, the calculation will be determined in the manner that results in the
lowest rate being charged. Therefore, it will be assumed that the redemption is
first of any Class B shares representing capital appreciation, second of Class B
shares acquired pursuant to reinvestment of dividends or distributions, and
third of Class B shares held for the longest period of time.
To illustrate, assume an investor purchased 100 shares at $10 per share (at
a cost of $1,000) and during the second year after purchase, the net asset value
per share is $12 and, during such time, the investor has acquired 10 additional
shares through reinvestment of dividends. If the investor then makes his first
redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the
CDSC because they were acquired through reinvestment of dividends. With respect
to the remaining 40 shares, the charge is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption will be charged at a rate of 4% (the
applicable rate in the second year after purchase), for a total CDSC payable of
$16, which will be deducted from the redemption proceeds.
17
<PAGE>
WAIVERS OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on
redemptions of shares (i) following the death or disability (as defined in
Section 72(m)(7) of the Code) of a shareholder if redemption is made within one
year of death or disability, (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2, (iii) made under a Systematic
Withdrawal Plan (as described below), with some limitations, (iv) followed by a
reinvestment in such shares effected within 60 days of the redemption (this
allows investors who redeemed or otherwise had second thoughts about having
redeemed their Class B shares to reinvest the proceeds in such shares plus the
amount of any CDSC previously paid), and (v) by tax-exempt employee benefit
plans resulting from the enactment of any law or the promulgation by the
Internal Revenue Service (the "IRS") or the Department of Labor of any
regulation pursuant to which continuation of the investment in such shares would
be improper, subject to the Funds' right to require an opinion of counsel to the
effect that the continuation of such an investment would be improper. Upon any
reinvestment made in accordance with clause (iv) above, which is a one-time
privilege, the amount reinvested will be subject to the same CDSC to which such
amount was subject prior to the redemption, and the CDSC Period with respect to
the amount will continue to run from the original investment date, but will be
extended by the number of days between the redemption and the reinvestment
dates.
CLASS B CONVERSION FEATURE. Class B shares include all shares purchased
pursuant to the deferred sales charge alternative which have been outstanding
for less than the period ending on the first business day of the month next
following the sixth anniversary of their purchase (the "Class B Holding
Period"). At the end of the Class B Holding Period, Class B shares will
automatically convert to Class A shares and will no longer be subject to the
Class B distribution fee or a CDSC. Such conversion will be on the basis of the
relative net asset values of the two Classes, without the imposition of any
sales charge, fee or other expense. The purpose of the conversion feature is to
eliminate the distribution fee paid by the holders of Class B shares that have
been outstanding for a period of time sufficient for the Distributor to have
been compensated for having incurred the initial distribution expenses related
to those Class B shares.
For purposes of conversion to Class A shares, Class B shares purchased
through the reinvestment of dividends and distributions paid in respect of Class
B shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares.
Conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling of the IRS or an opinion of counsel to the effect that
(i) payment of different dividends on Class A shares and Class B shares does not
result in a Fund's dividends or distributions constituting "preferential
dividends" under the Code, and (ii) the conversion of shares does not constitute
a taxable event under federal income tax law. The conversion of Class B shares
to Class A shares may be suspended if such a ruling or opinion is no longer
available. In that event, no further conversions of Class B shares would occur,
and the Class B shares might continue to be subject to the distribution fee for
as long as the shares are owned, which may extend beyond the Class B Holding
Period.
PAY-AS-YOU-GO ALTERNATIVE -- CLASS C SHARES
Investors choosing the pay-as-you-go alternative purchase Class C shares at
the net asset value per share without the imposition of a sales charge either at
the time of purchase or upon redemption. Class C shares are sold without an
initial sales charge so that the Fund will receive the full amount of the
investor's purchase payment and without a CDSC so that the investor will receive
as proceeds upon redemption the entire net asset value of his or her Class C
shares. The continuing 12b-1 distribution fee, which the Distributor intends to
reallow to the selling dealer in addition to an up-front commission paid by the
Distributor from its own resources, enables the Fund to sell Class C shares
without either an initial sales charge or CDSC. Class C shares redeemed within
the first twelve months after their purchase may not be repurchased by the same
investor until at least twelve months have elapsed from the date of their
redemption. Class C shares do not convert to any other Class of shares of the
Fund, and will thus have a higher expense ratio and pay correspondingly lower
dividends, if any, than Class A shares.
18
<PAGE>
PURCHASE PROCEDURE
The principal underwriter and distributor for the shares of the Funds is
Pasadena Fund Services, Inc., 600 North Rosemead Boulevard, Pasadena, California
91107-2133 (the "Distributor"). Generally, shares may be purchased only through
investment dealers that have selling agreements with the Distributor. It is the
responsibility of such investment dealers to transmit orders so they will be
received by the Distributor, in care of the Sub-Transfer Agent, on a timely
basis. Orders placed with dealers prior to that day's determination of the
applicable Fund's offering price must be received by the Distributor (c/o the
Sub-Transfer Agent) prior to its close of business on the same day.
Investment applications, accompanied by a check, in U.S. dollars, payable to
"The Pasadena Group of Mutual Funds," should be sent by the investment dealer to
the Distributor in care of the Sub-Transfer Agent, P.O. Box 8505, Boston,
Massachusetts 02266-8505. No subscriptions will be accepted without payment.
Third party checks will only be accepted if they are payable to an existing
shareholder of the Fund who is an individual and if they are endorsed over to
the Pasadena Group of Mutual Funds. When purchases are made by check or periodic
automatic investment, redemptions will not be allowed until the investment being
redeemed has been in the account for at least 15 calendar days. For direct
purchases by an investment dealer for its client, payment for the shares
purchased must be received by the dealer. Full and fractional shares will be
issued for the amount of the purchase. PURCHASE ORDERS MUST SPECIFY WHICH CLASS
OF EACH FUND IS BEING PURCHASED, OR THEY WILL BE DEEMED ORDERS FOR THE PURCHASE
OF CLASS A SHARES.
The minimum initial investment for each Fund is $1,000 per account ($250 for
individual retirement accounts and custodial accounts for minors under the
Uniform Transfers to Minors Act and for the initial purchase under a Systematic
Purchase Plan). Minimum additional investments are $50. The Manager or
Distributor may, in its discretion, waive the minimum investment requirements
for 401(k), 403(b), employee benefit or other systematic or periodic purchase
plans.
The Funds and the Distributor each reserve the right in its sole discretion
to reject any purchase order in whole or in part, and may suspend the offering
of each Fund's shares at any time. For investors wishing to purchase shares by
wire, please call the Funds or your investment dealer for information on the
procedures to be followed.
SHAREHOLDERS' OPEN ACCOUNTS
When an investor purchases shares in a Fund, the appropriate Fund opens a
Shareholder's Open Account for that investor or for the investment dealer
holding the Fund's shares for the investor. Any additional shares purchased are
likewise credited to the Shareholder's Open Account.
The Funds maintain a continuous permanent record of each Shareholder's Open
Account and send a written statement of every transaction in the account,
including information concerning the status of the account. These statements
provide an annual record of investments in shares of each Fund, which are held
for the shareholder in uncertificated form by the appropriate Fund's transfer
agent. No share certificates are issued.
SYSTEMATIC PURCHASE PLAN
Under the Funds' Systematic Purchase Plan, a shareholder may arrange to make
additional purchases (minimum $50) of Fund shares automatically on a monthly
basis by electronic funds transfer from the shareholder's checking account if
the bank which maintains the account is a member of the Automated Clearing
House, or by preauthorized checks drawn on the shareholder's bank account. A
shareholder may, of course, terminate the program at any time. Investors may
obtain more information concerning this program, including the application form,
from their investment dealer or the Funds.
The market value of the shares of each Fund is subject to fluctuation.
Before undertaking any plan for systematic investment, the investor should keep
in mind that such a program does not assure a profit or protect against a loss.
19
<PAGE>
RETIREMENT PLANS
Individuals may purchase shares of the Funds through an IRA available from
the Funds or through other established retirement plans. An IRA using a trust
account maintained by Pasadena National Trust Company, an affiliate of the
Manager, is available with no separate fees.
PURCHASING SHARES:
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
By mail See "Purchase Procedures" for initial minimum $50 minimum for subsequent purchases.
requirements. Complete account application in Complete the form at the bottom of a recent
its entirety, sign and return with your check account statement, make your check payable to
made payable to the Pasadena Group of Mutual The Pasadena Group of Mutual Funds, write
Funds to the address listed on the account your account number on the check and mail in
application. the envelope provided with your account
statement.
By wire Not currently available Instruct your bank to wire funds to:
State Street Bank and Trust
Boston, MA
ABA #011000028
DDA #99046526
Also reference:
-- Name of Pasadena Fund
specifying Class A, B or C
shares
-- Fund account number
By contacting your investment Visit any investment dealer who is registered Mail directly to your investment dealer's
dealer in the state where the purchase is made and address printed on your account statements,
who has a sales agreement with Pasadena Fund or to the Sub-Transfer Agent at P.O. Box
Services, Inc. 8505, Boston, MA 02266-8505
</TABLE>
EXCHANGE PRIVILEGE
Shares of a specific Class of one Fund may only be exchanged for shares of
that same Class of another of the Trust's funds. Such exchanges will be on the
basis of the Shares' relative net asset values (with no sales charge, exchange
fee or CDSC at the time of the exchange.) Shares of a Fund may not be exchanged
for shares of another of the Trust's funds unless the amount exchanged satisfies
the other fund's minimum investment requirement. Exchange instructions may be
given to the Funds in writing in care of the Sub-Transfer Agent, P.O. Box 8505,
Boston, Massachusetts 02266-8505, or to the Pasadena Group Service Center by
telephone at (800) 648-8050. Exchanges, which involve the redemption of shares
of a Fund and the purchase of shares of another fund, may only be made in states
where shares of such funds are qualified for sale, and investors should note
that an exchange may result in recognition of a gain or loss for income tax
purposes. Exchange privileges may be modified or suspended by the Funds upon
60-days' prior notice to shareholders.
For purposes of computing both (i) the time remaining before Class B shares
of a Fund ("New Class B shares") acquired through an exchange for Class B shares
of another fund ("Original Class B shares") convert to Class A shares of that
Fund and (ii) the CDSC payable upon disposition of the New Class B shares, the
holding period for the Original Class B shares is added to the holding period of
the New Class B shares.
TELEPHONE EXCHANGE PRIVILEGE. Shareholders will be deemed to have elected
the telephone exchange privilege unless they indicate to the contrary by marking
the appropriate section of the investment application. By electing the telephone
exchange
20
<PAGE>
privilege, investors authorize the Funds to act upon instructions by telephone
to exchange shares from the Fund account for which such service has been
authorized. (See "Telephone Redemption Privilege" below for information
regarding the use of telephone authorizations.)
GENERAL
Class A shares of the Funds may, on a one-time only basis by any
shareholder, be repurchased at the then current net asset value with no sales
charge up to the amount of any redemption of such shares by the shareholder
within the prior 60-day period. Shares of the Funds may also be sold in foreign
jurisdictions through financial institutions and intermediaries at their current
net asset value plus a sales charge or commission which is different from those
described in this Prospectus. Telephone orders from dealers and requests for
information from dealers or shareholders will be recorded for the protection of
the Funds.
The Distributor, at its expense, will from time to time also provide
additional compensation to dealers who sell shares of any of the
publicly-offered funds. Compensation may include financial assistance to dealers
in connection with conferences, sales training or promotional programs for their
employees, seminars for the public, advertising campaigns regarding one or more
of the publicly-offered funds and/or other dealer-sponsored special events. In
some instances, this compensation will be made available only to dealers whose
representatives have sold or are expected to sell significant amounts of such
shares. Dealers may not use sales of any of the publicly-offered funds' shares
to qualify for this compensation to the extent such may be prohibited by the
laws or regulations of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. ("NASD"). Compensation may
include payment for travel expenses, including lodging at luxury resorts,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature.
REDEMPTION OF SHARES
GENERAL
The Funds will redeem all or any portion of a shareholder's account when
requested, subject to prior collection by the Funds' custodian of the purchase
price of the shares being redeemed. Except for any CDSC which may be applicable
to redemptions of Class B shares, there is no redemption charge and the
redemption price will be the net asset value per share next determined after
receipt in proper form of the redemption request by the Sub-Transfer Agent, the
Fund, or another authorized agent or subagent of the Fund. See "Determination of
Net Asset Value."
Shareholders may redeem shares by sending a signed request for redemption to
their investment dealer or to the Funds c/o Boston Financial Data Services,
Inc., P.O. Box 8505, Boston, Massachusetts 02266-8505. IF AN INVESTOR OWNS MORE
THAN ONE CLASS OF SHARES IN A FUND, THE REDEMPTION REQUEST MUST SPECIFY WHICH
CLASS IS BEING REDEEMED. ABSENT SUCH SPECIFICATION, THE SHAREHOLDER'S SHARES
WILL BE REDEEMED IN THE FOLLOWING ORDER: FIRST, CLASS C SHARES; SECOND, CLASS A
SHARES; AND THIRD, CLASS B SHARES.
The signature on the redemption request must be guaranteed by an eligible
guarantor institution, unless the proceeds are less than $50,000 and are payable
to the shareholder and sent to the shareholder's current address on the Fund's
records (provided that the shareholder's address of record has not been changed
within the preceding 30 days) or directly to a predesignated bank account (see
below). Corporations, partnerships, trusts and other fiduciaries may be required
to furnish further documentation, such as certified copies of trust documents,
corporate resolutions, or tax waivers for redemption purposes. Investment
dealers holding shares of a Fund for the account of their clients may also
require the Fund to repurchase such shares at the next determined net asset
value (less the CDSC, if any, with respect to the Class B shares).
Because of the expense of maintaining small accounts, each Fund, at its
option, may redeem accounts with a market value of $800 or less as a result of
redemptions, after a prior written notice of at least 60 days to provide the
shareholder an opportunity to purchase sufficient shares to bring the account up
to a value of at least $1,000 ($200 and $250, respectively, for accounts
requiring an initial minimum investment of $250).
21
<PAGE>
WIRE TRANSFERS
A wire transfer procedure is available for redemptions made directly through
the Funds, which permits the proceeds of a redemption of the Fund's shares to be
wired to a designated bank account on the second business day following the
redemption. A shareholder desiring to redeem shares by this procedure must
provide the Sub-Transfer Agent with a written authorization, including specific
bank account information, which instructs the Sub-Transfer Agent to honor wire
redemption requests. A fee of $10 may be deducted from the proceeds of each
redemption to cover the costs of the wire transfer. This privilege may be
modified or terminated at any time by the Funds or the Sub-Transfer Agent upon
notice to shareholders.
