<PAGE>
As filed with the Securities and Exchange Commission on October 3, 1996
File Nos. 33-1922
811-4506
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M N-1A
Registration Statement Under the Securities Act of 1933
Post-Effective Amendment No. 22 /x/
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 25 /x/
___________
PASADENA INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
600 North Rosemead Boulevard, Pasadena, California 91107-2133
(Address of Principal Executive Office)
(818) 351-9686
(Registrant's Telephone Number, Including Area Code)
ROGER ENGEMANN
600 North Rosemead Boulevard, Pasadena, California 91107-2138
(Name and Address of Agent for Service)
__________
It is proposed that this filing will become effective:
___ Immediately upon filing pursuant to paragraph (b) of Rule 485, or
___ on __________, 1996 pursuant to paragraph (b) of Rule 485, or
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485, or
___ on __________ pursuant to paragraph (a)(1) of Rule 485, or
_X_ 75 days after filing pursuant to paragraph (a)(2) of Rule 485, or
___ on ________ pursuant to paragraph (a)(2) of Rule 485.
**Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares of beneficial interest under
the Securities Act of 1933. The Registrant's Notice required by Rule 24f-2
for its fiscal year ended December 31, 1995 was filed on or before February
29, 1996.
__________
Please Send Copy of Communications to:
JULIE ALLECTA, ESQ.
KERRIE A. WALSH, ESQ.
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
(415) 772-6000
<PAGE>
PASADENA INVESTMENT TRUST
The Pasadena Equity Income Fund-SM-
CONTENTS OF POST-EFFECTIVE AMENDMENT
This Post-Effective Amendment to the Registration Statement of the Pasadena
Investment Trust contains the following documents:*/
- - Facing Sheet
- - Contents of Post-Effective Amendment
- - Cross-Reference Sheets for the above-referenced Fund
- - Part A: Prospectus for the Equity Income Fund
- - Part B: Statement of Additional Information for the Equity Income Fund
- - Part C: Other Information
- - Signature Page
- ------------------
* The currently effective Prospectus and SAI for all other series of the
Registrant are not being amended by this Amendment.
<PAGE>
PASADENA INVESTMENT TRUST
The Pasadena Equity Income Fund-SM-
CROSS REFERENCE SHEET
FORM N-1A
N-1A
Item No. Item Location in
Registration Statement
Part A: INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis "Synopsis" and "Expense and Fee
Table"
3. Condensed Financial Information Not Applicable
4. General Description of Registrant "Synopsis," "Investment Objective and
Policies," and "Description of the
Trust"
5. Management of the Fund "Management"
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other "Description of the Trust,"
Securities "Dividends, Distributions, and Taxes"
and "General Information"
7. Purchase of Securities Being "Purchase of Shares" and
Offered "Determination of Net Asset Value"
8. Redemption or Repurchase "Redemption of Shares"
9. Pending Legal Proceedings Not Applicable
ii
<PAGE>
Part B: INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History "General"
13. Investment Objectives and "Investment Objective and Policies"
Policies Investment
14. Management of the Fund "Management of the Trust"
15. Control Persons and Principal "Management of the Trust"
Holders of Securities
16. Investment Advisory and Other "Management of the Trust" and
Services "Investment Management Services"
and "Class B and Class C
Distribution Plans"
17. Brokerage Allocation and Other "Brokerage Allocation and Other
Practices Practices"
18. Capital Stock and Other Securities See "Description of the Trust" in
Prospectus
19. Purchase, Redemption and Pricing "Purchase, Redemption and Pricing of
of Securities Being Offered Fund Shares"
20. Tax Status "Distributions and Tax Status"
21. Underwriters "Principal Underwriter" and "Class B
and Class C Distribution Plans"
22. Calculation of Performance Data "Performance Information"
23. Financial Statements Not Applicable
iii
<PAGE>
PART A
_______________________
PROSPECTUS
The Pasadena Equity Income Fund
_______________________
<PAGE>
<TABLE>
<S> <C>
THE PASADENA GROUP THE PASADENA
OF MUTUAL FUNDS-Registered Trademark- EQUITY INCOME
[Logo] FUND-SM-
</TABLE>
THE PASADENA EQUITY INCOME FUND seeks to achieve substantial dividend income
and long-term growth of capital by investing in securities which the Manager
believes offer the best potential for current dividend yield and long-term
capital appreciation.
Roger Engemann Management Co., Inc. is the investment manager for the Fund.
The Fund is a separate series of the Pasadena Investment Trust (the "Trust"),
and 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 the 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 Fund that a
prospective investor should know before investing. Please read it and retain it
for future reference. Additional information about the Fund and the Trust is
included in the Trust's Statement of Additional Information regarding the Fund
dated January 1, 1997, 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 JANUARY 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Synopsis.................................................... 1
Expense and Fee Tables...................................... 3
Investment Objectives and Policies.......................... 5
Alternative Purchase Arrangements........................... 10
Purchase of Shares.......................................... 11
Redemption of Shares........................................ 19
Management.................................................. 22
Dividends, Distributions and Taxes.......................... 24
Determination of Net Asset Value............................ 26
Performance Information..................................... 26
Description of the Trust.................................... 27
Shareholder Inquiries....................................... 28
General Information......................................... 28
Backup Withholding Instructions............................. 29
</TABLE>
<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 FUND. The Pasadena Group of Mutual Funds consists of six 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 series (the "Fund") described in this single Prospectus is The
Pasadena Equity Income Fund (the "Equity Income Fund")
The other series of the Trust, The Pasadena Growth Fund, The Pasadena Nifty
Fifty Fund, The Pasadena Balanced Return Fund, The Pasadena Small and Mid-Cap
Fund and The Pasadena Global Growth Fund are covered by separate prospectuses.
