<PAGE>
As filed with the Securities and Exchange Commission on April 24, 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. 20
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 23
------------
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:
X Immediately upon filing pursuant to paragraph (b) of Rule 485, or
on ______________ 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
75 days after filing pursuant to paragraph (a)(2) of Rule 485, or
on ________ pursuant to paragraph (a)(2) of Rule 485.
__________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Per Offering Registration
Registered Registered Share* Price Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial 8,175,505 $20.03 $163,755,366 $100.00
Interest
Shares of Beneficial Indefinite** N/A N/A N/A
Interest
</TABLE>
* Calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 of the Investment Company Act of 1940. A total of 8,161,027
shares were redeemed during the fiscal year 1995. 0 shares were used for
reductions pursuant to Rule 24f-2(c) during fiscal year 1995. 8,161,027
shares is the amount of redeemed shares used for reduction in this
amendment. Pursuant to Rule 457(d) under the Securities Act of 1933, the
maximum offering price of $20.03 per share on April 11, 1996 is the price
used as the basis for these calculations. While no fee is required for the
8,161,027 shares, Registrant has elected to register, for $100.00, an
additional $289,995 in shares (approximately 14,478 shares at $20.03 per
share).
** 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:
MITCHELL E. NICHTER, 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 GROWTH FUND-Registered Trademark-
THE PASADENA NIFTY FIFTY FUND-Registered Trademark-
THE PASADENA BALANCED RETURN FUND-Registered Trademark-
THE PASADENA GLOBAL GROWTH FUND-SM-
THE PASADENA SMALL & MID-CAP 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 Funds
- Part A: Prospectuses for the above-referenced Funds
- Part B: Statements of Additional Information for the above-referenced
Funds
- Part C: Other Information
- Signature Page
i
<PAGE>
PASADENA INVESTMENT TRUST
The Pasadena Growth Fund-Registered Trademark-
The Pasadena Nifty Fifty Fund-Registered Trademark-
The Pasadena Balanced Return Fund-Registered Trademark-
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
N-1A Location in
Item No. Item Registration Statement
- -------- ---- ----------------------
<S> <C> <C>
Part A: Information Required in Prospectus
----------------------------------
1. Cover Page Cover Page
2. Synopsis "Synopsis" and "Expense and
Fee Tables"
3. Condensed Financial "Financial Highlights"
Information
4. General Description of "Synopsis," "Investment Objectives
Registrant and Policies," and "Description of
the Trust"
5. Management of the Fund "Management"
5A. Management's Discussion "Performance Information"
of Fund Performance
6. Capital Stock and Other "Synopsis," "Alternative Purchase
Securities Arrangements," "Description of the
Trust," "Dividends, Distributions,
and Taxes" and "General
Information"
7. Purchase of Securities "Synopsis," "Alternative Purchase
Being Offered Arrangements," "Purchase of
Shares" and "Determination of Net
Asset Value"
8. Redemption or Repurchase "Synopsis," "Redemption of
Shares" and "Alternative Purchase
Arrangements"
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 Cover Page
12. General Information and "General"
History
13. Investment Objectives and "Investment Objectives and
Policies Policies"
14. Management of the Fund "Management of the Trust"
15. Control Persons and "Management of the Trust"
Principal Holders of
Securities
16. Investment Advisory and "Management of the Trust,"
Other Services "Investment Management Services"
and "Class B and Class C
Distribution Plans"
17. Brokerage Allocation and "Brokerage Allocation and Other
Other Practices Practices"
18. Capital Stock and Other See "Description of the Trust"
Securities in Prospectus
19. Purchase, Redemption and "Purchase, Redemption and
Pricing of Securities Being Pricing of Fund Shares"
Offered
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 "Financial Statements"
</TABLE>
iii
<PAGE>
PASADENA INVESTMENT TRUST
The Pasadena Global Growth Fund-SM-
CROSS REFERENCE SHEET
FORM N-1A
N-1A Location in
Item No. Item Registration Statement
- -------- ---- ----------------------
Part A: Information Required in Prospectus
----------------------------------
1. Cover Page Cover Page
2. Synopsis "Synopsis" and "Expense and Fee
Table"
3. Condensed Financial "Financial Highlights"
Information
4. General Description of "Synopsis," "Investment Objective
Registrant and Policies," and "Description of
the Trust"
5. Management of the Fund "Management"
5A. Management's Discussion "Performance Information"
of Fund Performance
6. Capital Stock and Other "Description of the Trust,"
Securities "Dividends, Distributions, and
Taxes" and "General Information"
7. Purchase of Securities "Purchase of Shares" and
Being Offered "Determination of Net Asset Value"
8. Redemption or Repurchase "Redemption of Shares"
9. Pending Legal Proceedings Not Applicable
iv
<PAGE>
Part B: Information Required in Statement of
Additional Information
------------------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information "General"
and History
13. Investment Objectives "Investment Objective and
and Policies Policies"
14. Management of the "Management of the Trust"
Fund
15. Control Persons and "Management of the Trust"
Principal Holders of
Securities
16. Investment Advisory "Management of the Trust"
and Other Services and "Investment Management
Services"
17. Brokerage Allocation "Brokerage Allocation and
and Other Practices Other Practices"
18. Capital Stock and See "Description of the
Other Securities Trust" in Prospectus
19. Purchase, Redemption "Purchase, Redemption and
and Pricing of Pricing of Fund Shares"
Securities Being
Offered
20. Tax Status "Distributions and Tax Status"
21. Underwriters "Principal Underwriter"
22. Calculation of Performance "Performance Information"
Data
23. Financial Statements "Financial Statements"
v
<PAGE>
PASADENA INVESTMENT TRUST
The Pasadena Small & Mid-Cap Fund-SM-
CROSS REFERENCE SHEET
FORM N-1A
N-1A Location in
Item No. Item Registration Statement
- -------- ---- ----------------------
Part A: Information Required in Prospectus
----------------------------------
1. Cover Page Cover Page
2. Synopsis "Synopsis" and "Expense and
Fee Table"
3. Condensed Financial "Financial Highlights"
Information
4. General Description of "Synopsis," "Investment Objective
Registrant and Policies, and "Description of
the Trust"
5. Management of the Fund "Management"
5A. Management's Discussion "Performance Information"
of 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
vi
<PAGE>
Part B: Information Required in Statement of
Additional Information
------------------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and "General"
History
13. Investment Objectives and "Investment Objective and
Policies Policies"
14. Management of the Fund "Management of the Trust"
15. Control Persons and "Management of the Trust"
Principal Holders of
Securities
16. Investment Advisory and "Management of the Trust"
Other Services "Investment Management Services"
and "Class B and Class C
Distribution Plans"
17. Brokerage Allocation and "Brokerage Allocation and Other
Other Practices Practices"
18. Capital Stock and Other See "Description of the Trust" in
Securities Prospectus
19. Purchase, Redemption and "Purchase, Redemption and Pricing
Pricing of Securities Being of Fund Shares"
Offered
20. Tax Status "Distributions and Tax Status"
21. Underwriters "Principal Underwriter" and
"Class B and Class C Distribution
Plans"
22. Calculation of Performance "Performance Information"
Data
23. Financial Statements "Financial Statements"
vii
<PAGE>
PART A
_______________________
PROSPECTUS
The Pasadena Growth Fund-Registered Trademark-
The Pasadena Nifty Fifty Fund-Registered Trademark-
The Pasadena Balanced Return Fund-Registered Trademark-
_______________________
<PAGE>
[LOGO] THE PASADENA GROUP
OF MUTUAL FUNDS
TAKE TIME TO GROW-Registered Trademark-
PROSPECTUS
MAY 1, 1996
__________________________________________________
THE PASADENA
GROWTH
FUND-Registered Trademark-
________________
THE PASADENA
NIFTY FIFTY
FUND-Registered Trademark-
________________
THE PASADENA
BALANCED RETURN FUND-Registered Trademark-
__________________________________________________
MANAGED BY
ROGER ENGEMANN MANAGEMENT CO., INC.
600 NORTH ROSEMEAD BOULEVARD
PASADENA, CALIFORNIA 91107-2133
(800) 648-8050
DISTRIBUTED BY PASADENA FUND SERVICES, INC.
REMCO-043
<PAGE>
<TABLE>
<S> <C>
THE PASADENA GROUP THE PASADENA
OF MUTUAL FUNDS-Registered Trademark- GROWTH
[Logo] FUND-Registered Trademark-
THE PASADENA
NIFTY FIFTY
FUND-Registered Trademark-
THE PASADENA
BALANCED RETURN
FUND-Registered Trademark-
</TABLE>
THE PASADENA GROWTH FUND seeks to achieve long-term capital appreciation by
emphasizing investments in companies with rapidly growing earnings per share,
some of which may be smaller emerging growth companies.
THE PASADENA NIFTY FIFTY FUND seeks to achieve long-term capital
appreciation by investing in approximately 50 different securities which its
Manager believes offer the best potential for long-term growth of capital.