TELEPHONE REDEMPTION PRIVILEGE
Shareholders will be deemed to have elected the telephone redemption
privilege unless he or she indicates to the contrary by marking the appropriate
section of the investment application. By electing the telephone redemption
privilege, shareholders authorize the Funds or the Sub-Transfer Agent to act
upon instructions by telephone, which are reasonably believed to be genuine, to
redeem shares from the Fund account for which such service has been authorized
and, in the case of wire redemptions, to transfer the proceeds to the bank or
other account designated in the prior authorization. Shareholders agree that the
Funds and/or the Sub-Transfer Agent will be liable for any loss, expense or cost
suffered or incurred by shareholders arising out of any telephone redemption or
exchange request, including any fraudulent or unauthorized requests, only if
reasonable procedures are not followed. In an effort to confirm that telephone
requests are genuine, the Funds employs reasonable procedures, which include
requesting the taxpayer identification number and other information known only
to the shareholder, and recording the telephone instructions.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, a shareholder with an account value in
one of the Funds of $10,000 or more may receive (or send to a third party)
periodic payments of $100 or more from the shareholder's account in that Fund on
a monthly or quarterly basis. (Minimum account value for quarterly withdrawals
is $5,000.) Shares of the applicable Class of the applicable Fund will be
redeemed as necessary in order to meet withdrawal payments. Dividends and
distributions on shares of a Class held in a Systematic Withdrawal Plan account
will be reinvested in additional shares of the same Class at net asset value. A
Class B shareholder may withdraw under a Plan up to 12% annually of the
shareholder's initial account balance of Class B shares of any Fund without
incurring a CDSC on the redemptions. The initial account balance is the amount
of the shareholder's investment in the Class B shares of a Fund on the date that
the shareholder established the Systematic Withdrawal Plan for those Class B
shares.
Purchases of additional Class A shares concurrently with periodic
withdrawals from the shareholder's account may be disadvantageous because of
sales charges applied when purchases of Class A shares are made. Purchases of
additional shares of any Class concurrently with withdrawals from the
shareholder's account may also be disadvantageous because some or all of any
loss on redemption of any Class may be disallowed under certain "wash sale"
rules for federal income tax purposes. While a Systematic Withdrawal Plan is in
effect, each additional purchase of the applicable Fund's shares must be equal
to at least three times the scheduled annual withdrawals or $5,000, whichever is
less. Shareholders should recognize that, to the extent withdrawals exceed
purchases plus any dividends and distributions reinvested, the value of their
account will be reduced and ultimately may be exhausted. Each withdrawal may
result in gain or loss which generally must be recognized for federal or state
income tax purposes.
To initiate a Systematic Withdrawal Plan, a shareholder should complete the
authorization form which may be obtained from the Funds or the shareholder's
investment dealer. The Funds and the Sub-Transfer Agent reserve the right to
modify or terminate this privilege at any time upon notice to the shareholder,
and the Plan will terminate automatically if the value of the shareholder's
shares in the applicable Fund is reduced below $800, or upon such Fund's receipt
of notification of the death or incapacity of the shareholder.
22
<PAGE>
REDEEMING SHARES:
<TABLE>
<CAPTION>
METHOD PROCEDURE
<S> <C>
By writing to The Pasadena Group of Send a letter of instruction specifying the name of the Fund, the number of shares or
Mutual Funds, c/o the Sub-Transfer dollar amount to be sold, your name and account number. For redemptions over $50,000, and
Agent, P.O. Box 8505, Boston, for certain redemptions of $50,000 or less (trusts, corporations, partnerships and
Massachusetts 02266-8505 retirement plans), additional documentation may be required and your signature must be
guaranteed by a bank, savings association, credit union, or member firm of a domestic
stock exchange or the National Association of Securities Dealers, Inc., that is an
eligible guarantor institution. You should verify with the institution that it is an
eligible guarantor prior to signing. Notarization by a Notary Public is not an acceptable
signature guarantee.
By contacting your investment dealer If you redeem shares through your investment dealer, you may be charged for this service.
Shares held for you in your investment dealer's street name must be redeemed through the
dealer.
By telephone-contact one of our Mutual If you have previously authorized telephone privileges on your account application, you
Fund Representatives at (800) 648-8050 may redeem up to $50,000 per account over the telephone, provided the check is made
payable to the shareholder(s) of record and is sent to the address of record (the address
must have been in effect for at least 30 days prior to the redemption). Certain accounts
cannot be processed over the telephone (trusts, corporations, partnerships and retirement
plans) since additional documentation may be required.
By wire Any redemption request that has been received in proper order, may be wired to the
shareholder(s) bank provided the information has been previously placed in the computer,
or if accompanied by a signature guaranteed letter requesting that funds be wired. A fee
of $10 may be deducted from the proceeds of each redemption to cover the costs of the wire
transfer.
</TABLE>
23
<PAGE>
MANAGEMENT
The Board of Trustees of the Trust oversees the business and affairs of the
Funds and exercises all powers normally associated with running a business. The
Board has delegated the management and administration of the Funds' day-to-day
operations to the Trust's officers and the Manager.
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The Manager is Roger Engemann Management Co., Inc., a California corporation
whose office is located at 600 North Rosemead Boulevard, Pasadena, California
91107-2101. The Manager's telephone numbers are (818) 351-9686 and (800)
882-2855 (toll-free).
Roger Engemann & Associates, Inc. ("REA"), which is a wholly owned
subsidiary of Pasadena Capital Corporation, owns 93.5% of the Manager's capital
stock. Roger Engemann, controlling shareholder of Pasadena Capital Corporation,
is the Chairman of the Board and President of REA, the Manager and the Trust.
REA has been engaged in the investment management business since 1969, and
provides investment counseling services to retirement plans, colleges,
corporations, trusts and individuals. The portfolio managers, research analysts
and supporting staff are substantially the same for both the Manager and REA.
Combined assets under management by the Manager and REA as of December 31, 1995,
were approximately $4.4 billion.
Roger Engemann, James E. Mair and John S. Tilson are primarily responsible
for the day-to-day management of the Funds. Mr. Engemann has been president of
the Manager since its organization in 1985, and has been president of REA since
its inception. Messrs. Mair and Tilson are both Executive Vice Presidents and
Managing Directors of Portfolio Management of the Manager, and both have been
with the Manager since 1985 and with REA since 1983. Messrs. Engemann and Mair
have been Chartered Financial Analysts ("CFAs") since 1972, and Mr. Tilson has
been a CFA since 1974.
The Manager serves under an investment management agreement (the "Management
Agreement") with the Trust on behalf of the Funds. Under the Management
Agreement, the Manager furnishes investment advice and investment management
services with respect to each Fund's portfolio of securities and investments,
provides personnel, office space, facilities and equipment as may be needed by
the Funds in their day-to-day operations, and provides the officers of the
Trust. The Manager also provides the Funds with fund accounting, including
assistance and personnel necessary to price the portfolio securities of each
Fund, calculates each Fund's net asset value, and maintains the books and
records of each Fund's investment portfolio as required by applicable law. The
Manager also performs, under an administration agreement (the "Administration
Agreement"), administrative and shareholder servicing for the Funds and pays for
all other normal operating expenses of each Fund, except for the fees and
expenses associated with investment management and the service fees paid by the
Funds to dealers and others.
The Manager may consider a number of factors in determining which brokers or
dealers to use for the Funds' portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors may include,
but are not limited to, the reasonableness of commissions, the quality of
services and executions, sales of the Funds' shares, and the availability of
research which the Manager and its affiliates may lawfully and appropriately use
in their investment advisory capacity.
MANAGEMENT AND ADMINISTRATION FEES AND EXPENSES
For the services provided under the Management Agreement, the Manager
receives a management fee from each Fund (paid monthly) computed and prorated on
a daily basis. For the Global Growth Fund the management fee is equal to the
annual rate of 1.10% of the fund's average daily net assets up to $50 million,
plus 1.00% of net assets over $50 million up to $500 million, plus 0.90% of net
assets over $500 million. For the Small & Mid-Cap Growth Fund the management fee
is equal to the annual rate of 1.00% of the fund's average daily net assets up
to $50 million, plus 0.90% of net assets over $50 million up to $500 million,
plus 0.80% of net assets over $500 million. The Manager also receives under the
Administration Agreement an administration fee from each Fund equal to 0.60% per
annum of the Fund's average daily net assets up to $50 million, plus 0.50% per
annum of net assets over $50 million up to $500 million, plus 0.40% per annum of
net assets over $500 million.
24
<PAGE>
The combined rate of fees is higher than that paid to most other managers of
investment companies. However, the Manager, in its capacity as administrator of
the Funds, bears the cost for all normal operating expenses of each Fund (except
for the fees and expenses, including brokerage, associated with investment
management services, and the fees paid to dealers and others providing services
to shareholder accounts, and the distribution fees paid by Class B shares and
Class C shares) which are normally paid directly by other investment companies,
such as compensation of the Trust's trustees, cost of shareholder reports,
insurance, and all fees and expenses of each Fund's transfer agent and
sub-transfer agent, dividend disbursing agent, custodian, auditors, accountants,
attorneys and other parties performing services or operational functions for
such Fund. As a result, each Fund will not incur any expenses in connection with
its normal operations other than the fees and expenses described above. (See
"Expense and Fee Tables" on page 4)
During the fiscal years ended December 31, 1995 and 1994, the Manager waived
and absorbed all management and administration fees otherwise payable by the
Funds to the Manager. Also, see the Statement of Additional Information --
"Investment Management and Administrative Services."
The maximum operating expenses of each Fund also will be limited by
applicable state securities laws where shares of the Fund are sold. This
limitation may be removed or modified in the future without prior notice to
shareholders.
DISTRIBUTION PLANS
Rule 12b-1 adopted by the Securities and Exchange Commission (the
"Commission") under the 1940 Act permits an investment company directly or
indirectly to pay expenses associated with the distribution of its shares
("distribution expenses") in accordance with a plan adopted by the investment
company's Board of Trustees and approved by its shareholders. Pursuant to that
Rule, the Trust's Board of Trustees and the initial shareholder of the Class B
shares and Class C shares of each Fund have approved, and each Fund has entered
into, a distribution plan (each a "Plan") with the Distributor for Class B
shares and Class C shares. Under the Plans, each Fund will pay distribution fees
to the Distributor at an annual rate of 0.75% of such Fund's aggregate average
daily net assets attributable to its Class B shares and Class C shares,
respectively, to reimburse the Distributor for its distribution costs with
respect to those Classes. There is no 12b-1 Plan or distribution fee for the
Class A shares.
Each Plan provides that the Distributor may use the distribution fees
received from the Class covered by the Plan to pay for the distribution expenses
of that Class, including, but not limited to (i) incentive compensation paid to
the directors, officers and employees of, agents for and consultants to, the
Distributor or any other broker-dealer or financial institution that engages in
the distribution of that Class; and (ii) compensation to broker-dealers,
financial institutions or other persons for providing distribution assistance
with respect to that Class. Distribution fees may also be used for (i) marketing
and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising for that Class; (ii) costs of printing and distributing
prospectuses, statements of additional information and reports of the Fund to
prospective investors in that Class; (iii) costs involved in preparing, printing
and distributing sales literature pertaining to the Fund and that Class; and
(iv) costs involved obtaining whatever information, analysis and reports with
respect to marketing and promotional activities that the Fund may, from time to
time, deem advisable with respect to the distribution of that Class.
Distribution fees are accrued daily and paid monthly, and are charged as
expenses of the Class B shares and Class C shares as accrued.
In adopting each Plan, the Board of Trustees determined that there was a
reasonable likelihood that such Plan would benefit the Fund and the shareholders
of the Class to which it relates. Information with respect to distribution
revenues and expenses is presented to the Board of Trustees quarterly for its
consideration in connection with its deliberations as to the continuance of the
Plans. In its review of the Plans, the Board of Trustees is asked to take into
consideration expenses incurred in connection with the distribution of each
Class of shares separately.
The Class B shares and Class C shares are not obligated under the Plans to
pay any distribution expense in excess of the distribution fee. Thus, if a Plan
were terminated or otherwise not continued, no amounts (other than current
amounts accrued but not yet paid) would be owed by the Class to the Distributor.
25
<PAGE>
The distribution fee attributable to the Class B shares is designed to
permit an investor to purchase Class B shares through broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Distributor to recover its costs of paying an up-front commission to
broker-dealers in connection with the sale of the Class B shares. The
distribution fee attributable to the Class C shares is designed to permit an
investor to purchase Class C shares through broker-dealers without the
assessment of a front-end sales charge, and at the same time to permit the
Distributor to compensate broker-dealers on an ongoing basis in connection with
the sale of the Class C Shares.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of the Trust, including a
majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Plan or any agreement related to the Plan (the "Rule
12b-1 Trustees"), vote annually to continue the Plan. Each Plan may be
terminated at any time by vote of a majority of the Rule 12b-1 Trustees or of a
majority of the outstanding shares (as defined in the 1940 Act) of the Class to
which the Plan applies.
All distribution fees paid by the Funds under the Plans will be paid in
accordance with Article III, Section 26 of the Rules of Fair Practice of the
NASD, as such Section may change from time to time.
SERVICE FEES
The Funds also will pay dealers and others, including the Funds' Manager and
the Distributor, a continuing service fee equal to 0.25% per annum of the
average net asset value of the Funds' shares held by such persons in order to
compensate them for providing certain services to their clients, including
processing redemption transactions and providing account maintenance and certain
information and assistance with respect to the Funds, and responding to
shareholder inquiries.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund intends to declare a dividend equal
to substantially all of its net investment income (including any net short-term
capital gains realized by the Fund and any net realized foreign currency gains
and losses, if any) and a distribution of substantially all net realized
long-term capital gains at least once each calendar year, typically in December.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the distribution fees relating to
Class B and Class C shares will be borne exclusively by each such Class. The per
share income dividends and distributions, if any, on Class B shares and Class C
shares will be lower than the per share income dividends and distributions, if
any, on Class A shares as a result of the distribution fees applicable to the
Class B and Class C shares but not to the Class A shares.
Unless a shareholder has previously requested in writing that payment be
made in cash, dividends and capital gain distributions are reinvested in
additional shares of the applicable Fund at a purchase price equal to the net
asset value per share (without any sales charge) as of 4:15 p.m., Eastern Time,
on the dividend or distribution reinvestment date. Each shareholder's account is
subsequently credited with the purchased shares on the dividend or distribution
payment date. A shareholder may change his or her election at any time prior to
the record date for a particular dividend or distribution by written request.
Shareholders may not receive immediate confirmation of automatic dividend
and capital gain reinvestment transactions, but may instead receive confirmation
of such transactions in a periodic statement. Shareholders can also obtain
information on their accounts by calling the telephone number listed below under
"Shareholder Inquiries."
Any dividend or distribution paid by the Funds reduces the net asset value
per share by the per share amount of the dividend or distribution. Therefore, a
dividend or distribution paid shortly after a purchase of shares by an investor
would represent, in substance, a partial return of capital to the shareholder
(to the extent it is paid on the shares so purchased), even though it would be
subject to income taxes, as discussed below.
TAXES. Each Fund has qualified, and intends to continue to qualify and
elect to be treated as a regulated investment company under Subchapter M of the
Code. By satisfying certain requirements relating to the sources of the Fund's
income and the
26
<PAGE>
diversification of its assets and by distributing substantially all of its net
investment income and net realized capital gains for each fiscal year, in
addition to meeting other requirements imposed by the Code, a Fund will not be
subject to any federal income taxes, to the extent its earnings are distributed.