(All of the series of the Trust are collectively referred to as the "Funds")
THE MANAGER. Roger Engemann Management Co., Inc. (the "Manager") provides
investment advice to the Fund and manages the Fund's investments. The Manager's
annual management fee, 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 Fund's
administrative and most shareholder services, for which it receives an annual
administration fee equal to [0.60%] of the average daily net assets of the 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 Fund
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 the Fund attributable to
the class, (ii) an ongoing distribution fee payable by Class B shares and Class
C shares at an annual rate of 0.75% of the Fund's average daily net assets
attributable to each such class, and (iii) certain DE MINIMIS fees of its
independent auditors, legal counsel and trustees.
PURCHASE AND REDEMPTION OF SHARES. The Fund offers its shares continuously
and redeems its shares upon a shareholder's request. The 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 Fund's
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 of the 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." 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."
2
<PAGE>
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 theseventh 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 the 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 Fund
is designed to be a long-term investment. Therefore, because the Fund's net
asset value per share will fluctuate with daily changes in the market prices of
its portfolio securities, an investment in the Fund may not be suitable for
investors with specific short-term investment return needs. The Fund's emphasis
on stocks of established, high dividend paying companies, as well as its
possible exposure to fixed-income securities, could limit its potential for
capital appreciation. Sharply rising interest rates could also decrease the
appeal of stocks purchased by the Fund, further restraining total return. See
"Investment Objective and Policies" and "Risk Considerations."
Shares of the Fund 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 Fund 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 the 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 the 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>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as percentage of offering price).......... 5.50% None None
Maximum Sales Charge Imposed on Reinvestment of Distributions........................ None None None
Maximum Deferred Sales Charge........................................................ None 5.00% None
Redemption Fees+..................................................................... None None None
Exchange Fees........................................................................ None None None
ANNUAL FUND OPERATING EXPENSES*:
(Before Fee Waivers)..................................................................
Management Fees...................................................................... 1.00% 1.00% 1.00%
Administration Fees.................................................................. 0.60% 0.60% 0.60%
12b-1 Fees........................................................................... None 0.75% 0.75%
Service Fees......................................................................... 0.25% 0.25% 0.25%
----- ----- -----
Total Fund Operating Expenses.................................................... 1.85% 2.60% 2.60%
----- ----- -----
----- ----- -----
</TABLE>
- ------------------------
+ A $10.00 fee may be charged for redemptions made by bank wire (see p. 19).
* Operating expense information for the Fund reflects the current fee
schedule for all Classes of shares under the Management, Administration and
Services Agreements, respectively, assuming the 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.
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of the 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>
CLASS CLASS CLASS
A B C
------ ------ ------
<S> <C> <C> <C>
1 year............................. $ 73 $ 76 $ 26
3 years............................ 110 111 81
</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>
CLASS CLASS CLASS
A B C
------ ------ ------
<S> <C> <C> <C>
1 year............................. $ 73 $ 26 $ 26
3 years............................ 110 81 81
</TABLE>
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>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND STRATEGIES
The investment objective of the Fund is to provide substantial dividend
income and long-term growth of capital. This investment objective is
"fundamental," meaning that it will not be changed without the approval of a
majority of the Fund's voting securities, as defined in the 1940 Act. There is,
of course, no assurance that the Fund will achieve its investment objective,
although the Fund will always follow the investment strategies discussed below.
THE EQUITY INCOME FUND. The Equity Income Fund seeks to achieve its
objective through investments in securities which its Manager believes offer the
best potential for current dividend yield and long-term growth of capital.
Under normal conditions it is expected that at least 75% of the Equity
Income Fund's assets will be invested in common stocks of high-quality
established dividend-paying companies. The average market capitalization of the
stocks included will generally be in excess of $1 billion. In analyzing
companies for investment, the Manager generally will look for one or more of the
following characteristics: established operating history; adequate dividend
coverage; sound balance sheet and other financial characteristics. As is
typically the case with all Pasadena Funds, each stock included in the Fund's
portfolio will be carefully analyzed on a fundamental basis.
It is expected that the remaining portion of the Fund's investment portfolio
will be invested in similar stocks or in common stocks with the potential for
capital appreciation, but the Fund's manager may invest those assets in other
equity securities that the Manager believes have favorable prospects. The Fund
may also purchase foreign securities, convertible stocks and bonds, and warrants
when considered consistent with the Fund's investment objective. The Fund may
also engage in the purchasing and selling of options.
At times the Manager may judge that conditions in the securities markets
make pursuing the Fund's basic investment strategy inconsistent with the best
interests of the Fund's shareholders. At such times the Manager may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
value of the Fund's assets. In implementing these "defensive" strategies, the
Fund may invest solely in domestic 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 Fund will use these alternative strategies. In addition,
during its start-up phase, when the Manager is assembling the Fund's core
portfolio, the Fund may have a larger than usual cash position.
Risk Considerations
DIVERSIFICATION
The Fund is a diversified mutual fund. However, because the Fund's portfolio
may contain a limited number of companies, the Fund may be more sensitive to
changes in the market value of a single issuer or industry in its portfolio and
therefore may present a greater risk than is usually associated with a more
widely diversified mutual fund.
FOREIGN SECURITIES
The Fund may invest up to 25% 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.
Investment in foreign securities exposes the Fund to currency risks and currency
hedging risks, higher brokerage and custody costs, political risk, foreign
taxation and similar risks.
DERIVATIVES
The Fund may use derivatives to complement its 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. The
5
<PAGE>
Fund does not invest in derivatives that exhibit extreme sensitivity to interest
rates or that contain a high degree of imbedded leverage, but rather limits
itself to hedging and proxy-type derivatives that are commonly used by
investment professionals. The Fund will not invest more than 5% of its total
assets in these securities.
Other Investment Practices
The 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 the Fund to any great extent, if at all.