THE PASADENA BALANCED RETURN FUND seeks to maximize a total investment
return consistent with reasonable risk through a balanced approach using
moderate asset allocation by its Manager.
Roger Engemann Management Co., Inc. is the investment manager for the Funds.
Each Fund is a separate series of the Pasadena Investment Trust (the "Trust"),
and each offers three classes of shares (Class A, Class B and Class C shares).
See "Synopsis -- Purchase and Redemption of Shares" below. The minimum initial
investment for each Fund is $1,000 per account ($250 for individual retirement
and minor's custodial accounts and for initial purchases under a Systematic
Purchase Plan). Minimum subsequent investments are $50. See "Purchase of
Shares."
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing. Please read it and retain it
for future reference. Additional information about the Funds and the Trust is
included in the Trust's Statement of Additional Information dated May 1, 1996,
as 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 MAY 1, 1996
<PAGE>
SYNOPSIS
The following synopsis is qualified in its entirety by the detailed
information contained elsewhere in this Prospectus or the Statement of
Additional Information.
THE FUNDS. The Pasadena Group of Mutual Funds consists of five separate
series of the Pasadena Investment Trust (the "Trust"), a Massachusetts business
trust, organized as a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The three series (each a "Fund", and collectively the "Funds") described
in this single Prospectus are:
- The Pasadena Growth Fund (the "Growth Fund")
- The Pasadena Nifty Fifty Fund (the "Nifty Fifty Fund")
- The Pasadena Balanced Return Fund (the "Balanced Return Fund")
The fourth and fifth series of the Trust, The Pasadena Global Growth Fund
and The Pasadena Small & Mid-Cap Fund, are covered by separate Prospectuses.
THE MANAGER. Roger Engemann Management Co., Inc. (the "Manager") provides
investment advice to the Funds and manages the Funds' investments. The Manager's
annual management fee, which is computed and prorated daily, equals 1.00% of the
average daily net assets of each Fund up to $30 million, plus 0.80% of net
assets over $30 million up to $100 million, plus 0.60% of net assets over $100
million up to $500 million, plus 0.40% of net assets over $500 million. The
Manager also performs and/or assumes the expenses for all of the Funds'
administrative and most shareholder services, for which it receives an annual
administration fee equal to 1.05% of the average daily net assets of each Fund
up to $30 million, plus 0.85% over $30 million up to $100 million, plus 0.65%
over $100 million up to $500 million, plus 0.60% of net assets over $500
million. The combined rate of fees is higher than that paid by most investment
companies to their manager. However, the Funds will not incur any other expenses
in connection with their normal operations other than (i) a fee paid by each
class of shares to dealers and others for servicing shareholder accounts equal
to 0.25% per annum of the aggregate average daily net assets of each Fund
attributable to that class, and (ii) an ongoing distribution fee payable by
Class B and Class C shares at an annual rate of 0.75% of each Fund's average
daily net assets attributable to each such class. The management fee for each
Fund also is subject to a more restrictive limitation imposed by the law of a
state in which each Fund is registered to sell its shares. See "Management."
PURCHASE AND REDEMPTION OF SHARES. The Funds offer their shares
continuously and redeem their shares upon a shareholder's request. Each Fund
offers three classes of shares (each a "Class"). As of January 1, 1994, all of
the previously outstanding shares of each Fund were redesignated as Class A
shares without any other changes, and Class B and Class C shares became
available. 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 front-end 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 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 and Class C shares of more than $100,000 per Fund
will not be accepted. For more information about the different purchase
arrangements, see "Alternative Purchase Arrangements." For more information
about the various expenses borne by each Class, see "Comparison of Classes" and
"Expense and Fee Tables."
The minimum initial investment is $1,000 per account ($250 for individual
retirement and minor's custodial accounts and for initial purchases under a
Systematic Purchase Plan). Minimum subsequent investments are $50. See "Purchase
of Shares."
2
<PAGE>
Shares are redeemed at their net asset value per share next determined after the
Sub-Transfer Agent, the applicable Fund, or another authorized agent or subagent
of the Fund, receives a redemption request in proper form (less the CDSC, if
any, with respect to the Class B shares). See "Redemption of Shares."
COMPARISON OF CLASSES.
The following table compares certain aspects relating to the purchase of
shares of the three Classes:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Sales Charges.............. Initial sales charge at CDSC of 5% to 3% applies to No initial sales charge; no
time of investment of up to any shares redeemed within CDSC.
5.50%, depending on amount first four years following
of investment. their purchase; no CDSC
On investments of $1 after four years.
million or more, no initial
sales charge.
12b-1 Distribution Fee..... None. 0.75% for first six years. 0.75% each year. No
At the beginning of seventh conversion to Class A
year, Class B shares 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. An investment in the
Funds is subject to the risk that market prices or interest rates will not agree
with the Manager's estimation of fundamental security values or market trends.
The Funds are designed to be long-term investments. Therefore, because each
Fund's net asset value per share will fluctuate with daily changes in the market
prices of its portfolio securities, an investment in the Funds may not be
suitable for investors with specific short-term investment return needs. Each
Fund also may invest part of its assets in securities with special risks, such
as foreign securities and securities representing special situations. See
"Investment Objectives and Policies."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, and are not insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Shares of the Funds involve investment risk, including possible loss of
principal.
EXPENSE AND FEE TABLES
Expenses are one of several factors to consider when investing in the Funds.
The purpose of the following tables is to provide an understanding of the
various costs and expenses that shareholders of each Class of each Fund 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 and Class C shares of a
Fund may over time pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. ("NASD"), even though all shareholders of those Classes in the
aggregate will not. This is recognized and permitted by the NASD.
3
<PAGE>
GROWTH FUND
<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:
Administration Fees.................................................................. 0.71% 0.71% 0.71%
Management Fees...................................................................... 0.66% 0.66% 0.66%
12b-1 Fees........................................................................... None 0.75% 0.75%
Service Fees......................................................................... 0.25% 0.25% 0.25%
--- --- ---
Total Fund Operating Expenses.................................................... 1.62% 2.37% 2.37%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
* A $10.00 fee may be charged for redemptions made by bank wire (see p. 20).
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of the Growth 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 A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
1 year............................................ $ 70 $ 74 $ 24
3 years........................................... 103 104 74
5 years........................................... 138 127 127
10 years........................................... 236 235** 271
</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 A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
1 year............................................ $ 70 $ 24 $ 24
3 years........................................... 103 74 74
5 years........................................... 138 127 127
10 years........................................... 236 235** 271
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at end
of sixth year following the date of purchase.
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
IN ADDITION, FEDERAL REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL
RETURN, BUT THE ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "PURCHASE OF SHARES"
AND "MANAGEMENT."
4
<PAGE>
NIFTY FIFTY FUND
<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:
Administration Fees.................................................................. 0.84% 0.84% 0.84%
Management Fees...................................................................... 0.78% 0.78% 0.78%
12b-1 Fees........................................................................... None 0.75% 0.75%
Service Fees......................................................................... 0.25% 0.25% 0.25%
--- --- ---
Total Fund Operating Expenses.................................................... 1.87% 2.62% 2.62%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
* A $10.00 fee may be charged for redemptions made by bank wire (see p. 20).
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of the Nifty Fifty 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 A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
1 year............................................ $ 73 $ 77 $ 27
3 years........................................... 110 111 81
5 years........................................... 150 139 139
10 years........................................... 262 261** 295
</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 A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
1 year............................................ $ 73 $ 27 $ 27
3 years........................................... 110 81 81
5 years........................................... 150 139 139
10 years........................................... 262 261** 295
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at end
of sixth year following the date of purchase.
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
IN ADDITION, FEDERAL REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL
RETURN, BUT THE ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "PURCHASE OF SHARES"
AND "MANAGEMENT."
5
<PAGE>
BALANCED RETURN FUND
<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:
Administration Fees.................................................................. 0.96% 0.96% 0.96%
Management Fees...................................................................... 0.90% 0.90% 0.90%
12b-1 Fees........................................................................... None 0.75% 0.75%
Service Fees......................................................................... 0.25% 0.25% 0.25%
--- --- ---
Total Fund Operating Expenses.................................................... 2.11% 2.86% 2.86%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
* A $10.00 fee may be charged for redemptions made by bank wire (see p. 20).
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of the Balanced Return 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 A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
1 year............................................ $ 75 $ 79 $ 29
3 years........................................... 117 119 89
5 years........................................... 162 151 151
10 years........................................... 286 284** 319
</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 A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
1 year............................................ $ 75 $ 29 $ 29
3 years........................................... 117 89 89
5 years........................................... 162 151 151
10 years........................................... 286 284** 319
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at end
of sixth year following the date of purchase.
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
IN ADDITION, FEDERAL REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL
RETURN, BUT THE ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "PURCHASE OF SHARES"
AND "MANAGEMENT."