Dividends and capital gain distributions of a Fund, whether reinvested in
additional shares or received in cash, will be subject to current federal income
tax, except to tax-exempt shareholders which have not borrowed to purchase or
carry Fund shares. Dividends of net investment income and the excess of net
short-term capital gains over net long-term capital losses are taxable to
shareholders as ordinary income. Distributions of the excess of net long-term
capital gains over net short-term capital losses are treated as long-term
capital gains regardless of how long a shareholder has held shares of the Fund.
Under certain circumstances, depending on the percentage of a Fund's assets
invested in foreign securities, such Fund may be able to elect to pass-through
to its shareholders the pro-rata portion of income or other taxes paid by such
Fund to foreign governments during a year, which would then allow the
shareholders to deduct or claim a foreign tax credit for such amount.
Distributions will be taxable in the year in which they are received except
for certain distributions received in January, which will be taxable as if
received the prior December. Shareholders will be informed annually of the
amount and nature of each Fund's distributions, the portion, if any, that
qualifies for the corporate dividends-received deduction, the portion, if any,
that should be treated as a return of capital, and the amount, if any, of income
tax withheld or foreign taxes eligible for "pass through" to shareholders.
Additional information about taxes is set forth in the Statement of
Additional Information. The foregoing discussion has been prepared by the
management of the Funds, and does not purport to be a complete description of
all tax implications of an investment in any Fund. Shareholders should consult
their own advisers concerning the application of federal, state and local tax
laws to their particular situations. Heller, Ehrman, White & McAuliffe, legal
counsel to the Fund, has expressed no opinion in respect thereof.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Funds is determined as of 4:15 p.m., Eastern
Time, on each day the New York Stock Exchange is open and during which a
purchase subscription or redemption request is received (or at such earlier time
as the Exchange may close). Net asset value per share is calculated by dividing
the total value of each Fund's investments and other assets, less all
liabilities, by the number of Fund shares outstanding. For this calculation,
each Fund's assets include accrued dividends (from their ex-dividend date) and
interest, and liabilities include accrued expenses.
In valuing a Fund's assets for calculating net asset value, portfolio
securities with readily available market quotations are valued at their market
value and other assets are valued in such manner as the Board of Trustees deems
appropriate to reflect their fair value. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at the then-current exchange rates
or at such other value as the Board of Trustees may determine in computing net
asset value. As a result, fluctuations in the value of such currencies in
relation to the U.S. dollar will affect the net asset value of Fund shares even
though there may be no change in the market value of such securities. See the
Statement of Additional Information under "Purchase, Redemption, and Pricing of
Fund Shares" for more detailed information on the valuation of the Fund's
assets.
The net asset values per share of the Class B shares and Class C shares of a
Fund are expected to be approximately the same; the net asset value per share of
the Class A shares of such Fund is expected, under normal circumstances, to be
higher due to the daily expense accruals of the distribution fees applicable to
the Class B shares and Class C shares but not to the Class A shares. However,
the per share net asset value of the three Classes of a Fund will tend to
converge on that Fund's ex-dividend date, and the per share dividends will
differ by approximately the amount of the expense accrual differential among the
Classes.
27
<PAGE>
PERFORMANCE INFORMATION
From time to time, each Fund may publish its total return in advertisements
and communications to shareholders. Total return is computed separately for the
Class A, Class B and Class C shares of each Fund. Total return information will
include the total return for the subject Class of each Fund over the most recent
fiscal year and over the period from the inception of each Class. The Funds also
may advertise aggregate and average total return information over different
periods of time. Each Fund's total return will be expressed as a percentage and
will be calculated using a hypothetical $1,000 investment (including the maximum
initial sales charge for Class A shares) at the beginning of the specified
period and the net asset value of such investment at the end of the period,
assuming reinvestment of all distributions at net asset value and deduction of
any applicable CDSC on Class B shares. Each Fund also may publish a cumulative
return for each Class over a specified period based on the change in net asset
value over such period. ln addition, each Fund may publish a distribution rate
for each Class in prospective investor communications preceded or accompanied by
a copy of its current Prospectus. The current distribution rate for each Class
of the Funds will be calculated by dividing the maximum offering price per share
into the annualization of the total distributions made by each Class of the
Funds during the stated period. In each case, distribution rates and total
return figures will reflect all recurring charges against the Funds' income. In
addition, each Fund may compare its performance to various indices of investment
performance published by third parties.
Investors should note that the investment results of the Funds will
fluctuate over time, and any presentation of a Fund's performance for any prior
period should not be considered as a representation or prediction of what an
investor's total return may be in any future period. For further information,
including the formula and an example of the total return calculation, see the
Statement of Additional Information.
The Annual Report to Shareholders and subsequent Semiannual Report to
Shareholders, if applicable, contain additional performance information
respecting the Funds and their shares. A copy of each Report is available
without charge upon request to the Trust at the address or telephone number set
forth on the front page of this Prospectus.
DESCRIPTION OF THE TRUST
Each Fund is a series of the Trust, which was organized as a Massachusetts
business trust on May 28, 1986. The Trust's Agreement and Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest without par value, which may be issued
in any number of series (called funds). The assets and liabilities of each
series are separate and distinct from any other series. Currently, the Trust
issues redeemable shares in five series: The Pasadena Growth Fund, The Pasadena
Nifty Fifty Fund, The Pasadena Balanced Return Fund, The Pasadena Small &
Mid-Cap Growth Fund and The Pasadena Global Growth Fund. Each of the funds is
authorized to issue Class A, Class B and Class C shares. The shares of the
Global Growth Fund and the Small & Mid-Cap Growth Fund are offered in this
Prospectus and the shares of the other series of the Trust are offered in a
separate prospectus. The Board of Trustees from time to time may authorize
additional series or the termination of existing series of the Trust. Shares
issued by a Fund have no preemptive, conversion, or sinking rights.
Each of the Class A, Class B and Class C shares of a Fund represents an
interest in the assets of that Fund and has identical voting, dividend,
liquidation and other rights on the same terms and conditions, except that
expenses related to the distribution of each Class are borne separately by that
Class and each Class has exclusive voting rights with respect to provisions of
the Rule 12b-1 distribution plan which pertains to that Class (only Class B
shares and Class C shares are subject to such distribution plans).
Shareholders of each Fund, as a separate series of the Trust, vote
separately on matters affecting only that Fund (e.g., approval of the Management
Agreement); shareholders of all the funds in The Pasadena Group of Mutual Funds
vote as a single class on matters affecting all funds jointly or the Trust as a
whole (e.g., election or removal of Trustees). Voting rights are not cumulative,
so the holders of more than 50% of the shares of all funds voting in any
election of Trustees, can, if they choose to do so, elect all of the Trustees.
While the Funds are not required to, nor do they intend to, hold annual meetings
of shareholders, such
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<PAGE>
meetings may be called by the Trustees in their discretion or upon demand by the
holders of 10% or more of the outstanding shares of the Trust for the purpose of
electing or removing Trustees. As noted above, the Class B and Class C
shareholders of each Fund have exclusive voting rights with respect to the
provisions of the distribution plan covering that Class.
The Trust's Board of Trustees has determined that currently no conflict of
interest exists among the Class A, Class B and Class C shares of any Fund. On an
ongoing basis, the Trust's Board of Trustees, pursuant to their fiduciary duties
under the 1940 Act and state laws, will seek to ensure that no such conflict
arises.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Pasadena Group Service
Center at 600 North Rosemead Boulevard, Pasadena, California 91107-2133
(telephone toll free: (800) 648-8050).
GENERAL INFORMATION
State Street Bank and Trust Company serves as Custodian of the Global Growth
Fund's assets.
The Union Bank of California serves as Custodian of the Small & Mid-Cap
Growth Fund's assets.
Pasadena National Trust Company ("PNTC"), which is wholly-owned by Mr. Roger
Engemann, is the Transfer and Dividend Disbursing Agent for the Funds. PNTC has
entered into a Sub-Transfer Agency and Service Agreement with State Street Bank
and Trust Company, which will perform (through its affiliate, Boston Financial
Data Services, Inc.) on behalf of PNTC certain of the shareholder accounting,
recordkeeping and administrative functions required by the Funds.
Coopers & Lybrand L.L.P. serves as independent auditors for the Funds.
Reports containing financial statements, at least one of which will be audited,
will be sent to shareholders twice during each fiscal year of the Funds, which
ends on December 31. Only one copy of each report may be sent to shareholders at
the same address, and statements for accounts having the same address may be
consolidated in single mailings unless otherwise requested.
The validity of the shares offered by the Prospectus will be passed on by
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California
94104.
Shares of each Funds may be purchased by one or more investment funds
organized outside the jurisdiction of the United States, whose shares are
offered to investors who are not residents or citizens of the United States. The
percentage of each Fund's shares owned by such offshore fund will be disclosed
in this Prospectus and/or the Statement of Additional Information, as it may be
amended from time to time. To the extent the number of shares of a Fund owned by
any such offshore fund becomes a significant percentage of that Fund's
outstanding shares, a risk to such Fund may exist to the extent the Fund is
forced to liquidate portfolio securities quickly to meet any significant
redemption requests by the offshore fund. However, as of the date of this
Prospectus no such ownership exists, and even in the event a substantial
percentage of any Fund's outstanding shares subsequently are held by such an
offshore fund, the ability of the Fund to redeem its shares in kind (as
described in the Statement of Additional Information) should substantially
reduce any adverse effect on the Fund of any significant redemption of Fund
shares by the offshore fund.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and information
or representations not herein contained, if given or made, must not be relied
upon as having been authorized by a Fund. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
As of July 1, 1996, Pasadena Capital Corporation owned 95.8% of the Global
Growth Fund's outstanding shares and 80.9% of the Small & Mid-Cap Growth Fund's
outstanding shares and is therefore a "control" person of each Fund as defined
in the 1940 Act. The Pasadena Capital Corporation Employee Stock Ownership Plan
owned each Fund's remaining outstanding shares on that date.
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BACKUP WITHHOLDING INSTRUCTIONS
You are required by law to provide the Fund with your correct social
security or taxpayer identification number (each a "TIN"), regardless of whether
you file tax returns. Failure to do so may subject you to certain penalties.
Failure to provide your correct TIN and to complete the section of the
Investment Application entitled "Taxpayer Identification Number Certification
and Signature(s)" could result in backup withholding by the Fund of federal
income tax at the rate of 31% with respect to distributions, redemptions and
other payments made with respect to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the IRS. Backup
withholding could apply to payments made to your account while you are awaiting
receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under the Uniform Transfers to Minors Act, the TIN of the minor
should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you have failed to report interest or dividend income on
your tax return and you have not been notified by the IRS that such withholding
should cease, you should strike clause (2) of the section entitled "Taxpayer
Identification Number Certification and Signature(s)." If you are an exempt
recipient, you should furnish your TIN and check the appropriate box in that
section. Exempt recipients include corporations, financial institutions,
registered securities and commodities dealers and others.
For further information regarding backup withholding, see Section 3406 of
the Code and consult your tax adviser.
30
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Rule 497(e):
File Nos. 33-1922; 811-4506
THE PASADENA GLOBAL GROWTH FUND-SM-
THE PASADENA SMALL & MID-CAP GROWTH FUND-SM-
600 North Rosemead Boulevard
Pasadena, California 91107-2133
(800) 648-8050 (Toll-Free)
(818) 351-9686
---------------------
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1996
The Pasadena Investment Trust (the "Trust") is a diversified, open-end
management investment company offering redeemable shares of beneficial interest
in five separate series. The two series covered by this Statement of Additional
Information are: The Pasadena Global Growth Fund (the "Global Growth Fund") and
The Pasadena Small & Mid-Cap Growth Fund (the "Small & Mid-Cap Growth Fund")
(sometimes referred to herein individually as a "Fund," and collectively as the
"Funds"). The other series of the Trust, The Pasadena Growth Fund, The Pasadena
Nifty Fifty Fund and The Pasadena Balanced Return Fund are covered by a separate
prospectus and statement of additional information.
The Global Growth Fund's investment objective is long-term growth of
capital, which it seeks to achieve through investments in a globally diversified
portfolio of securities. The Small & Mid-Cap Growth Fund's investment objective
is long-term growth of capital appreciation, which it seeks to achieve through
investments primarily in equity securities of companies with market
capitalizations below $1.5 billion.
This Statement of Additional Information is not a prospectus. It contains
information which supplements the combined Prospectus for the Global Growth Fund
and the Small & Mid-Cap Growth Fund dated September 1, 1996, as it may be
amended from time to time. This Statement of Additional Information is to be
read in conjunction with such Prospectus, which is hereinafter referred to as
the "Prospectus." Some of the information required in this Statement of
Additional Information has been included in the Prospectus. A copy of the
Prospectus may be obtained from the Trust, 600 North Rosemead Boulevard,
Pasadena, California 91107-2133.
B-1
<PAGE>
TABLE OF CONTENTS
Page
----
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . . B-2
Management of the Trust. . . . . . . . . . . . . . . . . . . . . . . . . . .B-26
Investment Management and Administrative Services. . . . . . . . . . . . . .B-29
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . . .B-33
Principal Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . . .B-35
Class B and Class C Distribution Plans . . . . . . . . . . . . . . . . . . .B-36
Purchase, Redemption, and Pricing of Fund Shares . . . . . . . . . . . . . .B-37
Distributions and Tax Status . . . . . . . . . . . . . . . . . . . . . . . .B-43
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . .B-47
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-50
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-50
THE TRUST
The Pasadena Investment Trust (the "Trust") is an open-end diversified
management investment company organized as a Massachusetts business trust. The
Trust issues shares of beneficial interest in five series, two of which are the
"Funds" covered by this Statement of Additional Information. Each of the Funds
has a separate investment objective and policies, and maintains a separate
investment portfolio. Each of the Funds is authorized to issue three classes of
shares (Class A, Class B and Class C shares) (each a "Class").
INVESTMENT OBJECTIVE AND POLICIES
The following information concerning the investment objective and policies
of the Funds supplements the Prospectus. The information contained in the
Prospectus relating to the Funds' Investment Objective and Policies is
incorporated herein by reference.
FOREIGN SECURITIES
Each Fund may invest (directly and/or through Depositary Receipts) in
securities principally traded in markets outside the United States. Foreign
investments can be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and the
information available may not be of the same quality. Foreign companies also
may not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States.
B-2
<PAGE>
Investments in foreign securities can involve other risks different from
those affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets and imposition of
withholding taxes on dividend or interest payments. To hedge against possible
variations in currency exchange rates, a Fund may purchase and sell forward
currency exchange contracts. These are agreements to purchase or sell specified
currencies at specified dates and prices. A Fund will only purchase and sell
forward currency exchange contracts in amounts which the Manager deems
appropriate to hedge existing or anticipated portfolio positions and will not
use such forward contracts for speculative purposes. Foreign securities, like
other assets of a Fund, will be held by such Fund's custodian or by an
authorized subcustodian.