OPTIONS. The 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. The Fund receives
a premium from writing a put or call option, which increases the Fund's return
if the option expires unexercised or is closed out at a net profit. When the
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, the 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. The 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 the Fund's
assets. The Fund's use of these strategies also may be limited by applicable
law.
OPTIONS ON SECURITIES INDICES AND PUT AND CALL WARRANTS. The 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 the 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 the Fund. If, on the other hand, the value of the
index were to decrease, the option would likely expire worthless, and the Fund
would realize a profit in the amount of the premium received by it when it sold
the option (less any transaction costs). The 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. The Fund will not purchase or sell options on
securities indices if as a result the sum of the premiums paid and premiums
received by the Fund on outstanding options would exceed 5% of the Fund's total
assets.
The 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. The Fund's use of such warrants would
be similar to its use of options on securities indices.
SECURITIES LOANS AND FORWARD COMMITMENTS. The 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 the Fund because the other party might default on its obligation, which
would cause the Fund to be delayed or prevented from recovering the collateral.
The 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.
6
<PAGE>
Investment Policies
In addition to the investment criteria described above, the Fund 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 the 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 the Fund's total assets, the 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 the Fund's total assets.
(b) CONCENTRATION OF INVESTMENTS IN AN INDUSTRY.
The 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 the Fund's total assets, the 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 the 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 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 Fund in special situations
may not exceed 35% of its total assets.
(e) UNSEASONED COMPANIES.
As a matter of operating policy, the Fund 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 than those of larger, exchange-listed
companies. In order to avoid undue risks, the 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, the 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 the 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.
7
<PAGE>
(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 the 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, the 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 the Fund. In any repurchase
transaction in which the Fund engages, the 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, the 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, the 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,
the 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.
The 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."
The 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 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
The 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 3 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 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 Fund
is expected to be approximately 70%. However, from time to time, the annual
portfolio turnover rate for the Fund may be higher than these projections. High
portfolio activity increases the Fund's transaction costs, including brokerage
commissions.
8
<PAGE>
ALTERNATIVE PURCHASE ARRANGEMENTS
The 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 the 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.
PURCHASE OF SHARES
GENERAL
Shares of the Fund 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 Fund's net asset value. Orders received
9
<PAGE>
after the time of the next determination of the 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 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
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 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.
10
<PAGE>
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
Fund, 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 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 Fund, a continuing fee of up to 0.20% per
annum of the Fund's assets represented by such investments. In addition, the
Manager currently pays to Merrill, Lynch, Pierce, Fenner & Smith
11
<PAGE>
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 of the Funds 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 of the Funds 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 Fund 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.
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
12
<PAGE>
a shareholder who has attained the age of 70, (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.
PURCHASE PROCEDURE
The principal underwriter and distributor for the shares of the Fund 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
13
<PAGE>
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 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 the Fund is being purchased, or they will be deemed orders for the purchase
of Class A shares.
The minimum initial investment for the 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 Fund 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 the Fund's shares at any time. For investors wishing to purchase shares by
wire, please call the Fund or your investment dealer for information on the
procedures to be followed.
SHAREHOLDERS' OPEN ACCOUNTS
When an investor purchases shares in the Fund, the 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 Fund maintains 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 the Fund, which are held
for the shareholder in uncertificated form by the Fund's transfer agent. No
share certificates are issued.
SYSTEMATIC PURCHASE PLAN
Under the Fund's 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 Fund.
The market value of the shares of the 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.
RETIREMENT PLANS
Individuals may purchase shares of the Fund through an IRA available from
the Fund 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.
14
<PAGE>
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.Complete
requirements.Complete account application in the form at the bottom of a recent account
its entirety, sign and return with your check statement, make your check payable to The
made payable to the Pasadena Group of Mutual Pasadena Group of Mutual Funds, write your
Funds to the address listed on the account account number on the check and mail in the
application. 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 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 Fund 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 the 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 Fund upon 60-days' prior
notice to shareholders.
For purposes of computing both (i) the time remaining before Class B shares
of the 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
the 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 privilege, investors authorize the Fund 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.)
15
<PAGE>
GENERAL
Class A shares of the Fund 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 Fund 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 Fund.
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 Fund will redeem all or any portion of a shareholder's account when
requested, subject to prior collection by the Fund's 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 Fund 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 the 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 the 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, the 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).
WIRE TRANSFERS
A wire transfer procedure is available for redemptions made directly through
the Fund, 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.
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<PAGE>
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 Fund 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 Fund 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
Fund 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 Fund 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 Fund 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 the 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 the 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 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 Fund or the shareholder's
investment dealer. The Fund 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 Fund is reduced below $800, or upon such Fund's receipt of
notification of the death or incapacity of the shareholder.
17
<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>
18
<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 Fund's 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 Fund. 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 Fund. Under the Management
Agreement, the Manager furnishes investment advice and investment management
services with respect to the Fund's portfolio of securities and investments,
provides personnel, office space, facilities and equipment as may be needed by
the Fund in its day-to-day operations, and provides the officers of the Trust.
The Manager also provides the Fund with fund accounting, including assistance
and personnel necessary to price the portfolio securities of the Fund,
calculates the Fund's net asset value, and maintains the books and records of
the 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 Fund and pays for all other
normal operating expenses of the Fund, except for the fees and expenses
associated with investment management, the service fees paid by the Fund to
dealers and others and certain DE MINIMIS fees of its independent auditors,
legal counsel and trustees.
The Manager may consider a number of factors in determining which brokers or
dealers to use for the Fund's 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 Fund's 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 the Fund (paid monthly) computed and prorated on
a daily basis. 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 the 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% of net assets over $500 million.