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables contain information for one Class A, Class B and Class
C share of beneficial interest outstanding throughout each indicated period for
each of the Funds since the inception of such Class for each Fund, which has
been audited by Coopers & Lybrand L.L.P., independent accountants. The
accountants' unqualified report for each of the periods ended December 31
(except for the initial period of the Growth Fund ended December 31, 1986 and
the years 1987, 1988, 1989 and 1990, the initial period of the Nifty Fifty Fund
ended December 31, 1990, and the initial period of the Balanced Return Fund
ended December 31, 1987 and the years 1988, 1989 and 1990) appears in the Funds'
Annual Report for the year ended December 31, 1995. The financial highlights
should be read in conjunction with the financial statements contained in the
Funds' Annual Report for the year ended December 31, 1995 which is incorporated
by reference in the Statement of Additional Information. The remaining data has
also been audited, but are not covered by the accountants' current report.
<TABLE>
<CAPTION>
THE PASADENA GROWTH FUND
----------------------------------------------------------------------------------------
FOR THE
YEAR
ENDED
DECEMBER
FOR THE YEAR ENDED DECEMBER 31, 31,
---------------------------------------------------------------------------- ---------
1995 1994 1993 1992
------------------------------- ------------------------------ --------- ---------
CLASS CLASS
CLASS A CLASS B CLASS C CLASS A B(2) C(2)
--------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of
period........... $ 15.40 $ 15.28 $ 15.28 $ 16.00 $15.89 $15.89 $ 17.00 $ 16.80
--------- -------- -------- --------- -------- ------- --------- ---------
Gain (Loss) from
Investment
Operations:
Net investment
loss(3).......... (.06) (.20) (.20) (.03) (.14) (.14) (.02) (.05)
Net realized and
unrealized gain
(loss) on
investments...... 4.24 4.21 4.21 (.57) (.47) (.47) (.98) .43
--------- -------- -------- --------- -------- ------- --------- ---------
Total gain (loss)
from investment
operations......... 4.18 4.01 4.01 (.60) (.61) (.61) (1.00) .38
--------- -------- -------- --------- -------- ------- --------- ---------
Less Distributions:
Distributions from
capital gains.... (.30) (.30) (.30) -- -- -- -- (.18)
--------- -------- -------- --------- -------- ------- --------- ---------
Total
distributions.... (.30) (.30) (.30) -- -- -- -- (.18)
--------- -------- -------- --------- -------- ------- --------- ---------
Net asset value, end
of period.......... $ 19.28 $ 18.99 $ 18.99 $ 15.40 $15.28 $15.28 $ 16.00 $ 17.00
--------- -------- -------- --------- -------- ------- --------- ---------
--------- -------- -------- --------- -------- ------- --------- ---------
Total Return(4)..... 27.16% 26.26% 26.26% (3.75)% (3.84)% (3.84)% (5.87)% 2.24%
Ratios/Supplemental
Data:
Net assets, end of
period (in
thousands)....... $ 415,416 $ 34,786 $ 20,497 $ 391,831 $11,349 $6,136 $ 532,208 $ 625,624
Ratio of net
expenses to
average net
assets........... 1.6% 2.4% 2.4% 1.6% 2.3% 2.3% 1.6% 1.6%
Ratio of net
investment loss
to average net
assets........... (.3)% (1.1)% (1.1)% (.2)% (1.0)% (1.0)% -- (.3)%
Portfolio turnover
rate............. 65.9% 65.9% 65.9% 53.8% 53.8% 53.8% 22.9% 24.5%
<CAPTION>
THE PASADENA GROWTH FUND
--------------------------------------------------------------
INCEPTION
(JUNE
24,
1986)
TO
DECEMBER
31,
1991(1) 1990(1) 1989(1) 1988(1) 1987(1) 1986(1)
--------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of
period........... $ 10.04 $ 10.53 $ 8.41 $ 6.19 $ 6.99 $7.73
--------- -------- -------- -------- -------- -------
Gain (Loss) from
Investment
Operations:
Net investment
loss(3).......... (.08) (.09) (.04) -- (.06) (.01)
Net realized and
unrealized gain
(loss) on
investments...... 6.89 (.39) 3.19 2.22 (.74) (.70)
--------- -------- -------- -------- -------- -------
Total gain (loss)
from investment
operations......... 6.81 (.48) 3.15 2.22 (.80) (.71)
--------- -------- -------- -------- -------- -------
Less Distributions:
Distributions from
capital gains.... (.05) (.01) (1.03) -- -- (.03)
--------- -------- -------- -------- -------- -------
Total
distributions.... (.05) (.01) (1.03) -- -- (.03)
--------- -------- -------- -------- -------- -------
Net asset value, end
of period.......... $ 16.80 $ 10.04 $ 10.53 $ 8.41 $ 6.19 $6.99
--------- -------- -------- -------- -------- -------
--------- -------- -------- -------- -------- -------
Total Return(4)..... 67.83% (4.55)% 37.75% 35.78% (11.45)% (9.21)%
Ratios/Supplemental
Data:
Net assets, end of
period (in
thousands)....... $ 323,484 $ 80,639 $ 36,722 $ 18,049 $ 10,923 $7,379
Ratio of net
expenses to
average net
assets........... 1.8% 2.2% 1.8% 1.8% 2.0% 2.0%(5)
Ratio of net
investment loss
to average net
assets........... (.6)% (.9)% (.5)% -- (.9)% (.6)%(5)
Portfolio turnover
rate............. 23.5% 32.0% 93.8% 99.3% 114.5% 41.6%
</TABLE>
- ------------------------------
Footnotes on next page.
7
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA NIFTY FIFTY FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE
YEAR
ENDED
DECEMBER
FOR THE YEAR ENDED DECEMBER 31, 31,
------------------------------------------------------------------- ---------
1995 1994 1993
------------------------------- --------------------------------- ---------
<CAPTION>
CLASS CLASS
CLASS A CLASS B CLASS C CLASS A B(2) C(2)
--------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period... $ 17.30 $ 17.17 $ 17.17 $ 17.12 $ 17.02 $ 17.02 $ 17.21
--------- -------- -------- --------- --------- --------- ---------
Gain (Loss) from
Investment Operations:
Net investment
loss(3)............... (.05) (.21) (.21) (.03) (.14) (.15) (.06)
Net realized and
unrealized gain (loss)
on investments........ 4.93 4.89 4.89 .21 .29 .30 (.03)
--------- -------- -------- --------- --------- --------- ---------
Total gain (loss) from
investment operations... 4.88 4.68 4.68 .18 .15 .15 (.09)
--------- -------- -------- --------- --------- --------- ---------
Less Distributions:
Distributions from
capital gains......... -- -- -- -- -- -- --
--------- -------- -------- --------- --------- --------- ---------
Total distributions.... -- -- -- -- -- -- --
--------- -------- -------- --------- --------- --------- ---------
Net asset value, end of
period.................. $ 22.18 $ 21.85 $ 21.85 $ 17.30 $ 17.17 $ 17.17 $ 17.12
--------- -------- -------- --------- --------- --------- ---------
--------- -------- -------- --------- --------- --------- ---------
Total Return(4).......... 28.21% 27.26% 27.26% 1.05% .88% .88% (.52)%
Ratios/Supplemental Data:
Net assets, end of
period (in
thousands)............ $ 122,322 $ 27,462 $ 15,105 $ 100,596 $ 6,722 $ 4,283 $ 134,284
Ratio of net expenses
to average net
assets................ 1.9% 2.6% 2.6% 1.9% 2.6% 2.6% 1.8%
Ratio of net investment
loss to average net
assets................ (.3)% (1.0)% (1.0)% (.2)% (.9)% (.9)% --
Portfolio turnover
rate.................. 26.5% 26.5% 26.5% 23.2% 23.2% 23.2% 2.2%
<CAPTION>
THE PASADENA NIFTY FIFTY FUND
------------------------------------
<S> <C> <C> <C>
INCEPTION
(DECEMBER 17,
1990) TO
DECEMBER 31,
1992 1991 1990
--------- -------- -------------
<S> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period... $ 16.60 $ 9.97 $ 10.00
--------- -------- -------------
Gain (Loss) from
Investment Operations:
Net investment
loss(3)............... (.05) (.01) --
Net realized and
unrealized gain (loss)
on investments........ .66 6.74 (.03)
--------- -------- -------------
Total gain (loss) from
investment operations... .61 6.73 (.03)
--------- -------- -------------
Less Distributions:
Distributions from
capital gains......... -- (.10) --
--------- -------- -------------
Total distributions.... -- (.10) --
--------- -------- -------------
Net asset value, end of
period.................. $ 17.21 $ 16.60 $ 9.97
--------- -------- -------------
--------- -------- -------------
Total Return(4).......... 3.67% 67.64% (.37)%
Ratios/Supplemental Data:
Net assets, end of
period (in
thousands)............ $ 195,067 $ 64,156 $ 528
Ratio of net expenses
to average net
assets................ 1.9% 1.9% 1.2%(5)
Ratio of net investment
loss to average net
assets................ (.3)% (.1)% .4%(5)
Portfolio turnover
rate.................. 12.9% 27.6% .9%
</TABLE>
<TABLE>
<CAPTION>
THE PASADENA BALANCED RETURN FUND
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1994 1993 1992
---------------------------- ---------------------------- -------- --------
<CAPTION>
CLASS CLASS
CLASS A CLASS B CLASS C CLASS A B(2) C(2)
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period... $ 20.54 $ 20.49 $ 20.48 $ 21.97 $21.89 $21.89 $ 21.76 $ 20.95
-------- ------- ------- -------- ------- ------- -------- --------
Gain (Loss) from
Investment Operations:
Net investment
income(3)............. .27 .08 .07 .39 .26 .25 .32 .25
Net realized and
unrealized gain (loss)
on investments........ 5.31 5.29 5.30 (1.36) (1.32) (1.31) .21 .69
-------- ------- ------- -------- ------- ------- -------- --------
Total gain (loss) from
investment operations... 5.58 5.37 5.37 (.97) (1.06) (1.06) .53 .94