FOREIGN CURRENCY TRANSACTIONS
IN GENERAL. As described below, each Fund may engage in certain foreign
currency exchange and option transactions. These transactions involve
investment risks and transaction costs to which a Fund would not be subject
absent the use of these strategies. If the Manager's predictions of movements
in the direction of securities prices or currency exchange rates are inaccurate,
the adverse consequences to a Fund may leave such Fund in a worse position than
if it had not used such strategies. Risks inherent in the use of option and
foreign currency forward and futures contracts include: (1) dependence on the
Manager's ability to correctly predict movements in the direction of securities
prices and currency exchange rates; (2) imperfect correlation between the price
of options and futures contracts and movements in the prices of the securities
or currencies being hedged; (3) the fact that the skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular instrument
at any time; and (5) the possible need to defer closing out certain hedged
positions to avoid adverse tax consequences. Each Fund's ability to enter into
futures contracts is also limited by the requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.
Each Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates. In addition, each
Fund may write covered put and call options on foreign currencies for the
purpose of increasing its return.
B-3
<PAGE>
Generally, each Fund may engage in both "transaction hedging" and "position
hedging." When it engages in transaction hedging, a Fund enters into foreign
currency transactions with respect to specific receivables or payables,
generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, a Fund will attempt to protect itself against
a possible loss resulting from an adverse change in the exchange rate between
the U.S. dollar and the applicable foreign currency during the period between
the date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
Each Fund may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. Each Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes each Fund may also purchase exchange-
listed and over-the-counter put and call options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives a
Fund the right to assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives a Fund the right to
sell the currency at an exercise price until the expiration of the option. A
call option on a futures contract gives a Fund the right to assume a long
position in the futures contract until the expiration of the option. A call
option on a currency gives a Fund the right to purchase the currency at the
exercise price until the expiration of the option.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the values of currency for securities which such Fund expects to purchase, when
such Fund holds cash or short-term investments). In connection with position
hedging, each Fund may purchase put or call options on foreign currency and on
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. Each Fund may also purchase or sell foreign
currency on a spot basis.
B-4
<PAGE>
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is also impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase)
if the market value of the security or securities being hedged is less than
the amount of foreign currency such Fund is obligated to deliver and a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security
or securities if the market value of such security or securities exceeds the
amount of foreign currency a Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in value of
such currency.
Each Fund may seek to increase its return or to offset some of the costs of
hedging against fluctuations in currency exchange rates by writing covered put
options and covered call options on foreign currencies. A Fund receives a
premium from writing a put or call option, which increases such Fund's current
return if the option expires unexercised or is closed out at a net profit. A
Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written.
A Fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at times not
involve currencies in which its portfolio securities are then denominated. The
Manager will engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for a Fund. Cross
hedging transactions by a Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability
which is the subject of the hedge.
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Neither Fund is a commodity pool. The Funds' transactions in futures and
options thereon as described herein will constitute bona fide hedging or other
permissible transactions under regulations promulgated by the Commodity Futures
Trading Commission ("CFTC"). In addition, no Fund may engage in such
transactions if the sum of the amount of initial margin deposits and premiums
paid for unexpired futures and options thereon would exceed 5% of the value of
such Fund's assets, with certain exclusions as defined in the applicable CFTC
rules.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
The holder of a cancelable forward contract has the unilateral right to cancel
the contract at maturity by paying a specified fee. The contracts are traded in
the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency at a future date at a price
set at the time of the contract. Foreign currency futures contracts traded in
the United States are designed by and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund either may accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected
on a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
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Although each Fund intends to purchase or sell foreign currency futures
contracts only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign currencies
operate similarly to options on securities and are subject to many similar
risks. Foreign currency options are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Options are traded not only on the currencies of individual
nations, but also on the European Currency Unit, which is composed of amounts of
a number of currencies and is the official medium of exchange of the European
Community's European Monetary System.
Each Fund will only purchase or write foreign currency options when the
Fund's Manager believes that a liquid market exists for such options. There can
be, however, no assurance that a liquid market will exist for a particular
option at any specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and investments
generally.
The value of any currency, including U.S. dollars and foreign currencies,
may be affected by complex political and economic factors applicable to the
issuing country. In addition, the exchange rates of foreign currencies (and
therefore the values of foreign currency options) may be affected significantly,
fixed, or supported directly or indirectly, by U.S. and foreign government
actions. Government intervention may increase risks involved in purchasing or
selling foreign currency options, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option reflects the value of an exchange
rate, which in turn reflects the relative values of two currencies, generally
the U.S. dollar and the foreign currency in question. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the exercise of foreign currency
options, investors may be disadvantaged by having to deal in an odd-lot market
for the underlying foreign currencies in connection with options at prices that
are less favorable than for round lots. Foreign governmental restrictions or
taxes could result in adverse changes in the cost of acquiring or disposing of
foreign currencies.
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There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large round-
lot transactions in the interbank market and thus may not reflect exchange rates
for smaller odd-lot transactions (less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-the-
clock market. To the extent that options markets are closed while the markets
for the underlying currencies remain open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the options
markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Funds'
investments in foreign securities and to the Funds' foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in the Funds' domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and a Fund may be required to accept or make delivery of the
underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
Settlement procedures in many foreign countries are less established than those
in the United States, and some foreign country settlement periods can be
significantly longer than those in the United States.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should such Fund
desire to resell that currency to the dealer.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. Each Fund may write covered put options and
covered call options on optionable securities held in its portfolio, when in the
opinion of such Fund's Manager such transactions are consistent with such Fund's
investment objective and policies. Call options written by a Fund give the
purchaser the right to buy the underlying securities from such Fund at a stated
exercise price; put options give the purchaser the right to sell the underlying
securities to a Fund at a stated price.
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Each Fund may write only covered options, which means that, so long as a
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, each Fund
will hold cash and/or high-grade short-term debt obligations equal to the price
to be paid if the option is exercised. In addition, a Fund will be considered
to have covered a put or call option if and to the extent that it holds an
option that offsets some or all of the risk of the option it has written. Each
Fund may write combinations of covered puts and calls on the same underlying
security.
A Fund will receive a premium from writing a put or call option, which
increases such Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the exercise price and
the current market value of the underlying security, the volatility of the
underlying security, the amount of time remaining until expiration of the
option, current interest rates, and the effect of supply and demand in the
options market and in the market for the underlying security. By writing a call
option, a Fund limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option but
continues to bear the risk of a decline in the value of the underlying security.
By writing a put option, a Fund assumes the risk that it may be required to
purchase the underlying security for an exercise price higher than its then
current market value, resulting in a potential capital loss unless the security
subsequently appreciates in value.
Each Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. A Fund realizes a profit or loss from a closing
transaction if the cost of the transaction (option premium plus transaction
costs) is less or more than the premium received from writing the option.
Because increases in the market price of a call option generally reflect
increases in the market price of the security underlying the option, any loss
resulting from a closing purchase transaction may be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
If a Fund writes a call option but does not own the underlying security,
and when it writes a put option, such Fund may be required to deposit cash or
securities with its broker as "margin," or collateral, for its obligation to buy
or sell the underlying security. As the value of the underlying security
varies, a Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently
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imposed by the Federal Reserve Board and by stock exchanges and other self-
regulatory organizations.
PURCHASING PUT OPTIONS. Each Fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such protection is provided during the life of the put option because a Fund, as
holder of the option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, a Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
PURCHASING CALL OPTIONS. Each Fund may purchase call options to hedge
against an increase in the price of securities that a Fund wants ultimately to
buy. Such hedge protection is provided during the life of the call option
because such Fund, as holder of the call option, is able to buy the underlying
security at the exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be profitable, the
market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Funds' options strategies depends on the ability
of the Funds' Manager to forecast correctly interest rate and market movements.
For example, if a Fund were to write a call option based on the Manager's
expectation that the price of the underlying security would fall, but the price
were to rise instead, such Fund could be required to sell the security upon
exercise at a price below the current market price. Similarly, if a Fund were
to write a put option based on the Manager's expectations that the price of the
underlying security would rise, but the price were to fall instead, such Fund
could be required to purchase the security upon exercise at a price higher than
the current market price.
When a Fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction before the
option's expiration. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent sufficient to
cover the option premium and transaction costs, the Fund will lose part or all
of its investment in the option. This contrasts with an investment by a Fund in
the
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underlying security, since the Fund will not realize a loss if the security's
price does not change.
The effective use of options also depends on a Fund's ability to terminate
option positions when the Fund's Manager deems it desirable to do so. There is
no assurance that a Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
If a secondary market in options were to become unavailable, a Fund could
no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events - such as volume in excess of trading or clearing capability -- were to
interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options market were to
become unavailable, a Fund as a holder of an option would be able to realize
profits or limit losses only by exercising the option, and the Fund, as option
writer, would remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options purchased
or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens
at a substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed when trading in the option has also been
halted, the Fund as purchaser or writer of an option will be locked into its
position until one of the two restrictions has been lifted. If the Options
Clearing Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. The Fund, as holder of such a put option, could lose
its entire investment if the prohibition remained in effect until the put
option's expiration.
Special risks are presented by internationally traded options. Because of
time differences between the United States
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and various foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for trading during
hours or on days when U.S. markets are closed. As a result, option premiums may
not reflect the current prices of the underlying interest in the United States.
OVER-THE-COUNTER OPTIONS
The Staff of the Division of Investment Management (the "Staff") of the
Securities and Exchange Commission ("SEC") has taken the position that over-the-
counter ("OTC") options purchased by a Fund and assets held to cover OTC options
written by a Fund are illiquid securities. Although the Staff has indicated
that it is continuing to evaluate this issue, pending further developments, each
Fund intends to enter into OTC options transactions only with primary dealers in
U.S. Government securities and, in the case of OTC options written by a Fund,
only pursuant to agreements that will assure that each Fund will at all times
have the right to repurchase the option written by it from the dealer at a
specified formula price. Each Fund will treat the amount by which such formula
price exceeds the amount, if any, by which the option may be "in-the-money" as
an illiquid investment. It is the present policy of each Fund not to enter into
any OTC option transaction if, as a result, more than 15% of such Fund's net
assets would be invested in (i) illiquid investments (determined under the
foregoing formula) relating to OTC options written by the Fund, (ii) OTC options
purchased by the Fund, (iii) all other securities which are not readily
marketable, and (iv) repurchase agreements maturing in more than seven-days.
(See "Other Investment Restrictions - (16).")
FUTURES CONTRACTS AND RELATED OPTIONS
A financial futures contract sale creates an obligation by the seller to
deliver the type of financial instrument called for in the contract in a
specified delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery of the type of
financial instrument called for in the contract in a specified delivery month at
a stated price. The specific instruments delivered or taken, respectively, at
settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts are traded in the
United States only on commodity exchanges or boards of trade -- known as
"contract markets" -- approved for such trading by the CFTC, and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant contract market.
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The Funds will not deal in commodity contracts PER SE, but only in futures
contracts involving financial instruments. Although futures contracts by their
terms call for actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific type of financial
instrument or commodity with the same delivery date. If the price of the
initial sale of the futures contract exceeds the price of the offsetting
purchase, the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial sale, the
seller realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the purchaser's entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he realizes
a loss. Futures contracts traded on an exchange approved by the CFTC are
"marked to market" at the end of each year, whether or not they are closed out.
In general, 40% of the gain or loss arising from the closing out or marking to
market of a futures contract traded on an exchange approved by the CFTC is
treated as short-term capital gain or loss, and 60% is treated as long-term
capital gain or loss.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Upon
entering into a contract, a Fund is required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of cash and/or
U.S. Government securities. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds to finance the transactions. Rather, initial margin is
similar to a performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage
costs.
Subsequent payments, called "variation margin," to and from the broker (or
the custodian) are made on a daily basis as the price of the underlying security
or commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to the market." For
example, when a Fund has purchased a futures contract on a security and the
price of the underlying security has risen, that position would increase in
value and the Fund would receive from the broker a variation margin payment
based on that increase in value. Conversely, when a Fund has purchased a
security futures contract and the price of the underlying security has declined,
the position would be less valuable and the Fund would be required to make a
variation margin payment to the broker.
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Each Fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge position
then currently held by such Fund. A Fund may close its positions by taking
opposite positions which will operate to terminate the Fund's position in the
futures contracts. Final determinations of variation margin are then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or a gain. Such closing transactions involve additional
commission costs.
OPTIONS ON FUTURES CONTRACTS. Each Fund may purchase and write put and
call options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on future contracts give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. Each Fund may use
options on futures contracts in lieu of writing or buying options directly on
the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of
its portfolio securities, a Fund may purchase put options or write call options
on futures contracts rather than selling futures contracts. Similarly, each
Fund may purchase call options or write put options on futures contracts as a
substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities which such Fund expects to purchase. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate its position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected.
Each Fund will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it pursuant
to brokers' requirements similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful
use of futures contracts by a Fund is subject to the Manager's ability to
predict movements in the direction of interest rates and other factors affecting
securities markets. For example, if a Fund has hedged against the possibility
of decline in the values of its investments and the values of its investments
increase instead, the Fund will lose part or all of the benefit of the increase
through payments of daily maintenance margin. A Fund may have to sell
investments at a time when it may be disadvantageous to do so in order to meet
margin requirements.
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Compared to the purchase or sale of futures contracts, the purchase of put
or call options on futures contracts involves less potential risk to a Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
put or call option on a futures contract would result in a loss to a Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by a Fund, such Fund may seek
to close out a position. The ability to establish and close out positions will
be subject to the development and maintenance of a liquid secondary market. It
is not certain that this market will develop or continue to exist for a
particular futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange for such contracts or options (or in the class
or series of contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or
sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. Each Fund
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may enter into stock index futures contracts, debt index futures contracts, or
other index futures contracts appropriate to its objective. Each Fund may also
purchase and sell options on index futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are listed on the
New York Stock Exchange. The S&P 500 assigns relative weightings to the common
stocks included in the index, and the value fluctuates with changes in the
market values of those common stocks. In the case of the S&P 500, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract would be worth $75,000 (500 units x $150). A stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150 and the S&P 500
is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of
$4 per unit). If a Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 is at $152 on that future date, the Fund will lose $1,000 (500 units x loss
of $2 per unit).
There are several risks in connection with the use by the Funds of index
futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the index futures and movements
in the prices of securities which are the subject of the hedge. The Funds'
Manager will, however, when engaging in this type of activity, attempt to reduce
this risk by buying or selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the securities sought to be hedged.
Successful use of index futures by a Fund for hedging purposes is also
subject to the Manager's ability to predict movements in the direction of the
market. It is possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in such Fund's portfolio
may decline. If this occurred, the Fund would lose money on the futures and
also experience a decline in value in its portfolio securities. It is also
possible that, if a Fund has hedged against the possibility of a decline in the
market adversely affecting securities held in its portfolio and securities
prices increase instead, such Fund will lose part or all of the benefit of the
increased value of those securities it has hedged because it will have
offsetting losses in its futures
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positions. In addition, in such situations, if the Fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements at a
time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the index futures and the portion
of the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market
are less onerous than margin requirements in the securities market, and as a
result the futures market may attract more speculators than the securities
market does. Increased participation by speculators in the futures market may
also cause temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the imperfect correlation
between movements in the index and movements in the prices of index futures,
even a correct forecast of general market trends may not result in a successful
hedging transaction over a short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on stock index futures are similar
to options on securities except that options on index futures give the purchaser
the right, in return for the premium paid, to assume a position in an index
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to its
expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index on which the future is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
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OPTIONS ON INDICES
As an alternative to purchasing put and call options on index futures, each
Fund may purchase and sell put and call options on the underlying indices
themselves. Such options would be used in a manner identical to the use of
options on index futures.