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<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 Fund, bears the cost for all normal operating expenses of the Fund (except
for the fees and expenses, including brokerage, associated with investment
management services, the fees paid to dealers and others providing services to
shareholder accounts, the distribution fees paid by Class B shares and Class C
shares and certain DE MINIMIS fees of its independent auditors, legal counsel
and trustees) 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 the Fund's transfer agent and
sub-transfer agent, dividend disbursing agent, custodian, auditors, accountants,
attorneys and other parties performing services or operational functions for the
Fund. As a result, the 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 3)
The maximum operating expenses of the 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 the Fund have approved, and the Fund has entered
into, a distribution plan (each a "Plan") with the Distributor for Class B
shares and Class C shares. Under the Plans, the Fund will pay 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 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.
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
20
<PAGE>
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 Fund 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 Fund also will pay dealers and others, including the Fund's Manager and
the Distributor, a continuing service fee equal to 0.25% per annum of the
average net asset value of the Fund's 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 Fund, and responding to
shareholder inquiries.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The 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 the 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 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 Fund 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. The Fund intends 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
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.
21
<PAGE>
Dividends and capital gain distributions of the 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 the Fund's
assets invested in foreign securities, the Fund may be able to elect to
pass-through to its shareholders the pro-rata portion of income or other taxes
paid by the 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 the 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 the 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 Fund 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 the Fund's investments and other assets, less all liabilities, by
the number of Fund shares outstanding. For this calculation, the Fund's assets
include accrued dividends (from their ex-dividend date) and interest, and
liabilities include accrued expenses.
In valuing the 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
the Fund are expected to be approximately the same; the net asset value per
share of the Class A shares of the 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 the Fund
will tend to converge on the Fund's ex-dividend date, and the per share
dividends will differ by approximately the amount of the expense accrual
differential among the Classes.
PERFORMANCE INFORMATION
From time to time, the 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 the Fund. Total return information will
include the total return for the subject Class of the Fund over the most recent
fiscal year and over the period from the inception of each Class. The Fund also
may advertise aggregate and average total return information over different
periods of time. The 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
22
<PAGE>
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. The 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, the 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 Fund
will be calculated by dividing the maximum offering price per share into the
annualization of the total distributions made by each Class of the Fund during
the stated period. In each case, distribution rates and total return figures
will reflect all recurring charges against the Fund's income. In addition, the
Fund may compare its performance to various indices of investment performance
published by third parties.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the 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
The 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 six series: The Pasadena Growth Fund, The Pasadena
Nifty Fifty Fund, The Pasadena Balanced Return Fund, The Pasadena Small &
Mid-Cap Growth Fund, The Pasadena Global Growth Fund and The Pasadena Equity
Income Fund. Each of the Funds is authorized to issue Class A, Class B and Class
C shares. The shares of the Pasadena Equity Income 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 the Fund have no preemptive, conversion, or sinking rights.
Each of the Class A, Class B and Class C shares of the Fund represents an
interest in the assets of the 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 the Fund, as a separate series of the Trust, vote separately
on matters affecting only the 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
Fund is not required to, nor does it intend to, hold annual meetings of
shareholders, such 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 the 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 of the
Funds. 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.
23
<PAGE>
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 of the 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 the Fund owned
by any such offshore fund becomes a significant percentage of the Fund's
outstanding shares, a risk to the 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 the 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 the 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.
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.
24
<PAGE>
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.
25
<PAGE>
PART B
_______________________
STATEMENT OF
ADDITIONAL INFORMATION
The Pasadena Equity Income Fund-SM-
_______________________
<PAGE>
THE PASADENA EQUITY INCOME FUND-SM-
600 North Rosemead Boulevard
Pasadena, California 91107-2133
(800) 648-8050 (Toll-Free)
(818) 351-9686
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1997
The Pasadena Investment Trust (the "Trust") is a
diversified, open-end management investment company offering
redeemable shares of beneficial interest in six separate series.
The series covered by this Statement of Additional Information
is: The Pasadena Equity Income Fund (the "Equity Income Fund")
(sometimes referred to herein as the "Fund,"). The other series
of the Trust, The Pasadena Growth Fund, The Pasadena Nifty Fifty
Fund, The Pasadena Balanced Return Fund, The Pasadena Global
Growth Fund and The Pasadena Small & Mid-Cap Growth Fund are
covered by separate prospectuses and statements of additional
information. (All of the series of the Trust are collectively
referred to as the "Funds.")
The Equity Income Fund's investment objective is to achieve
substantial dividend income and long-term growth of capital by
investing in securities which the Manager believes offer the best
potential for current dividend yield and long term capital
appreciation.
This Statement of Additional Information is not a
prospectus. It contains information which supplements the
Prospectus for the Equity Income Fund dated January 1, 1997, 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-34
Class B and Class C Distribution Plans................. B-35
Purchase, Redemption, and Pricing of Fund Shares....... B-37
Distributions and Tax Status........................... B-42
Performance Information................................ B-46
General................................................ B-49
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 six series, one of which is the "Fund"
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 Fund supplements the Prospectus.
The information contained in the Prospectus relating to the
Fund's Investment Objective and Policies is incorporated herein
by reference.
FOREIGN SECURITIES
The 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, the Fund may purchase and
sell forward currency exchange contracts. These are agreements
to purchase or sell specified currencies at specified dates and
prices. The 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 the Fund, will be held by the
Fund's custodian or by an authorized subcustodian.
FOREIGN CURRENCY TRANSACTIONS
IN GENERAL. As described below, the Fund may engage in
certain foreign currency exchange and option transactions. These
transactions involve investment risks and transaction costs to
which the 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 the Fund may leave the
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. The 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.
The Fund may engage in currency exchange transactions to
protect against uncertainty in the level of future currency
exchange rates. In addition, the Fund may write covered put and
call options on foreign currencies for the purpose of increasing
its return.
B-3
<PAGE>
Generally, the Fund may engage in both "transaction hedging"
and "position hedging." When it engages in transaction hedging,
the 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.