-------- ------- ------- -------- ------- ------- -------- --------
Less Distributions:
Dividends paid from net
investment income..... (.29) (.16) (.13) (.46) (.34) (.35) (.32) (.13)
Distributions from
capital gains......... (.44) (.44) (.44) -- -- -- -- --
-------- ------- ------- -------- ------- ------- -------- --------
Total distributions.... (.73) (.60) (.57) (.46) (.34) (.35) (.32) (.13)
-------- ------- ------- -------- ------- ------- -------- --------
Net asset value, end of
period.................. $ 25.39 $ 25.26 $ 25.28 $ 20.54 $20.49 $20.48 $ 21.97 $ 21.76
-------- ------- ------- -------- ------- ------- -------- --------
-------- ------- ------- -------- ------- ------- -------- --------
Total Return(4).......... 27.18% 26.20% 26.23% (4.43)% (4.85)% (4.85)% 2.44% 4.49%
Ratios/Supplemental Data:
Net assets, end of
period (in
thousands)............ $ 52,028 $ 2,721 $ 2,809 $ 53,047 $1,223 $1,449 $ 84,591 $ 75,143
Ratio of net expenses
to average net
assets................ 2.1% 2.9% 2.9% 2.1% 2.9% 2.9% 2.1% 2.3%
Ratio of net investment
income to average net
assets................ 1.2% .3% .3% 1.8% 1.3% 1.3% 1.5% 1.2%
Portfolio turnover
rate.................. 51.1% 51.1% 51.1% 28.2% 28.2% 28.2% 4.8% 6.3%
<CAPTION>
THE PASADENA BALANCED RETURN FUND
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCEPTION
(JUNE 8,
1987)
FOR THE YEAR ENDED DECEMBER 31, TO
-------------------------------------- DECEMBER 31,
1991 1990 1989 1988 1987
-------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period... $ 15.30 $ 15.91 $ 12.51 $ 11.50 $10.00
-------- ------- ------- ------- -------------
Gain (Loss) from
Investment Operations:
Net investment
income(3)............. .24 .16 .18 .13 .16
Net realized and
unrealized gain (loss)
on investments........ 5.70 (.25) 3.94 1.38 1.34
-------- ------- ------- ------- -------------
Total gain (loss) from
investment operations... 5.94 (.09) 4.12 1.51 1.50
-------- ------- ------- ------- -------------
Less Distributions:
Dividends paid from net
investment income..... (.16) (.19) (.19) (.41) --
Distributions from
capital gains......... (.13) (.33) (.53) (.09) --
-------- ------- ------- ------- -------------
Total distributions.... (.29) (.52) (.72) (.50) --
-------- ------- ------- ------- -------------
Net asset value, end of
period.................. $ 20.95 $ 15.30 $ 15.91 $ 12.51 $11.50
-------- ------- ------- ------- -------------
-------- ------- ------- ------- -------------
Total Return(4).......... 38.89% (.39)% 32.98% 13.42% 15.00%
Ratios/Supplemental Data:
Net assets, end of
period (in
thousands)............ $ 16,020 $ 5,001 $ 3,747 $ 1,924 $ 742
Ratio of net expenses
to average net
assets................ 2.5% 2.5% 2.1% 2.0% --%(5)
Ratio of net investment
income to average net
assets................ 1.3% 1.0% 1.5% 1.7% 5.3%(5)
Portfolio turnover
rate.................. 4.9% 35.8% 24.3% 30.6% 13.1%
</TABLE>
- ------------------------------
(1) All Growth Fund per share amounts for years prior to 1992 have been
restated to reflect the 2-for-1 share split effective September 30, 1991.
(2) The beginning Class B and Class C net asset value per share equals the net
asset value per share of the Class A shares as of January 3, 1994, the first
day Class B and Class C shares were sold.
(3) This information was prepared using the average number of shares
outstanding during each period.
(4) Total return measures the change in the value of an investment over the
periods indicated. It does not include the impact of paying any otherwise
applicable front-end or CDSC. Total return for periods of less than twelve
months have not been annualized.
(5) Annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND STRATEGIES
The investment objective of the Growth Fund and the Nifty Fifty Fund is
long-term capital appreciation. The investment objective of the Balanced Return
Fund is to maximize a total investment return consistent with reasonable risk.
The investment objective for each Fund is "fundamental," meaning that it
will not be changed without the approval of a majority of that Fund's voting
securities, as defined in the 1940 Act. There is, of course, no assurance that
any of the Funds will achieve its investment objective, although they will
always follow the investment strategies discussed below.
THE GROWTH FUND. The Growth Fund emphasizes the purchase of common stocks
of domestic corporations with rapidly growing earnings per share. Some of the
companies in its portfolio may be unseasoned, although others may be well-known
and established. Many of the companies in the Growth Fund's portfolio may have a
small capitalization (i.e., less than $500 million). The Growth Fund also
invests in stocks of companies that, although not growing rapidly, are
undervalued by other criteria of their fundamental net worth in the opinion of
the Manager. The volatility of its investment portfolio is likely to be greater
than that of the Standard & Poor's 500 Stock Index and greater than that of the
Balanced Return Fund. For this reason, the net asset value per share of the
Growth Fund may fluctuate substantially, and the Fund may not be appropriate for
short-term investors. Dividend and interest income received from portfolio
securities is largely incidental.
THE NIFTY FIFTY FUND. The Nifty Fifty Fund seeks its objective through
investment in approximately 50 different securities which the Manager believes
represent the best potential to achieve long-term growth of capital. Dividend
and interest income to be received from portfolio securities is largely
incidental.
Under normal market conditions, it is expected that at least 75% of the
Nifty Fifty Fund's assets will be invested in common stocks of high-quality
growth companies (i.e., companies which generally exceed $50 million in annual
net income) which, at the time of investment, would satisfy the applicable
listing requirements of the New York Stock Exchange with respect to demonstrated
earning power, years in operation, number of publicly held shares, and net
tangible assets.
It is expected that the remaining portion of the Nifty Fifty Fund's
investment portfolio will be invested in common stocks of corporations with
rapidly growing earnings per share or in common stocks of corporations that are
believed to be undervalued by other criteria used by the Manager. Some of these
companies may be unseasoned, although others may be well-known and established.
Many of the companies in this portion of the Nifty Fifty Fund's investment
portfolio may be considered small (i.e., less than $50 million in annual net
income), and the volatility of price movements of these securities and,
accordingly, the Fund's investment portfolio as a whole is likely to be greater
than that of the Standard & Poor's 500 Stock Index. For this reason, the net
asset value per share of the Nifty Fifty Fund may also fluctuate substantially,
and the Fund may not be appropriate for short-term investors.
While the Nifty Fifty Fund anticipates being fully invested at all times,
except for temporary defensive purposes, it may for short periods of time have
more or less than 50 different securities while it is establishing or
eliminating a particular position.
THE BALANCED RETURN FUND. The Balanced Return Fund seeks its objective
through a balanced approach using moderate asset allocation by its Manager
through investments in high-quality growth companies and U.S. Government
securities.
The Manager will shift its emphasis among equity and debt investments, as
well as among various industry sectors, as it may determine based upon financial
trends and changes in economic and market conditions. The balance between
equities and U.S. Government securities at any time will be within the Manager's
sole discretion. Under normal market conditions, the Fund expects to maintain at
least 25% of its net assets in U.S. Government securities.
While the Manager considers both the opportunity for gain and the risk of
loss in making investments, its intention is to provide capital appreciation
from equities, balanced by income and capital preservation from U.S. Government
securities, to achieve less volatility than a portfolio consisting solely of
equity securities. Using a balance of equities and U.S. Government
9
<PAGE>
securities, this Fund is expected, in the long run, to entail less investment
risk and volatility (and potentially less investment return) than a mutual fund
investing exclusively in common stocks. Of course, all fixed-income securities,
like common stocks, are subject to market risk and will fluctuate in value.
The Balanced Return Fund is a more conservatively managed fund than either
the Growth Fund or the Nifty Fifty Fund, and the Manager anticipates that the
volatility of price movement of the equity securities in its investment
portfolio generally will be less than that of the securities in the Standard &
Poor's 500 Stock Index. Although the Balanced Return Fund generally will invest
in the stocks of more well-established companies with larger capitalization,
many of which will be listed on the New York Stock Exchange, it may also invest
in the securities of companies listed on any exchange or traded in the
over-the-counter market.