INDEX WARRANTS
Each Fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities indices
("index warrants"). Index warrants are generally issued by banks or other
financial institutions and give the holder the right, at any time during the
term of the warrant, to receive upon exercise of the warrant a cash payment from
the issuer based on the value of the underlying index at the time of exercise.
In general, if the value of the underlying index rises above the exercise price
of the index warrant, the holder of a call warrant will be entitled to receive a
cash payment from the issuer upon exercise based on the difference between the
value of the index and the exercise price of the warrant; if the value of the
underlying index falls, the holder of a put warrant will be entitled to receive
a cash payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at any time when,
in the case of a call warrant, the exercise price is greater than the value of
the underlying index, or, in the case of a put warrant, the exercise price is
less than the value of the underlying index. If a Fund were not to exercise an
index warrant prior to its expiration, then such Fund would lose the amount of
the purchase price paid by it for the warrant.
A Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of a Fund's use of index warrants are
generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although each Fund will
normally invest only in exchange listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing agency.
In addition, the terms of index warrants may limit a Fund's ability to exercise
the warrants at such time, or in such quantities, as the Fund would otherwise
wish to do.
B-18
<PAGE>
SECURITIES LOANS
Each Fund may make secured loans of its portfolio securities amounting to
not more than 50% of its total assets, thereby increasing its total return. The
risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral consisting of cash or
high-grade short-term debt obligations at least equal at all times to the value
of the securities on loan, "marked-to-market" daily. The borrower pays to the
Fund an amount equal to any dividends or interest received on securities lent.
The Fund retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so to enable the Fund to exercise the voting rights on any
matters materially affecting the investment. The Fund may also call such loans
in order to sell securities.
FORWARD COMMITMENTS
Each Fund may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Fund holds, and maintains until settlement date in a segregated account, cash or
high-grade debt obligations in an amount sufficient to meet the purchase price,
or if the Fund enters into offsetting contracts for the forward sale of other
securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Fund of
an advantageous yield or price. Although each Fund will generally enter into
forward commitments with the intention of acquiring securities for its portfolio
or for delivery pursuant to options contracts it has entered into, such Fund may
dispose of a commitment prior to settlement if the Manager deems it appropriate
to do so. A Fund may realize short-term profits or losses upon the sale of
forward commitments.
B-19
<PAGE>
DEPOSITARY RECEIPTS
The Global Growth Fund may invest up to 100%, and the Small & Mid-Cap
Growth Fund may invest up to 50%, of the value of its net assets in the
securities of foreign issuers in the form of Depositary Receipts ("DRs"),
e.g., American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs"), Continental Depositary
Receipts ("CDRs"), or other forms of DRs. DRs are receipts typically issued
by a United States or foreign bank or trust company which evidence ownership
of underlying securities issued by a foreign corporation. The Fund may
invest in DRs through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the underlying security and
a depository, whereas a depository may establish an unsponsored facility
without participation by the issuer of the deposited security. The
depository of unsponsored DRs generally bears all the costs of such
facilities and the depository of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through voting rights to the
holders of such receipts in respect of the deposited securities.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of the value of its net assets in
securities as to which a liquid trading market does not exist, provided such
investments are consistent with such Fund's objective and other policies.
Such securities may include securities that are not readily marketable, such
as certain securities that are subject to legal or contractual restrictions
on resale, repurchase agreements providing for settlement in more than seven
days after notice, certain options traded in the over-the-counter market and
securities used to cover such options. As to these securities, a Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer
is not available at a price the Fund deems representative of their value, the
value of the Fund could be adversely affected. When purchasing securities
that have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), and are not readily marketable, each Fund will endeavor to
obtain the right to registration at the expense of the issuer. Generally,
there will be a lapse of time between a Fund's decision to sell any such
security and the registration of the security permitting sale. During any
such period, the price of the securities will be subject to market
fluctuations. However, if a substantial market of qualified institutional
buyers develops pursuant to Rule 144A under the 1933 Act for certain
unregistered securities held by a Fund, such Fund intends to treat such
securities as liquid securities in accordance with procedures approved by the
Trust's Board of Trustees. Because it is not possible to predict with any
assurance how the market for restricted securities pursuant to
B-20
<PAGE>
Rule 144A will develop, the Board of Trustees has directed the Manager to
monitor carefully any Fund investments in such securities with particular
regard to trading activity, availability or reliable price information and
other relevant information. To the extent that, for a period of time,
qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, a Fund's investing in such securities may have the
effect of increasing the level of illiquidity in the Fund's portfolio during
such period.
REPURCHASE AGREEMENTS
Each Fund may, for temporary defensive purposes, invest its assets in
eligible U.S. Government securities and concurrently enter into repurchase
agreements with respect to such securities. Under such agreements, the seller
of the security agrees to repurchase it at a mutually agreed upon time and
price. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the U.S. Government security itself. Such
repurchase agreements will be made only with banks with assets of $1 billion or
more that are insured by the Federal Deposit Insurance Corporation or with
Government securities dealers recognized as primary dealers by the Federal
Reserve Board and registered as broker-dealers with the SEC or exempt from such
registration. In addition, to the extent a Fund has over $10 million in assets,
the Fund will limit the amount of its transactions with any one bank or
Government securities dealer to a maximum of 25% of its assets. Any repurchase
agreements entered into by a Fund will be of short duration, from overnight to
one week, although the underlying securities generally have longer maturities.
No Fund may enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 15% of the value of such Fund's net assets
would be invested in such repurchase agreements and other illiquid assets.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from a Fund to the seller of the
U.S. Government security subject to the repurchase agreement. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, a Fund may encounter delays and incur costs before being able to sell
the security. Delays may involve loss of interest or a decline in price of the
U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at risk of
B-21
<PAGE>
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt instrument purchased for a Fund, the Manager seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the U.S. Government
security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, each
Fund will always receive as collateral for any repurchase agreement to which it
is a party U.S. Government securities acceptable to it, the market value of
which is equal to at least 100% of the amount invested by the Fund plus accrued
interest, and the Fund will make payment against such securities only upon
physical delivery or evidence of book entry transfer to the account of its
Custodian or other entity authorized by the Trust's Board of Trustees to have
custody for purposes of repurchase agreement transactions. If the market value
of the U.S. Government security subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the U.S. Government security to deliver additional securities so that the
market value of all securities subject to the repurchase agreement will equal or
exceed the repurchase price. It is possible that the Fund will be unsuccessful
in seeking to impose on the seller a contractual obligation to deliver
additional securities, however.
SPECIAL SITUATIONS
Subject to the limitations in the Prospectus, the Small & Mid-Cap Growth
Fund may invest in special situations that the Manager believes present
opportunities for capital growth. Such situations most typically include
corporate restructurings, mergers, and tender offers.
A special situation arises when, in the opinion of the Manager, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development particularly or uniquely applicable to that company and regardless
of general business conditions or movements of the market as a whole.
Developments creating special situations might include, among others, the
following: liquidations, reorganizations, recapitalizations, mergers, or tender
offers; material litigation or resolution thereof; technological breakthroughs;
and new management or management policies. Although large and well-known
companies may be involved, special situations often involve much greater risk
than is inherent in ordinary investment securities.
B-22
<PAGE>
OTHER INVESTMENT RESTRICTIONS
Unless otherwise noted, the following restrictions have been adopted as
matters of fundamental policy for each Fund. These fundamental policies may not
be changed for either Fund without the approval of the lesser of (i) two-thirds
or more of that Fund's voting securities present at a duly held meeting at which
at least 50% of the outstanding voting securities of that Fund are present in
person or by proxy, or (ii) more than one-half of the outstanding voting
securities of that Fund. Each Fund MAY NOT:
(1) With respect to 75% of a Fund's total assets, purchase any security
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result, more than 5% of the value of the
Fund's total assets would be invested in securities of any one issuer.
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of its
portfolio securities, and may make margin payments in connection with
transactions in permissible futures and options contracts) or make short sales.
(3) With respect to 75% of a Fund's total assets, acquire more than 10% of
any one class of securities of an issuer. (For this purpose all common stocks
of an issuer are regarded as a single class, and all preferred stocks of an
issuer are regarded as a single class.)
(4) With respect to 75% of a Fund's total assets, acquire more than 10% of
the outstanding voting securities of any one issuer.
(5) Borrow money in excess of 20% of its total assets (taken at cost) and
then only as a temporary measure for extraordinary or emergency reasons and not
for investment. (Each Fund may borrow only from banks and immediately after any
such borrowings there must be an asset coverage [total assets of the Fund,
including the amount borrowed, less liabilities other than such borrowings] of
at least 300% of the amount of all borrowings. In the event that, due to market
decline or other reasons, such asset coverage should at any time fall below
300%, the Fund is required within three days, not including Sundays and
holidays, to reduce the amount of its borrowings to the extent necessary to
cause the asset coverage of such borrowings to be at least 300%. If this should
happen, the Fund may have to sell securities at a time when it would be
disadvantageous to do so.)
B-23
<PAGE>
(6) Pledge more than 25% of its total assets (taken at cost) in connection
with permissible borrowings. For the purposes of this restriction, the deposit
of underlying securities and other assets in connection with the writing of put
and call options and collateral arrangements with respect to margin for currency
futures contracts are not deemed to be a pledge of assets.
(7) Invest more than 5% of its total assets in securities of any one
issuer which, together with any predecessor, has been in continuous operation
for less than three years.
(8) Invest in securities of any company, if officers and Trustees of the
Trust and officers and directors of the Manager who beneficially own more than
0.5% of the shares or securities of that company collectively own more than 5%
of such securities.
(9) Make loans, except (a) by purchase of marketable bonds, debentures,
commercial paper or corporate notes, and similar marketable evidences of
indebtedness which are part of an issue to the public or to financial
institutions, (b) by entry into repurchase agreements, or (c) through the
lending of its portfolio securities with respect to not more than 25% of its
total assets.
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts or commodities or commodity contracts, except for transactions in
futures contracts and options thereon entered into for hedging purposes.
(11) Act as an underwriter except to the extent that, in connection with
the disposition of its portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(12) Make investments for the purpose of exercising control of a company's
management. (This is an operating policy.)
(13) Concentrate its investments in particular industries and in no event
invest more than 25% of the value of its total assets in any one industry.
(14) As a matter of operating policy, engage in puts, calls, straddles,
spreads or any combination thereof, except that, to the extent described in the
Prospectus and this Statement of Additional Information, a Fund may buy and sell
put and call options (and any combination thereof) on securities, on financial
futures contracts, on securities indices, on currency futures contracts and on
foreign currencies and may buy and sell put and call warrants, the values of
which are based upon securities indices.
B-24
<PAGE>
(15) As a matter of operating policy, purchase warrants if as a result its
warrant holdings, valued at the lower of cost or market, would exceed 5% of such
Fund's net assets, with no more than 2% of net assets in warrants not listed on
the New York or American Stock Exchanges.
(16) Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Funds, or by a person designated by the
Trustees of the Funds, to make such determinations pursuant to procedures
adopted by the Trustees to be readily marketable), and (c) repurchase agreements
maturing in more than seven days, if, as a result, more than 15% of such Fund's
net assets (taken at current value) would be invested in the aggregate in
securities described in (a), (b) and (c) above.
(17) Purchase or sell real property (including limited partnership
interests), except that the Fund may (a) purchase or sell readily marketable
interests in real estate investment trusts or readily marketable securities of
companies which invest in real estate, (b) purchase or sell securities that are
secured by interests in real estate or interests therein, or (c) acquire real
estate through exercise of its rights as a holder of obligations secured by real
estate or interests therein or sell real estate so acquired.
(18) Participate on a joint or joint and several basis in any securities
trading account. (This is an operating policy.)
(19) Purchase the securities of any other investment company except
(a) within the limits of the 1940 Act, (b) in a public offering or in the open
market or in privately negotiated transactions where, in either case, to the
best information of the Fund, no commission, profit or sales charge to a sponsor
or dealer (other than a customary broker's commission or underwriting discount)
results from such purchase, or (c) if such purchase is part of a merger,
consolidation, or acquisition of assets.
Each Fund, notwithstanding any other investment policy or limitation
(whether or not fundamental), may invest all of its assets in the securities or
beneficial interests of a single pooled investment fund having substantially the
same objective, policies and limitations as such Fund.
Some of the practices referred to above, even if approved by shareholders,
are subject to restrictions contained in the 1940 Act. In addition to the
restrictions described above, each Fund may from time to time agree to
additional investment restrictions for purposes of compliance with the
securities laws of those states and foreign jurisdictions where such Fund
intends to offer or sell its shares. Any such additional restrictions that
would
B-25
<PAGE>
have a material bearing on a Fund's operations will be reflected in the
Prospectus or a Prospectus supplement and may require shareholder approval.
PORTFOLIO TURNOVER. As stated in the Prospectus, each Fund may purchase
and sell securities without regard to the length of time the security is to be
held or has been held. The portfolio turnover rates for the Global Growth Fund
for 1995 and 1994 were 29.0% and 479.3%, respectively. The decrease in the
Global Growth Fund's portfolio turnover rate during 1995 is primarily due to a
decrease in the amount of short-term portfolio trades by the Fund.
MANAGEMENT OF THE TRUST
The Trustees of the Trust have been appointed for an indefinite term. They
are responsible for the overall management of the Trust, including general
supervision and review of the Fund's investment activities. The Trustees, in
turn, elect the officers of the Trust who are responsible for administering the
day-to-day operations of the Trust and the Fund. The current Trustees and
officers of the Trust and their principal occupations during the last five years
are the following:
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ------------------- ----------------------------
Roger Engemann* Chairman of the President of Roger Engemann
- -------------- Board, President and & Associates, Inc., an
600 North Rosemead Trustee investment management firm,
Boulevard since 1972, and the Manager
Pasadena, since 1985. President and a
California 91107 Director of Pasadena Capital
(55) Corporation.
John S. Tilson* Chief Financial Executive Vice President,
- -------------- Officer, Secretary Portfolio Manager and
600 North Rosemead and Trustee Securities Analyst with
Boulevard Roger Engemann & Associates,
Pasadena, Inc. since 1983 and the
California 91107 Manager since 1985. Officer
(52) and a Director of Pasadena
Capital Corporation.
B-26
<PAGE>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ------------------- ----------------------------
Barry E. McKinley Trustee Certified Public Accountant;
- ----------------- head of B.E. McKinley &
201 South Lake Associates since its
Avenue, Suite 400 inception in 1971.
Pasadena,
California 91101
(60)
Robert L. Peterson Trustee Private investor. From
- ------------------ 1988-1995, Regional Manager
P.O. Box 80784 for Commercial Real Estate
San Marino, Brokerage in the Pasadena
California 91118 office of Jon Douglas
(58) Company. Prior thereto he
was associated with the real
estate brokerage firm of
R.A. Rowan & Co.
Michael Stolper*+ Trustee President of Stolper and
- ----------------- Company, Inc., an investment
525 "B" Street, adviser and broker-dealer
Suite 1080 since 1975. Director of
San Diego, Pasadena Capital Corporation
California 92101 since February 1994.