The 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,
the 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.
The 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. The 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 the 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 the 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 the
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 the 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 the Fund the right to purchase the
currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the 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 the Fund expects to
purchase, when the Fund holds cash or short-term investments).
In connection with position hedging, the 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. The 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 the 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 the 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 the Fund is obligated to deliver.
Transaction and position hedging do not eliminate
fluctuations in the underlying prices of the securities which the
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.
The 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. The Fund receives a premium from writing a
put or call option, which increases the Fund's current return if
the option expires unexercised or is closed out at a net profit.
The 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 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
the Fund. Cross hedging transactions by the 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.
B-5
<PAGE>
The Fund is not a commodity pool. The Fund's 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, the Fund may not 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 the 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, the 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.
B-6
<PAGE>
Although the 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.
The 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.
B-7
<PAGE>
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 Fund's investments in foreign securities and to the Fund's
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 Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the 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 the Fund
at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered put
options and covered call options on optionable securities held in
its portfolio, when in the opinion of the Fund's Manager such
transactions are consistent with the Fund's investment objective
and policies. Call options written by the Fund give the
purchaser the right to buy the underlying securities from the
Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a
stated price.
B-8
<PAGE>
The Fund may write only covered options, which means that,
so long as the 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, the 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,
the 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. The Fund may write
combinations of covered puts and calls on the same underlying
security.
The Fund will receive a premium from writing a put or call
option, which increases the 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, the 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, the 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.
The 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. The
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 the Fund.
If the Fund writes a call option but does not own the
underlying security, and when it writes a put option, the 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, the 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
B-9
<PAGE>
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The 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 the 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, the 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. The Fund may purchase call options
to hedge against an increase in the price of securities that the
Fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option because the 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 Fund's options strategies depends
on the ability of the Fund's Manager to forecast correctly
interest rate and market movements. For example, if the 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, the Fund could be required to sell
the security upon exercise at a price below the current market
price. Similarly, if the 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, the Fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the 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 the Fund in the
B-10
<PAGE>
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 the Fund's
ability to terminate option positions when the Fund's Manager
deems it desirable to do so. There is no assurance that the 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,
the 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, the 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 the 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.
B-11
<PAGE>
Special risks are presented by internationally traded
options. Because of time differences between the United States
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 the Fund and assets held to cover OTC options
written by the Fund are illiquid securities. Although the Staff
has indicated that it is continuing to evaluate this issue,
pending further developments, the 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 the Fund will
at all times have the right to repurchase the option written by
it from the dealer at a specified formula price. The 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 the Fund not to enter
into any OTC option transaction if, as a result, more than 15% of
the 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.
B-12
<PAGE>
The Fund 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 the Fund purchases or sells a security, no price
is paid or received by the Fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the 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 certain
liquid 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 the 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 the 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.
B-13
<PAGE>
The 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 the
Fund. The 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. The 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. The 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, the Fund may purchase put options or write
call options on futures contracts rather than selling futures
contracts. Similarly, the 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 the 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.
The 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 the 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 the 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. The Fund may have to sell
investments at a time when it may be disadvantageous to do so in
order to meet margin requirements.
B-14
<PAGE>
Compared to the purchase or sale of futures contracts, the
purchase of put or call options on futures contracts involves
less potential risk to the 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 the 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 the Fund,
the 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. The Fund
B-15
<PAGE>
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. The 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 the 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 the 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
Fund 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 Fund's
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 the 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 the 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 the 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 the Fund
has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and
securities prices increase instead, the 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
B-16
<PAGE>
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.
B-17
<PAGE>
OPTIONS ON INDICES
As an alternative to purchasing put and call options on
index futures, the 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
The 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 the Fund fails to exercise
an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant.
The Fund will normally use index warrants in a manner
similar to its use of options on securities indices. The risks
of the 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 the 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 the 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
The 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
The 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 the 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,
the Fund may dispose of a commitment prior to settlement if the
Manager deems it appropriate to do so. The Fund may realize
short-term profits or losses upon the sale of forward
commitments.
B-19
<PAGE>
DEPOSITARY RECEIPTS
The Fund may invest up to 25% 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
The 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 the 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, the 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, the Fund will endeavor to obtain the right to
registration at the expense of the issuer. Generally, there will
be a lapse of time between the 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
the Fund, the 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 Rule 144A will develop, the Board of Trustees has directed the
B-20
<PAGE>
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, the 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
The 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 the 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 the Fund will be of short duration, from
overnight to one week, although the underlying securities
generally have longer maturities. The Fund may not enter into a
repurchase agreement with more than seven days to maturity if, as
a result, more than 15% of the value of the 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
the 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, the 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
B-21
<PAGE>
be at risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt
instrument purchased for the 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, the 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 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
The following restrictions have been adopted as matters of
fundamental or operating policy for the Fund. Fundamental
policies may not be changed without the approval of a majority of
the Fund's outstanding voting securities and approval of the
Board of Trustees. Operating policies can be changed by vote of
the Board of Trustees. The Fund MAY NOT:
(1) With respect to 75% of the 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. [Fundamental Policy]
(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. [Operating
Policy]
(3) With respect to 75% of the Fund's total assets, acquire
more than 10% of any one class of securities of an issuer or more
than 10% of the outstanding voting securities of any one 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.) [Fundamental Policy]
(4) 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. (The
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.)
[Fundamental Policy]
B-23
<PAGE>
(5) 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. [Fundamental Policy]
(6) 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. [Fundamental
Policy]
(7) 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.