INVESTMENTS. The Growth Fund's investments may also include preferred
stocks, warrants, convertible debt obligations and other debt obligations that,
in the Manager's opinion, offer the possibility of capital appreciation over the
course of approximately two or more years because of the timing of such
investments. In addition to the interest received from such debt instruments, if
interest rates fall these instruments are likely to increase in value.
Conversely, if interest rates rise a decrease in value can be expected. The
Growth Fund does not, however, anticipate investing a significant portion of its
total assets in such instruments.
The debt obligations which may be acquired by the Growth Fund include direct
and indirect obligations of the U.S. Government and its agencies, states and
municipalities and their agencies, or corporate issuers. Any corporate debt
obligations in which the Growth Fund may invest must be rated at least BBB or
Baa or better by national agencies, or, if unrated, are, in the Manager's
opinion, of equivalent investment quality. Securities which are rated "BBB" or
"Baa" are generally regarded as having an adequate capacity to pay interest and
repay principal in accordance with the terms of the obligation, but may have
some speculative characteristics. In addition, such securities are generally
more sensitive to changes in economic conditions than securities rated in the
higher categories, which tend to be more sensitive to interest rate changes. In
the event that the rating for any security held in the Growth Fund's portfolio
drops below "BBB" or "Baa," such change will be considered by the Fund's Manager
in evaluating the overall composition of the Fund's portfolio. See the Appendix
in the Statement of Additional Information.
The Nifty Fifty Fund may invest in the securities of companies listed on any
exchange or traded in the over-the-counter market, and is expected to invest
principally in common stocks. This Fund's investments may also include to a
limited extent preferred stocks, warrants, and convertible debt obligations, if
deemed appropriate by the Manager in meeting the Fund's objective.
The Funds may also (subject to the limitations described below) invest in
securities of unseasoned companies, foreign companies, and special situations.
Such securities often involve greater risks than investments in more established
domestic companies, primarily because they may be more likely to experience
unexpected fluctuations in price. See "Investment Policies" below for a further
discussion of the policies regarding investments in unseasoned companies,
foreign companies, and special situations. Because prices of common stocks and
other securities fluctuate, the value of an investment in each Fund will vary,
based upon each Fund's investment performance. Each Fund attempts to reduce its
overall exposure to risk from declines in individual securities by spreading its
investments over different companies and a variety of industries.
Like any investment program, an investment in any Fund entails certain
inherent risks. The stock market tends to be cyclical, with periods when stock
prices generally rise and periods when stock prices generally decline.
Investments in debt securities are also exposed to interest rate risk -- i.e.,
fluctuations in the market value of bonds due to changing interest rates.
Each Fund may generally 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 on the amount of income that may be realized on the
sale of assets held for less than three months.This factor, together with the
adjustment of the investment portfolio whenever deemed advisable, may, from time
to time, result in a relatively high rate of portfolio turnover, which is
generally not anticipated to exceed 100%. For the fiscal years ended December
31, 1994 and 1995, the Growth Fund's portfolio turnover rate was 53.8% and
65.9%, respectively,
10
<PAGE>
the Balanced Return Fund's portfolio turnover rate was 28.2% and 51.1%,
respectively, and the Nifty Fifty Fund's portfolio turnover rate was 23.2% and
26.5%, respectively. (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.) High portfolio activity increases the
Fund's transaction costs, including brokerage commissions.
TEMPORARY DEFENSIVE INVESTMENTS. From time to time, depending on the
Manager's analysis of market and other considerations, all or any part of the
assets of the Funds 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. In
any repurchase transaction in which a Fund engages, the Fund's position during
the entire term of the repurchase agreement will be fully collateralized.
INVESTMENT POLICIES
In addition to the investment criteria described above, the Funds will
follow the investment policies set forth below which, unless otherwise indicated
as an operating policy, are fundamental policies that may not be changed without
prior shareholder approval as defined in the 1940 Act. References below to
certain percentages of 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 each Fund's total assets, a Fund will not
invest more than 5% of its total assets in the securities of any one issuer,
other than obligations either issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. This limitation does not apply with respect to
the remaining 25% of a Fund's total assets (except that neither the Growth Fund
nor the Balanced Return Fund will invest more than 10% of its total assets in
any one non-U.S. Government issuer).
(b) CONCENTRATION OF INVESTMENTS IN AN INDUSTRY
Each Fund will not invest more than 25% of its total assets in the
securities of issuers in any one industry.
(c) LIMITATION ON PERCENTAGE OWNERSHIP OF AN ISSUER.
With respect to at least 75% of each Fund's total assets, a Fund will not
acquire more than 10% of the outstanding voting securities of any one issuer.
This limitation does not apply with respect to the remaining 25% of a Fund's
total assets (except for the Growth Fund and the Balanced Return Fund which will
apply this limitation to 100% of their assets; and the holdings by the other
Funds in the Pasadena Group in the same issuer will be included for purposes of
this limitation.)
(d) FOREIGN SECURITIES.
As a matter of operating policy (which may be changed upon notice to
shareholders), the Funds may occasionally purchase foreign securities that are
listed on a principal foreign securities exchange or over-the-counter market, or
that are represented by Depositary Receipts (e.g., American, European, Global,
Continental, etc.) listed on a domestic securities exchange, or are traded in
the domestic over-the-counter market. However, each Fund anticipates that
foreign securities will not be a significant part of its portfolio and will be
acquired only when the Manager believes that the prospective return clearly
warrants the special risks of such investments. Such risks may include the
effect of foreign currency exchange rates, exchange control regulations, the
availability of possibly less public information, withholding taxes on dividends
or interest payments, and any political or social instability in the country of
origin. Each of the Funds will not invest more than 15% of its total assets in
foreign securities (subject to the aggregate limitations referred to below with
respect to the Nifty Fifty Fund and the Balanced Return Fund). The possible
benefits and special risks of foreign securities are described in the Statement
of Additional Information under "Investment Objectives and Policies."
(e) SPECIAL SITUATIONS.
As a matter of operating policy, the Funds 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,
11
<PAGE>
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 Funds in special situations may not exceed 30% of each Fund's
total assets; such investments by the Nifty Fifty Fund and the Balanced Return
Fund are subject to the aggregate limitations referred to below.
(f) UNSEASONED COMPANIES.
As a matter of operating policy, the Funds may invest in securities of
unseasoned companies. 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 may not be as liquid as larger capitalized
companies. Also, their share prices may be more volatile than those of larger,
exchange-listed companies. In order to avoid undue risks, the Funds normally
will not purchase securities of any company with a record of fewer than three
years' continuous operation (including that of predecessors). Investments by the
Nifty Fifty Fund and the Balanced Return Fund in such securities may not exceed
5% and 30%, respectively, of each Fund's total assets, subject to the aggregate
limitations referred to below.
(g) WARRANTS.
As a matter of operating policy, each Fund will not invest more than 5% of
its net assets in warrants, subject to the restriction that not more than 2% may
be in warrants not listed on the New York or American Stock Exchanges. While any
warrants purchased by the Funds 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 predesignated expiration date.
(h) OTHER INVESTMENT RESTRICTIONS.
The investments by the Nifty Fifty Fund and the Balanced Return Fund in
securities of foreign companies, special situations, and unseasoned companies
may not in the aggregate exceed 35% of each Fund's total assets.
Each Fund has adopted additional restrictions, both fundamental and
operating, that prohibit or restrict certain investments or practices, including
the purchase of illiquid securities and securities of issuers in which officers
or trustees of the Trust or the Manager have certain interests, and the
borrowing of not more than 5% of its total assets for temporary or emergency
purposes. These additional restrictions are described in the Statement of
Additional Information under "Investment Objectives and Policies."
Each of the Funds has reserved the right, if approved by the Board of
Trustees, to convert in the future to a "feeder" fund which would invest all of
its assets in a "master" fund having substantially the same investment
objective, policies and restrictions as currently exist for the respective Fund.
Prior notice of any such action would be given to all shareholders if and when
such a proposal is approved, although no such action has been proposed as of the
date of this Prospectus.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund offers investors three Classes of shares which bear sales and
distribution charges in different forms and amounts:
CLASS A SHARES. An investor who purchases Class A shares pays a sales
charge up-front 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 generally pay correspondingly higher dividends per
share, to the extent any dividends are paid, than Class B shares or Class C
shares. However,
12
<PAGE>
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 1/4% 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 fee
distribution fee for as long as the shares are owned. The distribution fee paid
by Class C shares will cause them to have a higher expense ratio and to pay
lower dividends, to the extent any dividends are paid, than Class A shares. The
Distributor will pay out of its own resources to the selling dealer a commission
equal to 1% of the amount of the purchase. See "Purchase of Shares -- Pay-
As-You-Go Alternative -- Class C Shares."