(50)
Richard C. Taylor Trustee President of Richard Taylor
- ----------------- Company, Inc., a food
2485 Huntington ingredients broker, since
Drive, #2 1987.
San Marino,
California 91108
(49)
Angela Wong Trustee Since 1986, Ms. Wong has
- ----------- been of counsel to the law
11355 West Olympic firm of Manatt, Phelps,
Boulevard Phillips & Kantor,
Los Angeles, specializing in employee
California 90064 benefits.
(44)
B-27
<PAGE>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- ------------------------ ------------------- -----------------------------
Richard A. Watson Controller - Fund Vice President and
- ----------------- Accounting and Controller - Fund Accounting
600 North Rosemead Assistant Secretary of Roger Engemann Management
Boulevard Co., Inc. From September
Pasadena, 1988 to June 1993, Mutual
California 91107 Fund Operations Manager of
(42) The Pasadena Group of Mutual
Funds and Chief Financial
Officer of Roger Engemann
Management Co., Inc. A
Director of Pasadena Capital
Corporation. Prior thereto,
Mr. Watson was an Audit
Manager with Coopers &
Lybrand.
* TRUSTEE WHO IS AN "INTERESTED PERSON," AS DEFINED IN THE 1940 ACT.
+ MR. STOLPER IS ALSO A DIRECTOR OF BDI INVESTMENT COMPANY, A REGISTERED
INVESTMENT COMPANY THAT INVESTS PRIMARILY IN TAX-EXEMPT SECURITIES; OF
MERIDIAN FUND, INC., A REGISTERED INVESTMENT COMPANY THAT NORMALLY INVESTS
PRIMARILY IN EQUITY SECURITIES; AND OF JANUS CAPITAL CORPORATION SINCE
1984, WHICH MANAGES THE JANUS GROUP OF MUTUAL FUNDS.
As shown in the following table, the Manager pays the fees of the Trustees
who are not affiliated with the Manager, which currently are $1,250 per quarter
plus $1,250 for each meeting attended. The officers of the Trust and the
Trustees affiliated with the Manager receive no direct compensation for
performing the duties of such offices, except that Mr. Stolper receives fees
from the Manager at the same rates as the disinterested Trustees. However,
those officers and Trustees who are affiliated with the Manager may receive
remuneration indirectly because the Manager receives management fees from the
Fund. The table provides information regarding all Funds in The Pasadena Group
of Mutual Funds for the fiscal year ended December 31, 1995.
B-28
<PAGE>
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement Respecting
Benefits Estimated Registrant
Accrued As Annual And
Name of Part of Benefits Fund Complex
Person, Aggregate Fund Upon Paid to
Position Compensation Expenses Retirement Trustees
-------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Roger Engemann None None None None
Chairman of the Board,
President and Trustee
John S. Tilson None None None None
Chief Financial Officer,
Secretary and Trustee
Barry E. McKinley $10,000 None None $10,000
Trustee
Robert L. Peterson $10,000 None None $10,000
Trustee
Michael Stolper $10,000 None None $10,000
Trustee
Richard C. Taylor $10,000 None None $10,000
Trustee
Angela Wong $10,000 None None $10,000
Trustee
Richard A. Watson None None None None
Controller - Fund
Accounting and Assistant
Secretary
</TABLE>
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The following information concerning the investment management and
administrative services provided to the Funds supplements the information
contained in the section in the Prospectus entitled "Management."
INVESTMENT MANAGEMENT AGREEMENT
The Manager, Roger Engemann Management Co., Inc., has entered into an
Investment Management Agreement (the "Management Agreement") with the Trust, on
behalf of each series of the Trust including the Funds, to provide
investment advice and investment management services with respect to the assets
of each Fund, provide personnel, office space, facilities and equipment as may
be needed by the Funds in their day-to-day operations, provide the officers of
the Trust, and provide the Funds with fund accounting, including assistance and
personnel necessary to price the portfolio securities of each Fund, calculate
each Fund's net asset value, and maintain the
B-29
<PAGE>
books and records of each Fund's investment portfolio as required by applicable
law. The Management Agreement has been approved by the Board of Trustees of the
Trust with respect to each Fund, including a majority of the Trustees who are
not a party to the Management Agreement or interested persons of a party to the
Management Agreement, and by a majority of the outstanding voting shares of each
Fund.
The Management Agreement dated March 1, 1993, currently is in effect
through February 28, 1997. The Management Agreement may be continued thereafter
for successive periods not to exceed one year, provided that such continuance is
specifically approved annually by a vote of a majority of each Fund's
outstanding voting securities or by the Board of Trustees, and by the vote of a
majority of the Trustees who are not parties to the Management Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
EXPENSES
Except as set forth in the separate Administration Agreement discussed
below, the Manager is not responsible under the Management Agreement for any
expenses related to the operation of the Funds.
Under the Management Agreement, each Fund is responsible and has assumed
the obligation for paying all of its expenses, including but not limited to:
(i) brokerage and commission expenses, (ii) federal, state, or local taxes,
including issue and transfer taxes, incurred by or levied on the Fund,
(iii) interest charges on borrowings, (iv) charges and expenses of the Fund's
custodian and transfer agent, (v) payment of all investment advisory and
management fees, (vi) insurance premiums on the Fund's property and personnel,
including the fidelity bond and liability insurance for officers and Trustees,
(vii) printing and mailing of all reports, including semi-annual and annual
reports, prospectuses, and statements of additional information to existing
shareholders, (viii) fees and expenses of registering the Fund's shares under
the federal securities laws and of qualifying its shares under applicable state
securities (Blue Sky) laws subsequent to the Fund's initial fiscal period,
including expenses attendant upon renewing and increasing such registrations and
qualifications, (ix) legal fees and expenses, (x) auditing expenses, including
auditing fees of independent public accountants, (xi) all costs associated with
shareholders meetings and the preparation and dissemination of proxy
solicitation materials, except for meetings called solely for the Manager's
benefit, (xii) payments due under the Administration Agreement between the Trust
and the Manager, (xiii) dues and other costs of membership in industry
associations, subject to the approval of any such membership by the Board of
Trustees, (xiv) service fees paid to dealers and other shareholder service
providers pursuant to Services Agreements between the Trust and
B-30
<PAGE>
such service providers, and (xv) any extraordinary and non-recurring expenses,
except as otherwise prescribed therein.
As compensation for its services under the Management Agreement, the
Manager is paid a monthly fee at an annual rate equal to 1.10% of the Global
Growth Fund's and 1.00% of the Small & Mid-Cap Growth Fund's average daily
net assets up to $50 million, which rates are reduced at higher levels of net
assets as set forth in the Prospectus. For the Global Growth Fund for the
periods ended December 31, 1993, 1994 and 1995, the Manager was entitled to
receive fees under the Management Agreement in the amounts of $178, $1,210
and $18,498, respectively. For the Small & Mid-Cap Growth Fund for the
periods ended December 31, 1994 and 1995, the Manager was entitled to receive
fees under the Management Agreement in the amounts of $254 and $5,845,
respectively. The Manager has waived receipt of all such fees.
The Management Agreement is terminable with respect to a Fund on
60-days' written notice by vote of a majority of the Fund's outstanding
shares, by vote of a majority of the Board of Trustees, or by the Manager on
60-days' written notice. The Management Agreement automatically terminates
in the event of its assignment under the 1940 Act. The Management Agreement
provides that in the absence of willful misfeasance, bad faith, or gross
negligence on the part of the Manager, or of reckless disregard of its
obligations thereunder, the Manager is not liable for any action or failure
to act in accordance with its duties.
ADMINISTRATION AGREEMENT
The Manager also has entered into an Administration Agreement with the
Trust on behalf of each series of the Trust including the Funds. Under the
Administration Agreement, the Manager, in its capacity as Administrator (a)
furnishes each Fund with various administrative and shareholder services
including, but not limited to, (i) preparing and distributing all shareholder
reports, (ii) preparing all tax returns and other regulatory filings, and
(iii) Blue Sky compliance services, and (b) pays for all of the normal
operating fees and expenses of each Fund, except for the fees and expenses
related to the services to be provided by the Manager under the Investment
Management Agreement, the fees under the Administration Agreement, the
services fees paid under the Services Agreements, the distribution fees paid
under the Class B and Class C Rule 12b-1 distribution plans, and brokerage
and commission expenses. See "Class B and Class C Distribution Plans." As
compensation for its services and obligations under the Administration
Agreement, the Administrator is paid a monthly fee at an annual rate equal to
0.60% of each Fund's average daily net assets up to $50 million, which rate
is reduced at higher levels of net assets. The Administration Agreement
dated March 1, 1993, was approved, with respect to each Fund, by the Board of
Trustees of the Trust, including a majority of the Trustees who are not
parties to the Administration Agreement, and
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continues in effect until terminated on behalf of the Fund by either party on
60-days' written notice. For the Global Growth Fund, for the periods ended
December 31, 1993, 1994 and 1995, the Manager was entitled to receive fees
pursuant to the Administration Agreement in the amounts of $187, $1,271 and
$19,423, respectively. For the Small & Mid-Cap Growth Fund, for the periods
ended December 31, 1994 and 1995, the Manager was entitled to receive fees
pursuant to the Administration Agreement in the amounts of $267 and $6,137,
respectively. The Manager has waived receipt of all such fees.
SERVICES AGREEMENTS
Under the Services Agreements, each Fund will pay a continuing service fee
to service providers, in an amount, computed and prorated on a daily basis,
equal to 0.25% per annum of each Fund's average daily net assets, which will
include the Manager or Pasadena Fund Services, Inc. (the "Distributor") for
shareholder accounts not serviced by other service providers. Such amounts are
compensation for providing certain services to clients owning shares of the
Funds, including personal services such as processing purchase and redemption
transactions, assisting in change of address requests and similar administrative
details, and providing other information and assistance with respect to a Fund,
including responding to shareholder inquiries. During 1993, 1994 and 1995,
service fees in the amounts of $45, $303 and $4,624, respectively, were payable
by the Global Growth Fund to the Manager. During 1994 and 1995, service fees in
the amounts of $64 and $1,461 were payable by the Small & Mid-Cap Growth Fund to
the Manager. The Manager has waived receipt of all such fees.
Notwithstanding the above-described division of expenses, the Manager will
reduce its fees to each Fund under the Management Agreement for the amount, if
any, by which the Fund's annual operating expenses, expressed as a percentage
of average daily net assets, exceeds the most restrictive limitation imposed by
any state in which such Fund's shares are then qualified for sale. Currently
the most restrictive such limitation is 2-1/2% of the first $30 million of
average daily net assets of the Fund, plus 2% of the next $70 million, plus 1-
1/2% of the average daily net assets in excess of $100 million. Operating
expenses for these purposes include the Manager's management and administration
fee but do not include any taxes, interest, brokerage commissions, expenses
incurred in connection with any merger or reorganization, the distribution fees
paid under the Class B and Class C Rule 12b-1 distribution plans, and, with the
prior written approval of any state securities commission requiring the same,
any extraordinary expenses, such as litigation. The Manager also may choose, in
its discretion, to reimburse or waive expenses specific to one or more Classes
on a temporary basis. The amount of any such expenses waived or reimbursed by
the Manager may vary from Class to Class. In
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addition, the Manager in its discretion may waive or reimburse Trust expenses
and/or Fund expenses (with or without a waiver or reimbursement of Class-
specific expenses) on a temporary basis, but only if the same proportionate
amount of Trust expenses and/or Fund expenses are waived or reimbursed for each
Class.
The Manager also may act as an investment adviser to other persons,
entities, and corporations, including other investment companies and the Trust's
other series. Personnel of the Manager are affiliated with another investment
adviser that has numerous advisory clients and will devote portions of their
time to such clients.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager, in connection with advising each Fund on its portfolio
decisions and subject to instructions of the Board of Trustees, will select the
broker or dealer for each Fund's portfolio transactions. In executing each
Fund's portfolio transactions, the Manager seeks to obtain the total costs or
proceeds in each transaction which are most favorable under all the
circumstances, taking into account such factors as the net economic result to
the Fund (involving both price paid or received and any commission or spread and
other costs paid), the efficiency of the transaction execution, the ability to
effect the transaction when a large block of securities is involved, the known
practices of brokers and their availability to execute possibly difficult
transactions in the future, and the financial strength and stability of the
broker or dealer. While the Manager generally seeks reasonably competitive
commission rates or spreads as part of this policy, a Fund may not necessarily
pay the lowest commission or spread available for a particular transaction.
Each Fund and the Manager may direct portfolio transactions to persons or
firms because of research and investment services provided by such persons or
firms if the commissions or spreads on the transactions are reasonable in
relation to the value of the investment information provided. Among such
research and investment services are those that brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on companies and industries. Such research provides lawful and
appropriate assistance to the Manager in the performance of its investment
decision-making responsibilities. The Manager may use these services in
connection with all of its investment activities, and some services obtained in
connection with a Fund's transactions may be used in connection with other
investment advisory clients of the Manager, including other mutual funds, other
series of the Trust, or the Manager's affiliates.
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Each Fund may invest in securities that are traded exclusively in the over-
the-counter market. The Funds may also purchase securities listed on a national
securities exchange through the "third market" (I.E., through markets other than
the exchanges on which the securities are listed). When executing transactions
in the over-the-counter market or the third market, the Manager will seek to
execute transactions through brokers or dealers that, in the Manager's opinion,
will provide the best overall price and execution so that the resultant price to
the Fund is as favorable as possible under prevailing market conditions.
None of the Funds allocates brokerage business in return for sales of a
Fund's shares, although such sales may be a factor in selecting broker-dealers
for portfolio transactions, provided the Fund is receiving best execution.
Neither the Manager, the Distributor nor any affiliated person thereof will
participate in commissions or spreads paid by a Fund to brokers or dealers nor
will they receive any reciprocal business, directly or indirectly, as a result
of such commissions or spreads.
Stolper & Company, Inc., of which Michael Stolper, a Trustee of the Trust
and a Director of Pasadena Capital Corporation, is the sole shareholder, has in
the past received brokerage business from Roger Engemann & Associates, Inc.
Mr. Stolper owns 6.5% of the Manager. Stolper & Company, Inc. assists its
clients in selecting an investment adviser and offers a service measuring the
performance of investment advisers, in return for which the client pays cash or
directs the investment adviser to execute a portion of the brokerage business
through Bear, Stearns & Company for the credit of Stolper & Company, Inc.
Stolper & Company, Inc. and Roger Engemann & Associates, Inc. anticipate that
such brokerage allocation from Roger Engemann & Associates, Inc. will continue.
However, neither Michael Stolper nor Stolper & Company, Inc. will receive or
participate in commissions paid by the Funds nor receive any reciprocal business
as a result of commissions paid by the Funds, although a Fund may pay usual
and customary brokerage commissions to Bear, Stearns & Company for brokerage
business by such Funds.
It is possible that purchases or sales of securities for each Fund also may
be considered for other clients of the Manager or its affiliates, including the
other series of the Trust. Any transactions in such securities at or about the
same time will be allocated among the participating Funds and such other clients
in a manner deemed equitable to all by the Manager, taking into account the
respective sizes of the Fund or Funds and the other clients' accounts, and the
amount of securities to be purchased or sold. It is recognized that it is
possible that in some cases this procedure could have a detrimental effect on
the price or volume of the security so far as the participating Fund is
concerned. However, in other cases, it is possible that the
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ability to participate in volume transactions and to negotiate lower commissions
will be beneficial to the Fund.