[Operating Policy]
(8) 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. [Fundamental Policy]
(9) 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. [Fundamental Policy]
(10) 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. [Fundamental Policy]
(11) Make investments for the purpose of exercising control
of a company's management. [Operating Policy]
(12) 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. [Fundamental Policy]
(13) 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, the 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. [Operating Policy]
B-24
<PAGE>
(14) Purchase warrants if as a result its warrant holdings,
valued at the lower of cost or market, would exceed 5% of the
Fund's net assets, with no more than 2% of net assets in warrants
not listed on the New York or American Stock Exchanges.
[Operating Policy]
(15) 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 the Fund's net assets (taken at current value)
would be invested in the aggregate in securities described in
(a), (b) and (c) above. [Operating Policy]
(16) 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. [Fundamental Policy]
(17) Participate on a joint or joint and several basis in
any securities trading account. [Operating Policy]
(18) 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, (c) if such
purchase is part of a merger, consolidation, or acquisition of
assets, or (d) as part of a master-feeder arrangement (see
below). [Fundamental Policy]
The 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 the Fund.
Some of the practices referred to above are subject to
restrictions contained in the 1940 Act. In addition to the
restrictions described above, the 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 the Fund intends to offer or sell its shares.
B-25
<PAGE>
Any such additional restrictions that would have a material
bearing on the 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, the 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 rate for the Fund is expected to be approximately 70%.
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 Board, President of Roger Engemann
600 North Rosemead President and Trustee & Associates, Inc., an
Boulevard investment management firm,
Pasadena, California since 1972, and the Manager
91107 since 1985. President and
(55) a Director of Pasadena
Capital Corporation.
JOHN S. TILSON* Chief Financial Officer, Executive Vice President,
600 North Rosemead Secretary and Trustee Portfolio Manager and
Boulevard Securities Analyst with
Pasadena, California Roger Engemann & Associates,
91107 Inc. since 1983 and the
(52) Manager since 1985.
Officer and a Director of
Pasadena Capital
Corporation.
BARRY E. MCKINLEY Trustee Certified Public Accountant;
201 South Lake head of B.E. McKinley &
Avenue, Suite 400 Associates since its
Pasadena, California inception in 1971.
91101
(60)
B-26
<PAGE>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- --------------------- ----------------------
ROBERT L. PETERSON Trustee Private investor. From
P.O. Box 80784 1988-1995, Regional Manager
San Marino, for Commercial Real Estate
California 91118 Brokerage in the Pasadena
(58) office of Jon Douglas
Company. Prior thereto he
was associated with the real
estate brokerage firm of
R.A. Rowan & Co.
MICHAEL STOLPER*+ Trustee President of Stolper and
525 B Street, Company, Inc., an investment
Suite 1080 adviser and broker-dealer
San Diego, since 1975. Director of
California 92101 Pasadena Capital Corporation
(50) since February 1994.
RICHARD C. TAYLOR
2485 Huntington Trustee President of Richard Taylor
Drive, #2 Company, Inc., a food
San Marino, ingredients broker, since
California 91108 1987.
(49)
ANGELA WONG Trustee Since 1986, Ms. Wong has
11355 West Olympic been of counsel to the law
Boulevard firm of Manatt, Phelps,
Los Angeles, Phillips & Kantor,
California 90064 specializing in employee
(44) benefits.
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
600 North Rosemead Accounting and Assistant Controller - Fund
Boulevard Secretary Accounting of Roger Engemann
Pasadena, California Management Co., Inc. From
91107 September 1988 to June
(42) 1993, Mutual Fund Operations
Manager of 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.
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<PAGE>
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
- -------- ------------- ----------- ------------ -------------
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
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The following information concerning the investment
management and administrative services provided to the Fund
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 Fund, to provide investment advice and investment
management services with respect to the assets of the Fund,
provide personnel, office space, facilities and equipment as may
be needed by the Fund in its day-to-day operations, provide the
officers of the Trust, and provide the Fund with fund accounting,
including assistance and personnel necessary to price the
portfolio securities of the Fund, calculate the Fund's net asset
B-29
<PAGE>
value, and maintain the books and records of the 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 the 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 the 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 the 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 Fund.
Under the Management Agreement, the 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 1.00% of the 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.
The Management Agreement is terminable with respect to the
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 Fund. Under the Administration Agreement, the
Manager, in its capacity as Administrator (a) furnishes the 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 the
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, brokerage and commission expenses and certain
de minimis fees of its independent auditors, legal counsel and
trustees. 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 the 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 the Fund, by the Board of Trustees
of the Trust, including a majority of the Trustees who are not
parties to the Administration Agreement, and continues in effect
until terminated on behalf of the Fund by either party on
60-days' written notice.
B-31
<PAGE>
SERVICES AGREEMENTS
Under the Services Agreements, the 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 the 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 Fund, 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 the Fund, including responding to
shareholder inquiries.
Notwithstanding the above-described division of expenses,
the Manager will reduce its fees to the 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. 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 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.
B-32
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager, in connection with advising the Fund on its
portfolio decisions and subject to instructions of the Board of
Trustees, will select the broker or dealer for the Fund's
portfolio transactions. In executing the 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, the Fund may not necessarily
pay the lowest commission or spread available for a particular
transaction.
The 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 the 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.
The Fund may invest in securities that are traded
exclusively in the over-the-counter market. The Fund 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.
B-33
<PAGE>
The Fund does not allocate brokerage business in return for
sales of its 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 the 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 Fund nor receive any reciprocal business as a result of
commissions paid by the Fund, although the Fund may pay usual and
customary brokerage commissions to Bear, Stearns & Company for
brokerage business by the Fund.
It is possible that purchases or sales of securities for the
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 Fund and such other clients in a manner
deemed equitable to all by the Manager, taking into account the
respective sizes of the Fund 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 Fund is concerned. However, in other
cases, it is possible that the 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.