WHICH PURCHASE ARRANGEMENT IS BETTER FOR YOU? The decision as to which
Class of shares provides a more suitable investment for a particular investor
depends on a number of factors, including the amount and intended length of the
investment, whether the investor wishes to receive distributions in cash or to
reinvest them in additional shares of a Fund, and other circumstances. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge and who are not sure of
their intended holding period might consider Class C shares. To assist investors
in making this determination, the tables under the caption "Expense and Fee
Tables" show examples of the charges applicable to each Class of each Fund.
Orders for Class B or Class C shares for more than $100,000 per Fund 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 Funds are offered continuously for purchase through investment
dealers at the public offering price next determined after a purchase order in
proper form is received by the Sub-Transfer Agent, the Funds, or another
authorized agent or subagent of the Fund. The public offering price is effective
for orders received by the Sub-Transfer Agent, the Funds, or another authorized
agent or subagent of the Fund, prior to the time of the next determination of
the applicable Fund's net asset value. Orders received after the time of the
next determination of the applicable Fund's net asset value will be entered at
the next calculated public offering price. When purchasing shares of a Fund, you
must specify whether you wish to purchase Class A, Class B or Class C shares. An
unspecified purchase order will be considered an order for Class A shares.
The public offering price per share is equal to the net asset value per
share, plus a sales charge in the case of Class A shares as described below.
Reduced sales charges apply to quantity purchases of Class A shares made at one
time by (i) an individual, (ii) members of a family (i.e., an individual, spouse
and children or grandchildren under age 21), or (iii) a trustee or fiduciary of
a single trust estate or a single fiduciary account. (See also "Rights of
Accumulation" below.) For Class B and Class C shares, the public offering price
is equal to the net asset value per share with no initial sales charge.
13
<PAGE>
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."
RIGHTS OF ACCUMULATION -- CLASS A
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 the Funds owned by an investor (including the investor's own 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 Fund 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 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 or Class C shares.
LETTER OF INTENT -- CLASS A
An investor may qualify for an immediate reduced sales charge on a purchase
of Class A shares of any publicly-offered Fund 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 publicly-offered 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 or Class C shares.
PURCHASE AT NET ASSET VALUE -- CLASS A
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 investment advisory
clients of the Manager's affiliate, Roger Engemann & Associates, Inc. ("REA"),
who are participants in REA's "President's Circle" program, 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 a 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, which acquire and hold such shares of the Funds as
part of a program or separate offering being made by them.
14
<PAGE>
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 Funds if their
initial purchases (excluding shares of the 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 Fund. An investor must indicate eligibility
for this privilege at the time of the investment. The Manager or Distributor
may, in their 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
Pasadena Group of Mutual Funds, and may also be purchased at net asset value by
employee benefit plans qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (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, and bank trust departments and fee-based
financial planners and investment advisors, for funds or accounts over which
they exercise exclusive discretionary investment authority and which are held in
a fiduciary, agency, advisory, custodial or similar capacity. Such purchases are
also subject to minimum requirements with respect to amount of purchase which
may be established by the Distributor from time to time. Currently, the
Distributor has not established any such minimum requirements. Such institutions
may charge their clients transaction or other fees connected with the purchase
of Fund shares. If an investment in Class A shares meeting the above-referenced
requirements is made through a dealer who has executed a dealer agreement with
respect to the Funds, the Manager may pay out of its own resources a one-time
fee to such dealers, as follows: 1% on purchases up through $2 million, plus
0.80% on the next $1 million, plus 0.20% on the next $2 million, and 0.10% on
the excess over $5 million. The entire amount of such fee will be paid following
settlement of each purchase. Such transactions must be brought to the attention
of the Distributor at the time of the initial investment. In lieu of this
one-time fee, the Manager may pay out of its own resources to dealers or other
persons who provide certain recordkeeping and administrative services related to
qualified employee benefit plans invested in the Funds, a continuing fee of up
to 0.20% per annum of the Funds' net assets represented by such investments.
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
GENERAL. Investors choosing the deferred sales charge alternative may
purchase Class B shares of any Fund at net asset value per share without the
imposition of a sales charge at the time of purchase. The Class B shares are
being 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 a Fund in connection with the sale of its Class B shares, such as
the payments of an up-front commission by the Distributor to selected dealers
and agents for selling Class B shares. The combination of the CDSC and the Class
B distribution fee facilitates the ability of the Funds to sell the Class B
shares without a sales charge being deducted at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed within
four years of purchase will be subject to a CDSC at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the original cost of the shares
being redeemed or their net asset value at the time of redemption. Accordingly,
no sales charge will be imposed on increases in net asset value above the
initial purchase price. In addition, no sales charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
15
<PAGE>
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>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------------------------------------------------------------ -------------------
<S> <C>
First................................................................... 5.00%
Second.................................................................. 4.00%
Third................................................................... 3.00%
Fourth.................................................................. 3.00%
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 total redemption will be charged at a rate of 4%
(the applicable rate in the second year after purchase), for a total CDSC 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 individual retirement account or other
retirement plan to a shareholder who has attained the age of 70 1/2, (iii) made
under a Systematic Withdrawal Plan (as described below), with some limitations,
(iv) followed by a reinvestment in such shares effected within 60 days of the
redemption (this allows investors who redeemed or otherwise had second thoughts
about having redeemed their Class B shares to reinvest the proceeds in such
shares plus the amount of any CDSC previously paid), and (v) by tax-exempt
employee benefit plans resulting from the enactment of any law or the
promulgation by the Internal Revenue Service ("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 reinvestment
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. 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.
16
<PAGE>
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 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 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 Funds is
Pasadena Fund Services, Inc., 600 North Rosemead Boulevard, Pasadena, California
91107-2133 (the "Distributor"). Generally, shares may be purchased only through
investment dealers that have selling agreements with the Distributor. It is the
responsibility of such investment dealers to transmit orders so they will be
received by the Distributor, in care of the Sub-Transfer Agent, on a timely
basis. Orders placed with dealers prior to that day's determination of the
applicable Fund's offering price must be received by the Distributor (c/o the
Sub-Transfer Agent) prior to its close of business on the same day.
Investment applications, accompanied by a check, in U.S. dollars, payable to
the "Pasadena Group of Mutual Funds," should be sent by the investment dealer to
the Distributor in care of the Sub-Transfer Agent, at 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 made by the investor directly to the dealer. Full and
fractional shares will be issued for the amount of the purchase. Purchase orders
must specify which Class of each Fund are being purchased, or they will be
deemed orders for the purchase of Class A shares.
The minimum initial investment for each Fund is $1,000 per account ($250 for
individual retirement accounts and custodial accounts for minors under the
Uniform Transfers to Minors Act and for the initial purchase under a Systematic
Purchase Plan). Minimum additional investments are $50. The Distributor may, in
its discretion, waive the minimum investment requirements for 401(k), 403(b),
employee benefit or other systematic or periodic purchase plans.
The Funds and the Distributor each reserve the right in its sole discretion
to reject any purchase order in whole or in part, and may suspend the offering
of each Fund's shares at any time. For investors wishing to purchase shares by
wire, please call the Funds or your investment dealer for information on the
procedures to be followed.
17
<PAGE>
SHAREHOLDERS' OPEN ACCOUNTS
When an investor purchases shares in a Fund, the appropriate Fund opens a
Shareholder's Open Account for that investor or for the investment dealer
holding the Fund's shares for the investor. Any additional shares purchased are
likewise credited to the Shareholder's Open Account.
The Funds maintain a continuous permanent record of each Shareholder's Open
Account and send a written statement of every transaction in the account,
including information concerning the status of the account. These statements
provide an annual record of investments in shares of each Fund, which are held
for the shareholder in uncertificated form by the appropriate Fund's transfer
agent. No share certificates are issued.
SYSTEMATIC PURCHASE PLAN
Under the Funds' Systematic Purchase Plan, an investor may arrange to make
additional purchases (minimum $50) of Fund shares automatically on a monthly
basis by electronic funds transfer from the shareholder's checking account if
the bank which maintains the account is a member of the Automated Clearing
House, or by preauthorized checks drawn on the shareholder's bank account. A
shareholder may, of course, terminate the program at any time. Investors may
obtain more information concerning this program, including the application form,
from their investment dealer or the Funds.
The market value of the shares of each Fund is subject to fluctuation.
Before undertaking any plan for systematic investment, the investor should keep
in mind that such a program does not assure a profit or protect against a loss.
RETIREMENT PLANS
Individuals may purchase shares of the Funds through an Individual
Retirement Account Plan ("IRA") available from the Funds or through other
established retirement plans. An IRA using the trust account maintained by
Pasadena National Trust Company, an affiliate of the Manager, is available with
no separate fees.
PURCHASING SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
By mail See "Purchase Procedures" for $50 minimum for subsequent
initial minimum requirements. purchases. Complete the form at the
Complete account application in its bottom of a recent account
entirety, sign and return with your statement, make your check payable
check made payable to the Pasadena to the Pasadena Group of Mutual
Group of Mutual Funds to the address Funds, write your account number on
listed on the account application. the check and mail in the envelope
provided with your account
statement.