The Board of Trustees of the Trust periodically monitors the operation of
these brokerage policies by reviewing the allocation of brokerage orders. The
total brokerage commissions paid by the Global Growth Fund during 1993, 1994 and
1995 were $3,218, $10,627 and $4,931, respectively. The total brokerage
commissions paid by the Small & Mid-Cap Growth Fund during 1994 and 1995 were
$2,400 and $2,523, respectively. The amount shown for 1993 and 1994 includes
mark-ups paid by each Fund on principal trades.
PRINCIPAL UNDERWRITER
Pasadena Fund Services, Inc. (the "Distributor") acts as the principal
underwriter for the Fund in a continuous offering of each Fund's shares. The
Distributor uses its best efforts to distribute the Funds' shares, primarily
through investment dealers, and is not obligated to purchase or distribute any
specified number of shares.
An underwriting agreement (the "Underwriting Agreement") dated August 12,
1994, as amended, between the Trust, on behalf of each of the Funds, and the
Distributor is currently in effect through February 28, 1997. The Underwriting
Agreement shall continue in effect thereafter for periods not exceeding one year
if approved at least annually by (i) the Board of Trustees or a vote of a
majority of the outstanding shares of the Trust (as defined in the 1940 Act) and
(ii) a majority of the Trustees who are not interested persons of any such
party, in each case cast in person at a meeting called for the purpose of voting
on such approval. The Underwriting Agreement may be terminated without penalty
by the parties thereto upon 60-days' written notice, and is automatically
terminated in the event of its assignment as defined in the 1940 Act.
Pursuant to the Underwriting Agreement, the Distributor is entitled to
receive a front-end sales charge in connection with certain sales of Class A
shares, and a contingent deferred sales charge (a "CDSC") in connection with
certain redemptions of Class B shares. The Distributor reallows all or a
portion of the sales charges to selected dealers and agents for selling Class
A shares. All sales of each Fund's shares prior to the date of this
Statement of Additional Information were privately placed at net asset value,
and therefore the Distributor did not receive any front-end sales charges in
connection with such sales.
The Distributor is responsible for certain expenses of distribution of the
shares of the Fund, including advertising expenses, costs of printing sales
material and prospectuses used to offer such shares to the public and expenses
of preparing and
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printing amendments to the Trust's registration statement if the amendment is
necessitated by the actions of the Distributor. In some instances dealers may
receive 100% of the sales charge for sales of shares of the Fund and may,
therefore, be deemed "underwriters" under the Securities Act of 1933, as
amended.
The Distributor is a wholly-owned subsidiary of Pasadena Capital
Corporation.
CLASS B AND CLASS C DISTRIBUTION PLANS
Pursuant to separate Distribution Plans (each a "Plan" and collectively the
"Plans") adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act, the
Distributor incurs the expenses of distributing each Fund's Class B and Class C
shares. See "Principal Underwriter."
On July 13, 1993, the Board of Trustees of the Trust, including a majority
of the Trustees who are not interested persons of the Trust and who have no
direct or indirect financial interest in the operation of the Plans or in any
agreement related to any Plan (the "Rule 12b-1 Trustees"), at a meeting called
for the purpose of voting on each Plan, adopted a Plan of distribution for the
Class B and Class C shares of each series of the Trust.
Under the Plans, each Fund pays distribution fees to the Distributor at an
annual rate of 0.75% of the Fund's aggregate average daily net assets
attributable to its Class B shares and Class C shares, respectively, to
reimburse the Distributor for its expenses in connection with the promotion and
distribution of those Classes.
Each Plan provides that the Distributor may use the distribution fees
received from the Class of the Fund covered by that Plan only to pay for the
distribution expenses of that Class. Distribution fees are accrued daily and
paid monthly, and are charged as expenses of the Class B and Class C shares as
accrued.
Class B and Class C shares are not obligated under the Plans to pay any
distribution expense in excess of the distribution fee. Thus, if a Plan were
terminated or otherwise not continued, no amounts (other than current amounts
accrued but not yet paid) would be owed by the Class to the Distributor.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of the Trust, including a
majority of the Rule 12b-1 Trustees, vote annually to continue the Plan. Each
Plan (and any distribution agreement between the Distributor and a selling agent
with respect to the Class C shares) may be terminated without penalty
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upon at least 60-days' notice by the Distributor, or by the Fund by vote of a
majority of the Rule 12b-1 Trustees, or by vote of a majority of the outstanding
shares (as defined in the 1940 Act) of the Class to which the Plan applies.
All distribution fees paid by the Funds under the Plans will be paid in
accordance with Article III, Section 26 of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as such Section may change
from time to time. Pursuant to each Plan, the Board of Trustees will review at
least quarterly a written report of the distribution expenses incurred by the
Distributor on behalf of the Class B and Class C shares of each Fund. In
addition, as long as the Plans remain in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust shall be made by the Trustees then in office who are not interested
persons of the Trust.
PURCHASE, REDEMPTION, AND PRICING OF FUND SHARES
Reference is made to the information under the captions, "Purchase of
Shares," "Redemption of Shares," "Determination of Net Asset Value," and
"Dividends, Distributions, and Taxes" in the Prospectus. The Prospectus sets
forth certain minimum investment and other requirements. From time to time, the
Fund's management in its discretion may elect to waive such requirements in
connection with individual purchases and sales. The following is additional
information regarding purchase, redemption, and pricing of Fund shares:
ALTERNATIVE PURCHASE ARRANGEMENTS. Each Fund offers investors three
Classes of shares which bear sales and distribution charges in different forms
and amounts. Class A shares are subject to a maximum front-end sales charge at
time of purchase of 5.50% of the public offering price per share. Certain
purchases of Class A shares may qualify for reduced sales charges. Class A
shares do not pay a 12b-1 distribution fee, and redemptions of Class A shares
are not subject to a CDSC. Class B shares are sold without an initial sales
charge, but are subject to a CDSC of up to 5.00% if redeemed within four
years of purchase. Class B shares are subject to a 12b-1 distribution fee at
the annual rate of 0.75% of the average net assets attributable to the Class
B shares. Class B shares will automatically convert into Class A shares,
based on relative net asset values, at the beginning of the seventh year
after purchase. Class C shares are not subject to a front-end sales charge
or to a CDSC, but are subject to an ongoing 12b-1 distribution fee at the
annual rate of 0.75% of the average net assets attributable to the Class C
shares. Class C shares have no conversion feature, and therefore
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purchasers of Class C shares should expect to pay the 12b-1 distribution fee for
as long as the shares are owned.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is determined once daily as of 4:15 p.m.
New York City Time on each day the New York Stock Exchange (the "Exchange") is
open for trading (or such earlier time if the Exchange closes early for any
reason). Portfolio securities will be priced at 4:00 p.m., at the close of
trading on the Exchange, and any equity options or futures contracts and index
options will be priced as of their close of trading on the same days at 4:10
p.m. and 4:15 p.m., respectively. It is expected that during 1996 the Exchange
will be closed on Saturdays and Sundays and for Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and
New Year's Day. The Funds do not expect to determine the net asset value of its
shares on any day when the Exchange is not open for trading even if there is
sufficient market movement with respect to its portfolio securities in other
markets on such days to materially affect the net asset value per share.
In valuing each Fund's assets for the purpose of calculating net asset
value, portfolio securities listed on a national securities exchange or on
Nasdaq for which market quotations are readily available are valued at the last
sale price on the exchange or Nasdaq on the day as of which such value is being
determined. If there has been no sale on such exchange or on Nasdaq on such
day, the security is valued at the last sale price on the business day the
security was last traded. Trading in certain securities (such as foreign
securities) may be substantially completed each day at various times prior to
the close of the Exchange. The values of these securities used in determining
the net asset value of each Fund's shares are computed as of such times and
included in the pricing at 4:00 p.m. Securities traded only in the over-the-
counter market, and not on Nasdaq, for which market quotations are readily
available are valued at the current or last bid price. If no bid price is
quoted on such day, the security is valued by such method as the Board of
Trustees shall determine in good faith to reflect the security's fair value.
All other assets of each Fund are valued in such manner as the Board of Trustees
in good faith deems appropriate to reflect their fair value.
U.S. Government securities are traded in the over-the-counter market and
will be valued as follows: securities having a maturity of 60 days or less will
be valued at cost with interest accrued or discount amortized to date of
valuation included in the interest receivable; securities having a maturity of
more than 60 days and for which market quotations are readily available will be
valued at the last reported bid price; securities having a maturity of over 60
days and for which market
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quotations are not readily available will be valued on the basis of market
quotations for securities of comparable maturity, quality and type. Securities
for which reliable quotations are not readily available and all other assets
will be valued at their respective fair value as determined in good faith by, or
under procedures established by, the Board of Trustees. Each Fund may utilize a
pricing service, bank, or broker/dealer experienced in such matters to perform
any of the pricing functions under procedures approved by the Board of Trustees.
Reliable market quotations may not be considered to be readily available
for certain U.S. and foreign securities. These investments are stated at fair
value in accordance with procedures approved by the Trustees.
If any securities held by a Fund are restricted as to resale, the Fund's
Manager will determine their fair value following procedures approved by the
Board of Trustees. The Trustees periodically review such valuations and
procedures. The fair value of such securities is generally determined as the
amount which a Fund could reasonably expect to realize from an orderly
disposition of such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary from case to
case. However, consideration is generally given to analytical data relating to
the investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by a Fund in
connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities, and any available
analysts' reports regarding the issuer.
Occasionally, events affecting the values of a Fund's securities may occur
between the times at which the values are determined and the close of trading on
the Exchange, and the effect of these events will not be reflected in the
computation of such Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then their valuation may be
adjusted to reflect their fair value as of the close of trading on the Exchange
as determined in good faith by, or under procedures established by, the Board of
Trustees.
PURCHASE OF SHARES
If an order for the purchase of a Fund's shares, together with payment in
proper form, is received by the Fund, the Distributor, or another authorized
agent or subagent of the Fund, before 4:15 p.m., New York City time, Fund shares
will be purchased at the public offering price (I.E., net asset value,
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plus the applicable sales charge set forth in the Prospectus for the
Class A shares only) determined on that day. Otherwise, Fund shares will be
purchased at the offering price determined as of the close of trading on the
next business day. It is the responsibility of any securities firm to transmit
orders placed through it so that they will be received by the Distributor on a
timely basis as described in the Prospectus. If an application for the purchase
of shares of a Fund is received by the Fund, the Distributor, or another
authorized agent or subagent of the Fund, without the appointment of an
investment dealer, the Distributor intends to assign the account to an
investment dealer, which may include the Distributor, for servicing and pay the
applicable dealer concession to such firm. The appointment of a dealer of
record does not change or affect in any way the price at which shares of the
Fund are purchased or the rights of the shareholder, and the shareholder may
change at any time the designation of the dealer of record to any other dealer
by written notice to the Fund.
When purchasing shares of a Fund, an investor must specify whether he
wishes to purchase Class A, Class B or Class C shares. An unspecified
purchase order will be considered an order for Class A shares. Orders for
Class B or Class C shares in the aggregate for more than $100,000 per Fund
will not be accepted.
PURCHASE OF CLASS A SHARES AT NET ASSET VALUE.
Certain family members of officers, trustees, directors and full-time
employees of the Trust, the Manager, the Distributor and their affiliates and
such other persons who are determined by the Board of Trustees under
circumstances not involving any sales expense to the Funds or the Distributor
may purchase Class A shares of the Funds at net asset value. Family members are
defined as current spouse, children, parents, grandchildren, grandparents,
uncles, aunts, siblings, nephews, nieces, step relatives, relations at law and
cousins.
LETTER OF INTENT -- CLASS A SHARES ONLY.
An investor may qualify for an immediate reduced front-end sales charge
on the purchase of Class A shares of any of the funds in The Pasadena Group
of Mutual Funds by completing the Letter of Intent section of the application
for investment (the "Letter of Intent" or "Letter"), in which the investor
states its intention to purchase during the following 13 months a specified
amount of Class A shares which, if made at one time, would qualify for a
reduced sales charge. A minimum initial investment equal to 5% of such
specified amount is required in one of the funds in The Pasadena Group of
Mutual Funds. After the investor files the Letter of Intent, each additional
investment made in Class A shares of any of the funds in The Pasadena Group
of Mutual Funds will be entitled to the sales charge applicable to the level
of investment indicated in the Letter of Intent as described above. Sales
charge reductions based upon purchases of Class A shares in more than one
fund in The Pasadena Group of Mutual Funds will be
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included in the Letter of Intent only if notification is given to the
Distributor that the investment qualifies for a discount. Investments in Class
A shares of the Funds within 90 days before the Letter of Intent is filed will
be counted towards completion of the Letter of Intent but will not be entitled
to a retroactive downward adjustment of the sales charge. If the Letter of
Intent is not completed within the 13-month period, there will be an upward
adjustment of the sales charge as specified below, depending upon the amount
actually purchased during the period.
The Letter of Intent requires that five percent (5%) of the amount of the
total intended purchase will be reserved in Class A shares of the applicable
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the investor does not complete the intended
purchase. However, the reserved shares will be included in the total Class A
shares owned as reflected on the quarterly statement, and any income and capital
gain distributions on the reserved shares will be paid as directed. The
reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed, or the higher sales charge paid. If the
total purchases equal or exceed the amount specified under the Letter, the
reserved Class A shares will be deposited to the investor's Open Account. If
the total amount of purchases exceeds the amount specified under the Letter and
is an amount which would qualify for a further quantity discount, a retroactive
price adjustment will be made by the Distributor and the dealer through whom
purchases were made pursuant to the Letter of Intent (to reflect such further
quantity discount) on purchases of Class A shares made after filing the Letter.
The resulting difference in offering price will be applied to the purchase of
additional Class A shares at the offering price applicable to a single purchase
or the dollar amount of the total purchases. If the total purchases are less
than the amount specified under the Letter, the investor will remit to the
Distributor an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge which would have applied to
the aggregate purchases of Class A shares if the total of such purchases had
been made at a single time. Upon such remittance, the reserved Class A shares
held for the investor's account will be deposited to its Open Account. If
within 20 days after written request such difference in sales charge is not
paid, the redemption of an appropriate number of reserved Class A shares to
realize such difference will be made. In the event of a total redemption of the
Class A shares in the account prior to fulfillment of the Letter of Intent, the
additional sales charge due will be deducted from the proceeds of the redemption
and the balance will be forwarded to the investor.
By completing the Letter of Intent section of the application, the investor
grants to the Distributor a security interest in the reserved Class A shares and
agrees to irrevocably appoint the Distributor as its attorney-in-fact to
surrender for
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redemption any or all such shares with full power of substitution. This power
of attorney is coupled with an interest. The investor or its dealer must inform
the Distributor that this Letter of Intent is in effect each time a purchase is
made.
REDEMPTION OF SHARES.