PRINCIPAL UNDERWRITER
Pasadena Fund Services, Inc. (the "Distributor") acts as the
principal underwriter for the Fund in a continuous offering of
the Fund's shares. The Distributor uses its best efforts to
B-34
<PAGE>
distribute the Fund's 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 the Fund, 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 the 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
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 of the Funds pursuant
to Rule 12b-1 under the 1940 Act, the Distributor incurs the
expenses of distributing the Fund's Class B and Class C shares.
See "Principal Underwriter."
B-35
<PAGE>
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, the 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
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 Fund 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
the 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.
B-36
<PAGE>
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. The 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 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 the 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 1997 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 Fund does 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
B-37
<PAGE>
markets on such days to materially affect the net asset value per
share.
In valuing the 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 the 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 the 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
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. The 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 the 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
B-38
<PAGE>
amount which the 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 the 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 the 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 the 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 the 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,
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 the 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.
B-39
<PAGE>
When purchasing shares of the 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 of the 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 Fund or the Distributor may purchase Class A
shares of the Fund 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 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
Fund 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,
B-40
<PAGE>
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
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
B-41
<PAGE>
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 the Fund of securities owned by it is not
reasonably practicable or as a result of which it is not
reasonably practicable for the 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.
The 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, the Fund will redeem shares wholly in
cash unless the Board of Trustees believes that economic
conditions make cash redemption detrimental to the 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 the
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 the Fund's
total net assets at the beginning of such period. The 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 the
Fund, the redemption request must specify which class is being
redeemed. Absent such specification, the investor's shares will
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 the Fund's distributions
and tax status:
B-42
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays 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 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
The Fund is treated as a separate entity for federal income
tax purposes. The Fund intends to qualify and elect to be
treated as a "regulated investment company" under Subchapter M of
the Code, and intends to maintain such qualification. See
"Dividends, Distributions and Taxes" in the Prospectus.
Qualification as a "regulated investment company" does not
involve supervision of the Fund's 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, the 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.
Dividends of net investment income (including any net
realized short-term capital gains) paid by the Fund are taxable
to the recipient shareholders as ordinary income. In the case of
corporate shareholders, such distributions may qualify for the
corporate dividends-received deduction to the extent the 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 the Fund's investment policies, it
is expected that dividends from domestic corporations will be
part of the Fund's gross income and that, accordingly, part of
such distributions by the Fund may be eligible for the dividends-
received deduction for corporate shareholders; however, the
portion of the Fund's gross income attributable to qualifying
dividends is largely dependent on the Fund's investment
activities for a particular year and therefore cannot be
B-43
<PAGE>
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
the 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 the 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 the Fund exercises the exchange privilege within
90 days of acquiring shares in the 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 the Fund into Class A
shares of the 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 the 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.
HEDGING TRANSACTIONS
If the 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
B-44
<PAGE>
short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing, and character of
distributions to Fund shareholders. The 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 the 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, the 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 the 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 the Fund's assets at year-end consist of
securities of foreign corporations, the Fund may qualify for and
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
B-45
<PAGE>
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 the 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 the 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 the 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 the 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 the 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.
PERFORMANCE INFORMATION
From time to time, the 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 the 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 the 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
B-46
<PAGE>
of the Class. The Fund may also advertise aggregate and average
total return information over different periods of time.
The 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 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.
B-47
<PAGE>
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 the Fund for the applicable 30-day
period, the amount of such yield will not be advertised on behalf
of the Fund.
The 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 the Fund, reflecting the amounts 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 the 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 Fund 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 Fund's standard performance may also be compared
to the Fund's performance calculated as if no sales charges were
deducted.
From time to time, information concerning the 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 Fund.
Investors should note that the investment results of the
Fund will fluctuate over time, and any presentation of the Fund's
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.
B-48
<PAGE>
GENERAL
The Fund is a 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 the 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.
B-49
<PAGE>
PART C
_______________________
OTHER INFORMATION
_______________________
<PAGE>
PASADENA INVESTMENT TRUST
F O R M N-1A
PART C. OTHER INFORMATION
--------------------------
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements (the following identified financial statements
are not incorporated by reference into Parts A and B of this
Post-Effective Amendment No. 22 to the Registration Statement):
Audited financial statements for the year ended December 31, 1995
for each of The Pasadena Growth Fund, The Pasadena Balanced Return
Fund and The Pasadena Nifty Fifty Fund, including the Report of the
Independent Accountants, Statements of Assets and Liabilities,
Schedules of Investment in Securities, Statements of Operations,
Statements of Changes in Net Assets, Financial Highlights, and
Notes to Financial Statements, are incorporated in the Statement of
Additional Information relating to such Funds by reference to the
Annual Report to Shareholders of such Funds for the year ended
December 31, 1995.
Audited financial statements for the year ended December 31, 1995
for The Pasadena Global Growth Fund, including the Report of the
Independent: Statement of Assets and Liabilities, Schedule of
Investment in Securities, Statement of Operations, Statement of
Changes in Net Assets, Financial Highlights, and Notes to Financial
Statements are incorporated in the Statement of Additional
Information relating to such Fund by reference to such Financial
Statements.
The following audited financial statements for the year ended
December 31, 1995 for The Pasadena Small & Mid-Cap Growth Fund
(formerly called The Pasadena Small & Mid-Cap Growth Fund),
including the Report of the Independent Accountants: Statement of
Assets and Liabilities, Schedule of Investment in Securities,
Statement of Operations, Statement of Changes in Net Assets,
Financial Highlights, and Notes to Financial Statements are
incorporated in the Statement of Additional Information relating to
such Fund by reference to such Financial Statements.