By wire Not currently available Instruct your bank to wire funds to:
State Street Bank and Trust
Boston, MA
ABA #011000028
DDA #99046526
Also reference:
-- Name of Pasadena Fund
specifying Class A, B or C
shares
-- Fund account number
By contacting your Visit any investment dealer who is Mail directly to your investment
investment dealer registered in the state where the dealer's address printed on your
purchase is made and who has a sales account statements, or to the
agreement with Pasadena Fund Sub-Transfer Agent at P.O. Box 8505,
Services, Inc. Boston, MA 02266-8505
</TABLE>
18
<PAGE>
EXCHANGE PRIVILEGE
GENERAL. Shares of a specific Class of one Fund may only be exchanged for
shares of that same Class of another Fund. 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 one Fund may not be exchanged for
shares of another Fund unless the amount exchanged satisfies the minimum
investment requirement of the other Fund. Exchange instructions may be given to
the Funds in writing in care of the Sub-Transfer Agent, P.O. Box 8505, Boston,
Massachusetts 02266-8505, or to the Pasadena Group Service Center by telephone
at 800-648-8050. Exchanges, which involve the redemption of shares of one Fund
and the purchase of shares of another Fund, may only be made in states where
shares of the Funds are qualified for sale, and investors should note that an
exchange may result in recognition of a gain or loss for income tax purposes.
Exchange privileges may be modified or suspended by the Funds upon 60 days'
prior notice to shareholders.
For purposes of computing both (i) the time remaining before Class B shares
of a Fund ("new Class B Shares") acquired through an exchange for Class B shares
of another Fund ("original Class B Shares") convert to Class A shares of that
Fund and (ii) the CDSC payable upon disposition of the new Class B shares, the
holding period for the original Class B shares is added to the holding period of
the new Class B shares.
TELEPHONE EXCHANGE PRIVILEGE. Shareholders will be deemed to have elected
the telephone exchange privilege unless they indicate to the contrary by marking
the appropriate section of the Investment Application included with this
Prospectus. By electing the telephone exchange privilege, shareholders authorize
the Funds to act upon instructions by telephone to exchange shares from the Fund
account for which such service has been authorized. (See "Telephone Redemption
Privilege" below for information regarding the use of telephone authorizations.)
GENERAL
Class A shares of the Funds may, on a one-time only basis by any
shareholder, be repurchased at the then current net asset value with no
front-end sales charge up to the amount of any redemption of such shares by the
shareholder within the prior 60-day period. Shares of the Funds may also be sold
in foreign jurisdictions through financial institutions and intermediaries at
their current net asset value plus a sales charge or commission which is
different from those described in this Prospectus. Telephone orders from dealers
and requests for information from dealers or investors will be recorded for the
protection of the Funds.
The Distributor, at its expense, will from time to time also provide
additional compensation to dealers who sell shares of 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 in The Pasadena Group of Mutual 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 a
publicly-offered fund's 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 NASD. Compensation may include payment for
travel expenses, including lodging at luxury resorts, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature.
REDEMPTION OF SHARES
GENERAL
The Funds will redeem all or any portion of a shareholder's account when
requested, subject to the prior collection by the Funds' custodian of the
purchase price of the shares being redeemed. Except for any CDSC which may be
applicable to redemptions of Class B shares, there is no redemption charge, and
the redemption price will be the net asset value per share next determined after
receipt in proper form of the redemption request by the Sub-Transfer Agent, the
Funds, or another authorized agent or subagent of the Fund. See "Determination
of Net Asset Value."
19
<PAGE>
Shareholders may redeem shares by sending a signed request for redemption to
their investment dealer or to the Funds c/o Boston Financial Data Services, Inc.
at P.O. Box 8505, Boston, Massachusetts 02266-8505. If an investor owns more
than one Class of shares in a Fund, the redemption request must specify which
Class is being redeemed. Absent such specification, the investor's shares will
be redeemed in the following order: first, Class C shares; second, Class A
shares; and third, Class B shares.
The signature on the redemption request must be guaranteed by an eligible
guarantor institution, unless the proceeds are less than $50,000 and are payable
to the shareholder and sent to the shareholder's current address on the Fund's
records (provided that the shareholder's address of record has not been changed
within the preceding 30 days) or directly to a predesignated bank account (see
below). Corporations, partnerships, trusts and other fiduciaries may be required
to furnish further documentation, such as certified copies of trust documents,
corporate resolutions, or tax waivers for redemption purposes. Investment
dealers holding shares of a Fund for the account of their clients may also
require the Fund to repurchase such shares at the next determined net asset
value (less the CDSC, if any, with respect to the Class B shares).
Because of the expense of maintaining small accounts, the Fund, at its
option, may redeem accounts with a market value of $800 or less as a result of
redemptions, after prior written notice of at least 60 days to provide the
shareholder an opportunity to purchase sufficient additional 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 Funds, which permits the proceeds of a redemption of a Fund's shares to be
wired to a designated bank account by the second business day following the
redemption. A shareholder desiring to redeem shares by this procedure must
provide the Sub-Transfer Agent with a written authorization, including specific
bank account information, which instructs the Sub-Transfer Agent to honor wire
redemption requests. (Please see Sections 10 and 11 of the Investment
Application in this Prospectus.) A fee of $10 may be deducted from the proceeds
of each redemption to cover the costs of the wire transfer. This privilege may
be modified or terminated at any time by the Funds or the Sub-Transfer Agent
upon notice to shareholders.
TELEPHONE REDEMPTION PRIVILEGE
Shareholders will be deemed to have elected the telephone redemption
privilege unless they indicate to the contrary by marking the appropriate
section of the Investment Application included with this Prospectus. By electing
the telephone redemption privilege, shareholders authorize the Funds and 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 neither the Funds nor 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, if reasonable procedures are followed. In
an effort to confirm that telephone requests are genuine, the Funds employ
reasonable procedures, which include requesting the taxpayer identification
number and other information known only to the shareholder, and recording the
telephone instructions.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, a shareholder with an account value in
one of the Funds of $10,000 or more may receive (or send to a third party)
periodic payments of $100 or more from the shareholder's account in that Fund on
a monthly or quarterly basis. (Minimum account value for quarterly withdrawals
is $5,000.) Shares of the applicable Class of the applicable Fund will be
redeemed as necessary in order to meet withdrawal payments. Dividends and
distributions on shares of a Class held in a Systematic Withdrawal Plan account
will be reinvested in additional shares of the same Class at net asset value. A
Class B shareholder may withdraw under a Plan up to 12% annually of the
shareholder's initial account balance of Class B shares of any Fund without
incurring a CDSC on the redemptions. The initial account balance is the amount
of the shareholder's investment in the Class B shares of a Fund on the date that
the shareholder established the Systematic Withdrawal Plan for those Class B
shares.
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<PAGE>
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 sales"
rules for federal income tax purposes. While a Systematic Withdrawal Plan is in
effect, each additional purchase of the applicable Fund's shares must be equal
to at least three times the scheduled annual withdrawals or $5,000, whichever is
less. Shareholders should recognize that, to the extent withdrawals exceed
purchases plus any dividends and distributions reinvested, the value of their
account will be reduced and ultimately may be exhausted. Each withdrawal may
result in gain or loss for federal or state income tax purposes.
To initiate a Systematic Withdrawal Plan, a shareholder should complete the
authorization section of the Investment Application included in this Prospectus.
The Funds and the Sub-Transfer Agent reserve the right to modify or terminate
this privilege at any time upon notice to the shareholder, and the Plan will
terminate automatically if the value of the shareholder's shares in the Fund is
reduced below $800, or upon the Fund's receipt of notification of the death or
incapacity of the shareholder.
REDEEMING SHARES
<TABLE>
<CAPTION>
METHOD PROCEDURE
<S> <C>
By writing to The Pasadena Group of Send a letter of instruction specifying the name of
Mutual Funds c/o the Sub-Transfer the Fund, the number of shares or dollar amount to
Agent, P.O. Box 8505, Boston, be sold, your name and account number. For
Massachusetts 02266-8505 redemptions over $50,000, and for certain
redemptions of $50,000 or less (trusts,
corporations, partnerships and 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. Your 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
Fund Representatives at (800) 648-8050 privileges on your account application, you 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>
21
<PAGE>
MANAGEMENT
The Board of Trustees of the Trust oversees the business and affairs of the
Funds and exercises all powers normally associated with running a business. The
Board has delegated the management and administration of the Funds' day-to-day
operations to the Trust's officers and the Manager.
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The Manager is Roger Engemann Management Co., Inc., a California corporation
whose office is located at 600 North Rosemead Boulevard, Pasadena, California
91107-2138. 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 investment management of the Funds, and have been from each
Fund's inception. Mr. Engemann has been President of the Manager since its
organization in 1985, and has been President of REA since its inception in 1969.