The right of redemption may not be suspended and the date of payment upon
redemption postponed for more than seven days (or such shorter period as may be
required by applicable law or regulation) after a shareholder's redemption
request made in accordance with the procedures set forth above, except for any
period during which the Exchange is closed (other than customary weekend and
holiday closings) or during which the SEC determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
SEC) exists as a result of which disposal by a Fund of securities owned by it is
not reasonably practicable or as a result of which it is not reasonably
practicable for such Fund fairly to determine the value of its net assets, or
for such other period as the SEC may by order permit for the protection of
security holders of the Fund.
Each Fund may pay the redemption price (net of any CDSC imposed on Class B
shares) either in cash or in portfolio securities of the Fund (selected in the
discretion of the Board of Trustees and taken at their value used in determining
net asset value), or partly in cash and partly in portfolio securities. As a
practice, each Fund will redeem shares wholly in cash unless the Board of
Trustees believes that economic conditions make cash redemption detrimental to
that Fund's interests. If payment for redeemed shares is made wholly or partly
in portfolio securities, the shareholder will ordinarily incur brokerage costs
in converting the securities to cash. The Trust has filed a formal election
with the SEC stating that each Fund may effect a redemption in portfolio
securities provided it pays redemptions in cash during any 90-day period for any
shareholder equal to the lesser of $250,000 or 1% of that Fund's total net
assets at the beginning of such period. Each Fund currently expects, however,
that the amount of a redemption request would have to be significantly greater
than $250,000 or 1% of total net assets before the Fund would make a redemption
in portfolio securities. Any such redemptions will be subject to receipt by the
Fund of any necessary regulatory approvals.
Class B shares are subject to payment of a CDSC of up to 5.00% if
redeemed within four years of purchase. See "Alternative Purchase
Arrangements."
If an investor owns more than one class of shares in a Fund, the redemption
request must specify which class is being redeemed. Absent such specification,
the investor's shares will
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be redeemed in the following order: First, Class C shares; second, Class A
shares; third, Class B shares.
DISTRIBUTIONS AND TAX STATUS
Reference is made to the information contained under the caption
"Dividends, Distributions, and Taxes" in the Prospectus, which is incorporated
herein by reference. The following is additional information with reference to
each Fund's distributions and tax status:
DIVIDENDS AND DISTRIBUTIONS
The Funds declare and pay income dividends and any capital gain
distributions at least once a year as stated in the Prospectus.
Each shareholder may elect either to receive dividends and distributions in
cash or to have them reinvested in additional whole or fractional shares of the
Fund which was the source of the dividend or distribution. The election to
receive dividends and distributions in cash or shares is made at the time of the
subscription order. A shareholder may change such election at any time prior to
the record date for a particular dividend or distribution by written request to
the applicable Fund. The value of whole and fractional shares shall be computed
in accordance with the provisions of "Determination of Net Asset Value." No
sales or other types of charge will be assessed in connection with the
reinvestment of dividends and capital gain distributions.
TAXES
Each of these Funds is treated as a separate entity for federal income
tax purposes. Each Fund has elected and intends to qualify to be taxed as a
"regulated investment company" under Subchapter M of the Code, and intends to
so qualify. The Funds did so qualify during 1995. See "Dividends,
Distributions and Taxes" in the Prospectus. Qualification as a "regulated
investment company" does not involve supervision of the Funds' management or
investment practices or policies by any governmental agency. By distributing
substantially all of its net investment income and realized net capital gains
for any fiscal year and by satisfying certain other requirements relating to
the sources of its income and diversification of its assets, each Fund will
not be liable for federal income taxes, to the extent its earnings are
distributed, or excise taxes based on net income with respect to such year.
The Manager has paid all applicable taxes to which each Fund was subject due
to its failure to qualify as a regulated investment company during 1993 and
1994 (for the Global Growth Fund) and 1994 (for the Small & Mid-Cap Growth
Fund) (including all taxes related to the applicable Fund's "built-in" gains
in its assets held on January 1, 1995).
Dividends of net investment income (including any net realized short-term
capital gains) paid by each Fund are taxable to the recipient shareholders as
ordinary income. In the case of
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corporate shareholders, such distributions may qualify for the corporate
dividends-received deduction to the extent each Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated
cannot, however, exceed the aggregate amount of qualifying dividends received by
the Fund for its taxable year. In view of each Fund's investment policies, it
is expected that dividends from domestic corporations will be part of each
Fund's gross income and that, accordingly, part of such distributions by the
Funds may be eligible for the dividends-received deduction for corporate
shareholders; however, the portion of each Fund's gross income attributable to
qualifying dividends is largely dependent on that Fund's investment activities
for a particular year and therefore cannot be predicted with any certainty.
Availability of the dividends-received deduction is subject to certain holding
period and debt-financing limitations. Also, to the extent that the Fund's
assets are invested in foreign securities, such dividends-received deduction
would not be applicable.
Distributions of net capital gains (I.E., the excess of net long-term
capital gains over net short-term capital losses) by each Fund are taxable to
the recipient shareholders as a long-term capital gain, without regard to the
length of time a shareholder has held Fund shares. Capital gain distributions
are not eligible for the dividends-received deduction referred to in the
preceding paragraph. Any loss on a sale or exchange of shares held for six
months or less will be treated as long-term capital loss to the extent of such
long-term capital gain distributions with respect to those shares.
Exchanges and redemptions of shares of a Fund may result in gains or losses
for tax purposes to the extent of the difference between the proceeds from the
shares disposed of and the shareholder's adjusted tax basis for such shares. If
a shareholder of a Fund exercises the exchange privilege within 90 days of
acquiring shares in such Fund, any loss that would otherwise be recognized on
the exchange will be reduced (or any gain increased) to the extent the sales
charge paid on the purchase of the shares surrendered reduces any sales charge
that would be payable on the purchase of the new shares in the absence of the
exchange privilege. Instead, the amount of the reduction in loss (or increase
in gain) will be treated as an amount paid for the new shares. Pursuant to
rulings issued by the IRS to the Funds, the conversion of Class B shares of a
Fund into Class A shares of such Fund will not result in gain or loss for
federal income tax purposes.
CERTAIN FOREIGN CURRENCY-RELATED TRANSACTIONS
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated securities are
subject to Section 988 of the Code, which will generally cause such gains and
losses to be treated as ordinary income and losses rather than capital gains and
losses, and may affect the amount, timing and character of distributions to
shareholders.
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<PAGE>
HEDGING TRANSACTIONS
If a Fund engages in hedging transactions, including hedging transactions
in options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate income to
the Fund, defer losses to the Fund, cause adjustments in the holding periods of
the Fund's securities, or convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount, timing, and
character of distributions to Fund shareholders. Each Fund will endeavor to
make any available elections pertaining to such transactions in a manner
believed to be in the best interests of the Fund's shareholders.
Certain of a Fund's hedging activities (including its transactions, if any,
in foreign currencies or foreign currency-denominated instruments) are likely to
produce a difference between its book income and its taxable income. If the
Fund's book income exceeds its taxable income, the distribution (if any) of such
excess will be treated as a dividend to the extent of the Fund's remaining
earnings and profits, and thereafter as a return of capital or as gain from the
sale or exchange of a capital asset, as the case may be. If the Fund's book
income is less than its taxable income, the Fund could be required to make
distributions exceeding book income to qualify as a regulated investment company
that is accorded special tax treatment under Subchapter M of the Code.
Under one of the requirements for qualification as a "regulated investment
company" under the Code, each Fund will be limited in selling assets held or
considered under Code rules to have been held for less than three months, and in
engaging in certain hedging transactions (including hedging transactions in
options and futures) that in some circumstances could cause certain Fund assets
to be treated as held for less than three months.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT
Any investment by a Fund in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In
order to generate sufficient cash to make the requisite distributions, the Fund
may be required to sell securities in its portfolio that it otherwise would
have continued to hold.
CERTAIN FOREIGN ISSUES
If more than 50% of a Fund's assets at year-end consist of securities of
foreign corporations, the Fund may qualify for and
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<PAGE>
make the election permitted under Section 853 of the Code so that
shareholders will be able to claim a credit or deduction on their income tax
returns for, and will be required to treat as part of the amount distributed
to them, their pro rata portion of qualified taxes paid by the Fund to
foreign countries (which taxes relate primarily to investment income). A
shareholder's ability to claim such a foreign tax credit will be subject to
certain limitations imposed by the Code, as a result of which a shareholder
may not be able to use currently a credit for the full amount of foreign tax
so paid by the Fund. Shareholders who do not itemize deductions on their
federal income tax returns may claim a credit (but no deduction) for such
foreign taxes.
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to additional U.S. federal income tax or other charge on
the proceeds from the disposition of its investment in such a company; however,
this tax can be avoided by making an election to mark such investments to market
annually or to treat the passive foreign investment company as a "qualified
electing fund" which passes its annual income through to the Fund regardless of
whether the company makes distributions.
GENERAL
A shareholder of a Fund who does not fall within one of certain exempt
categories may be subject to backup withholding at the rate of 31% with respect
to dividends and capital gain distributions paid to shareholders or reinvested
by the Fund and other amounts distributed by that Fund, including proceeds of
redemptions, unless such shareholder provides a social security or taxpayer
identification number, certifies as to exemption from backup withholding, and
otherwise complies with applicable requirements of the Code.
Reports containing appropriate federal income tax information (relating to
the tax status of dividends and capital gain distributions by each Fund) will be
furnished to each shareholder following the close of the calendar year during
which the payments are made.
The discussions herein and in the Prospectus have been prepared by the
management of the Trust, are general by nature and do not purport to be a
complete description of all tax implications of an investment in a Fund.
Heller, Ehrman, White & McAuliffe, the Trust's counsel, has expressed no opinion
in respect thereof. Investors should consult their own tax advisers for further
details and for the application of federal, state and local tax laws to their
particular situations.
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<PAGE>
PERFORMANCE INFORMATION
From time to time, each Fund may state its total return in advertisements
and investor communications. Total return is computed separately for the
Class A, Class B and Class C shares of each Fund. Total return may be stated
for any relevant period as specified in the advertisement or communication. Any
statements of total return or other performance data for any Class of a Fund
will be accompanied by information on that Class's average annual compounded
rate of return over the most recent four calendar quarters and the period from
the inception of the Class. Each Fund may also advertise aggregate and average
total return information over different periods of time.
Each Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
(n)
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which
the maximum sales charge is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase
at the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes the maximum sales charge
is deducted from the initial $1,000 investment at the time it is made and that
all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
The average annual compounded rates of return, or total return, for the
Class A shares of each of the Funds for the indicated periods ended December 31,
1995 were as follows:
Inception(1)
to
One Year* December 31, 1995*
--------- ------------------
The Global Growth Fund 17.40% 25.85%
- ----------------------------------
(1) The inception dates of the Funds are as follows:
The Global Growth Fund -- November 1, 1993
The Small & Mid-Cap Fund -- October 10, 1994
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<PAGE>
The Small & Mid-Cap Growth Fund 18.79% 34.21%
- --------------------
* Prior to September 1, 1996, the Funds' shares were not offered to the
public and, although each Fund's portfolio was managed substantially in
accordance with the investment policies described in its current Prospectus
during that period, some management differences did occur due primarily to
each Fund's small asset size. Accordingly, each Fund's performance during
periods prior to September 1, 1996 may not be relevant to an assessment of
such Fund's performance subsequent to such date. Additionally, the Manager
waived all management, administrative and service fees otherwise payable to
it by the Global Growth Fund during 1993, 1994 and 1995 and the Small &
Mid-Cap Growth Fund during 1994 and 1995, which had the effect of
increasing each Fund's total return for those periods.
Each Fund may also state its yield in advertisements and investor
communications. The yield computation is determined by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period and annualizing the resulting
figure, according to the following formula:
(6)
Yield = 2 [((a-b) + 1) -1]
------
cd
where
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
Yield calculations assume the maximum sales charge applicable to the Fund.
Actual yield may be affected by variances in sales charges on investments.
Until such time as this Statement of Additional Information is amended to
include the amount of yield for each Fund for the applicable 30-day period, the
amount of such yield will not be advertised on behalf of that Fund.
Each Fund may also, from time to time, include a reference to the current
distribution rate of each Class of shares in investor communications and sales
literature preceded or accompanied by a prospectus for that Fund, reflecting the
amounts
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<PAGE>
actually distributed to shareholders of each Class which could include capital
gains and other items of income, as well as interest and dividend income
received by the Fund and distributed to the shareholders. All calculations of a
Class's distribution rate are based on the distributions per share which are
declared, but not necessarily paid, during the fiscal year. The distribution
rate for a Class is determined by dividing the distributions declared during the
period by the maximum offering price per share of the Class on the last day of
the period and annualizing the resulting figure. The distribution rate does not
reflect capital appreciation or depreciation in the price of each Fund's shares
and should not be confused with yield or considered to be a complete indicator
of the return to the investor on his investment.
The performance of the Funds may be compared to that of various indices of
investment performance published by third parties (including, for example and
not limited to, the Dow Jones Industrial Index, Standard & Poor's 500 Stock
Index, Nasdaq Composite Index, the Value Line Arithmetic Index, the Value Line
Geometric Index, Russell 1000, Russell 2000, Russell 3000, Wilshire 4500,
Wilshire 5000, various EAFAE Indices, Goldman Sachs Convertible 100 Index,
Lipper Non-Government Money Market Average and Lipper Government Money Market
Average). Furthermore, the Funds' standard performance may also be compared to
the Funds' performance calculated as if no sales charges were deducted.
From time to time, information concerning each Fund's performance by
independent sources such as Morningstar, Lipper Analytical Services, Inc., and
other organizations may also be used in advertisements and in information
furnished to present or prospective investors in the Funds.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Funds' current yield, total return or
distribution rate for any period should not be considered as a representation of
what an investment may earn or what an investor's total return, yield or
distribution rate may be in any future period.
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<PAGE>
GENERAL
The Funds are separate and distinct series of the Pasadena Investment
Trust, a Massachusetts business trust. The shareholders of a Massachusetts
business trust could, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. However, the Trust's Amended and
Restated Agreement and Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and a Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of Trust assets, including the Fund, for any shareholder held
personally liable for obligations of the Trust. The Declaration of Trust
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. All such rights are limited to the assets of the Funds of
which a shareholder holds shares. The Declaration of Trust further provides
that the Trust may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Trust, its
shareholders, trustees, officers, employees, and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Trust as an
investment company as distinguished from an operating company would not likely
give rise to liabilities in excess of the Trust's total assets. Thus, the risk
of a shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which both inadequate insurance exists and the
Trust itself is unable to meet its obligations.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such a registration does not involve supervision
of the management or policies of the Fund. The Prospectus and this Statement of
Additional Information omit certain information contained in the Registration
Statement of the Trust filed with the Securities and Exchange Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.
As of July 1, 1996, Pasadena Capital Corporation and the Pasadena
Capital Corporation Employee Stock Ownership Plan, 600 N. Rosemead Boulevard,
Pasadena, California 91107, owned 95.8% and 4.2%, respectively of the Global
Growth Fund's outstanding shares and 80.9% and 19.1%, respectively, of the Small
& Mid-Cap Growth Fund's outstanding shares.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated herein by
reference to such financial statements which have been filed with the Securities
and Exchange Commission. Any person wishing to receive such financial
statements should call or write to the Trust to obtain a free copy.
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