C-1
<PAGE>
(b) Exhibits:
(1) Amended and Restated Agreement and Declaration of Trust(5)
(2) By-Laws(1)
(3) Voting Trust Agreement -- Not Applicable
(4) Specimen Share Certificate -- Not Applicable
(5)(A) Investment Management Agreement(4)
(5)(B) Administration Agreement(4)
(6)(A) Underwriting Agreement with Pasadena Fund Services, Inc.(7)
(6)(B) Form of Master Selling Agreement(4)
(6)(C) Amendment to Underwriting Agreement(6)
(7) Bonus, Profit Sharing, Pension and Other Similar Arrangements
-- Not Applicable
(8) Custodian Agreement(1)
(9) Other Material Contracts -- Agreement and Plan of
Reorganization (1)
(10) Opinion and Consent of Counsel(1)
(11) Consents of Certified Public Accountants
(12) Financial Statements Omitted from Item 23 -- Not Applicable
(13) Letter of Understanding relating to initial capital
-- Not Applicable
(14) Model Retirement Plans(2)
(15) Form of Rule 12b-1 Plan For Class B/C Shares(6)
(16) Performance Calculations(3)
(17) Financial Data Schedules
(18) Multiple Class Plan (Amended)(8)
__________________
(1) Previously filed as part of Pre-Effective Amendment No. 3 to the
Registrant's Registration Statement as filed in June 1986.
(2) Previously filed as part of Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement as filed on January 22, 1986.
(3) Previously filed as part of Post-Effective Amendment No. 11 to the
Registrant's Registration Statement as filed on April 16, 1992.
(4) Previously filed as part of Post-Effective Amendment No. 12 to the
Registrant's Registration Statement as filed on December 23, 1992.
(5) Previously filed as part of Post-Effective Amendment No. 14 to the
Registrant's Registration Statement as filed on August 27, 1993.
(6) Previously filed as part of Post-Effective Amendment No. 15 to the
Registrant's Registration Statement as filed on October 29, 1993.
(7) Previously filed as part of Post-Effective Amendment No. 18 to the
Registrant's Registration Statement as filed on August 10, 1994.
(8) Previously filed as part of Post-Effective Amendment No. 20 to the
Registrant's Registration Statement as filed on April 24, 1996.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
C-2
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 31, 1996, the Registrant had the following approximate
number of shareholder accounts:
Number of
Title of Class Accounts
-------------- ----------
Shares of beneficial interest:
The Pasadena Growth Fund 14,589
The Pasadena Balanced Return Fund 2,296
The Pasadena Nifty Fifty Fund 5,407
The Pasadena Global Growth Fund 2
The Pasadena Small & Mid-Cap Growth Fund 2
Item 27. INDEMNIFICATION.
Please see Article VI of the Registrant's By-Laws, previously filed as
an Exhibit. Pursuant to Rule 484 under the Securities Act of 1933, as
amended, the Registrant furnishes the following undertaking:
"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer, or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue."
Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits pursuant
to Sections 4 and 5 of Article VI of said By-Laws, any indemnification under
said Article shall be made by Registrant only if authorized in the manner
provided in either subsection (a) or (b) of Section 6 of said Article VI.
C-3
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Please see Parts A and B of this Registration Statement for discussion
of the Investment Adviser.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Not Applicable.
(b) The following information is furnished with respect to the officers
and directors of Pasadena Fund Services, Inc., the Registrant's principal
underwriter:
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------- ------------------------- ---------------------
Kristina M. Goddard President, Chief None
600 North Rosemead Executive Officer, Chief
Boulevard Operating Officer
Pasadena, CA 91107-2138
Jerry Kostka Director None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
Malcolm Axon Chief Financial Officer None
600 North Rosemead and Secretary
Boulevard
Pasadena, CA 91107-2138
Devra G. Bell Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
Vincent J. Finnegan Senior Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
Robert A. Fredrickson Senior Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
Neil G. Gaffney Senior Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------- ------------------------- ---------------------
William H. Low Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
Howard E. Parker Senior Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
Elizabeth C. Vilece Senior Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
(c) Not Applicable.
Item 30. LOCATIONS OF ACCOUNTS AND RECORDS.
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are kept by the Registrant at its offices, 600 North Rosemead Boulevard,
Pasadena, CA 91107-2133. Pasadena National Trust Company, 600 North Rosemead
Boulevard, Pasadena, CA 91107-2138, is the Registrant's transfer agent, and
maintains records relating to such activities. State Street Bank and Trust
Company, c/o BFDS, Two Heritage Drive, Boston, MA 02171, as sub-transfer
agent, maintains various shareholder account records and information
regarding the Global Growth, Balanced Return, Growth and Nifty Fifty Funds.
Item 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part
A or Part B of this Registration Statement.
Item 32. UNDERTAKINGS.
(a) Not applicable.
(b) Registrant hereby undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four to six
months from the effective date of Registrant's Post-Effective Amendment No.
22 to its 1933 Act Registration Statement with respect to shares of the
Pasadena Equity Income Fund.
(c) Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, the State of California, on the 2nd day of October, 1996.
PASADENA INVESTMENT TRUST
By: ROGER ENGEMANN*
------------------------------------
Roger Engemann, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registrant's Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
ROGER ENGEMANN* Principal Executive October 2, 1996
- ------------------------- Officer and Trustee
Roger Engemann
JOHN S. TILSON* Principal Financial October 2, 1996
- ------------------------- and Accounting
John S. Tilson Officer and Trustee
BARRY E. McKINLEY* Trustee October 2, 1996
- -------------------------
Barry E. McKinley
ROBERT L. PETERSON* Trustee October 2, 1996
- -------------------------
Robert L.Peterson
MICHAEL STOLPER* Trustee October 2, 1996
- -------------------------
Michael Stolper
RICHARD C. TAYLOR* Trustee October 2, 1996
- -------------------------
Richard C. Taylor
ANGELA WONG* Trustee October 2, 1996
- -------------------------
Angela Wong
*By: /s/ Julie Allecta
------------------------------------------------
Julie Allecta, Attorney-in-Fact,
pursuant to Powers of Attorney previously filed.