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 Funds. Under the Management Agreement, the Manager
furnishes investment advice and investment management services with respect to
each Fund's portfolio of securities and investments, provides personnel, office
space, facilities and equipment as may be needed by the Funds in their
day-to-day operations, and provides the officers of the Trust. The Manager also
provides the Funds with fund accounting, including assistance and personnel
necessary to price the portfolio securities of each Fund, calculates each Fund's
net asset value, and maintains the books and records of each Funds' investment
portfolio as required by applicable law. The Manager also performs, under an
administration agreement (the "Administration Agreement"), all of the
administrative and shareholder servicing for each Fund and pays for all other
normal operating expenses of each Fund, except for the fees and expenses
associated with investment management, the service fees paid by the Funds to
dealers and others with respect to each Class, and the distribution fees paid by
Class B and Class C shares.
The Manager may consider a number of factors in determining which brokers or
dealers to use for the Funds' portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors may include,
but are not limited to, the reasonableness of commissions, the quality of
services and executions, sales of the Funds' shares, and the availability of
research which the Manager and its affiliates may lawfully and appropriately use
in their investment advisory capacity.
MANAGEMENT AND ADMINISTRATION FEES AND EXPENSES
For the services provided under the Management Agreement, the Manager
receives a management fee from each Fund (paid monthly) computed and prorated on
a daily basis equal to the annual rate of 1% of the Fund's average daily net
assets up to $30 million, plus 0.80% of net assets over $30 million up to $100
million, plus 0.60% of net assets over $100 million up to $500 million, plus
0.40% of net assets over $500 million. The Manager also receives under the
Administration Agreement an administration fee from each Fund equal to 1.05% per
annum of the Fund's average daily net assets up to $30 million, plus 0.85% per
annum of net assets over $30 million up to $100 million, plus 0.65% per annum of
net assets over $100 million up to $500 million, plus 0.60% of net assets over
$500 million.
22
<PAGE>
The combined rate of fees is higher than that paid to most other managers of
investment companies. However, the Manager, in its capacity as administrator of
the Funds, also bears the cost for all normal operating expenses of each 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, and the distribution fees paid by Class B and
Class C shares), which are normally paid directly by other investment companies,
such as compensation of the Trust's trustees, cost of shareholder reports,
insurance, and all fees and expenses of each Fund's transfer agent and the
sub-transfer agent, dividend disbursing agent, custodian, auditors, accountants,
attorneys and other parties performing services or operational functions for the
Funds. As a result, each Fund will not incur any expenses in connection with its
normal operations other than the fees described above. (See "Expense and Fee
Tables" on pages 3-6.)
During the fiscal year ended December 31, 1995, the management fees paid by
the Growth Fund, the Nifty Fifty Fund and the Balanced Return Fund to the
Manager equaled .66%, .78% and .90%, respectively, of each Fund's average daily
net assets. The administration fees paid to the Manager during that same period
equaled .71%, .84% and .96%, respectively, of each Fund's average daily net
assets. Also, see the Statement of Additional Information -- "Investment
Management and Administrative Services."
The maximum operating expenses of each Fund also will be limited by
applicable state securities laws where shares of the Fund are sold. This
limitation may be removed or modified in the future without prior notice to
shareholders.
DISTRIBUTION PLANS
Rule 12b-1 adopted by the Securities and Exchange Commission (the
"Commission") under the 1940 Act permits an investment company directly or
indirectly to pay expenses associated with the distribution of its shares
("distribution expenses") in accordance with a plan adopted by the investment
company's Board of Trustees and approved by its shareholders. Pursuant to that
Rule, the Trust's Board of Trustees and the initial shareholder of the Class B
and Class C shares of each Fund have approved, and each Fund has entered into, a
distribution plan (each a "Plan") with the Distributor for the Class B and Class
C shares. Under the Plans, each 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 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 their 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 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.
23
<PAGE>
The distribution fee attributable to the Class B shares is designed to
permit an investor to purchase Class B shares through broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Distributor to recover its costs of paying an up-front commission to
broker-dealers in connection with the sale of the Class B shares. The
distribution fee attributable to the Class C shares is designed to permit an
investor to purchase Class C shares through broker-dealers without the
assessment of a front-end sales charge, and at the same time to permit the
Distributor to compensate broker-dealers on an ongoing basis in connection with
the sale of the Class C Shares.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of the Trust, including a
majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Plan or any agreement related to the Plan (the "Rule
12b-1 Trustees"), vote annually to continue the Plan. Each Plan may be
terminated at any time by vote of a majority of the Rule 12b-1 Trustees or of a
majority of the outstanding shares (as defined in the 1940 Act) of the Class to
which the Plan applies.
All distribution fees paid by the Funds under the Plans will be paid in
accordance with Article III, Section 26 of the Rules of Fair Practice of the
NASD, as such Section may change from time to time.
SERVICE FEES
The Funds also will pay dealers and others, including the Manager and
Pasadena Fund Services, Inc. (the "Distributor"), a continuing service fee equal
to 0.25% per annum of the average net asset value of the Funds' shares held by
such persons in order to compensate them for providing certain services to their
clients, including processing redemption transactions and providing account
maintenance and certain information and assistance with respect to the Funds and
responding to shareholder inquiries.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund declares a dividend equal to
substantially all of its net investment income (including any net short-term
capital gains realized by the Fund) and a distribution of substantially all net
realized long-term capital gains at least once each calendar year, typically in
December. Dividends paid by a Fund, if any, with respect to Class A, Class B and
Class C shares will be calculated in the same manner at the same time on the
same day, 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
generally 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 gains distributions are reinvested in
additional shares of the applicable Fund at a purchase price equal to the net
asset value per share (without any sales charge) as of 4:00 p.m., Eastern Time,
on the dividend or distribution reinvestment date. Each shareholder's account is
subsequently credited with the purchased shares on the dividend or distribution
payment date. A shareholder may change his or her election at any time prior to
the record date for a particular dividend or distribution by written request.
Shareholders may not receive immediate confirmation of automatic dividend
and capital gain reinvestment transactions, but may instead receive confirmation
of such transactions in a periodic statement. Shareholders can also obtain
information on their accounts by calling the telephone number listed below under
"Shareholder Inquiries."
Any dividend or distribution paid by the Funds reduces the net asset value
per share by the per share amount of the dividend or distribution. Therefore, a
dividend or distribution paid shortly after a purchase of shares by an investor
would represent, in substance, a partial return of capital to the shareholder
(to the extent it is paid on the shares so purchased), even though it would be
subject to income taxes, as discussed below.
TAXES. Each Fund has qualified for and has elected to be treated as a
regulated investment company under Subchapter M of the Code for the fiscal year
ended December 31, 1995, and intends to continue to so qualify. By satisfying
certain requirements
24
<PAGE>
relating to the sources of each 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, the Funds will not be subject to any federal
income or excise taxes based on net income.
Dividends and capital gains distributions of the Funds, whether reinvested
in additional shares or received in cash, will be subject to current federal
income tax, except to tax-exempt holders 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.
Distributions will be taxable in the year in which they are received except
for certain distributions received in January, which will be taxable as if
received the prior December. Shareholders will be informed annually of the
amount and nature of each Fund's distributions, the portion, if any, that
qualifies for the corporate dividends-received deduction, the portion, if any,
that should be treated as a return of capital, and the amount, if any, of income
tax withheld.
Additional information about taxes is set forth in the Statement of
Additional Information. The foregoing discussion has been prepared by the
management of the Funds, and does not purport to be a complete description of
all tax implications of an investment in any Fund. Shareholders should consult
their own advisers concerning the application of federal, state and local tax
laws to their particular situations. Heller, Ehrman, White & McAuliffe, legal
counsel to the Funds, has expressed no opinion in respect thereof.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Funds is determined as of 4:00 p.m., Eastern
Time, on each day the New York Stock Exchange is open (or at such earlier time
as the Exchange may close). Net asset value per share is calculated by dividing
the total value of each Fund's investments and other assets, less all
liabilities, by the number of Fund shares outstanding. For this calculation,
each Fund's assets include accrued dividends (from their ex-dividend date) and
interest, and liabilities include accrued expenses.
In valuing a Fund's assets for calculating net asset value, portfolio
securities with readily available market quotations are valued at their market
value and other assets are valued in such manner as the Board of Trustees deems
appropriate to reflect their fair value. See the Statement of Additional
Information under "Purchase, Redemption, and Pricing of Fund Shares" for more
detailed information on the valuation of each Fund's assets.
The net asset values per share of the Class B and Class C shares of a Fund
are generally expected to be approximately the same; the net asset value per
share of the Class A shares of such Fund is expected, under normal
circumstances, to be higher due to the daily expense accruals of the
distribution fees applicable to the Class B and Class C shares but not to the
Class A shares. However, the per share net asset value of the three Classes of a
Fund may tend to converge on that Fund's ex-dividend date, and the per share
dividends will differ by approximately the amount of the expense accrual
differential among the Classes.
PERFORMANCE INFORMATION
From time to time, each Fund may publish its total return in advertisements
and communications to investors. Total return is computed separately for the
Class A, Class B and Class C shares of each Fund. Total return information will
include the total return for each Class of each Fund over the most recent fiscal
year and over the period from the inception of each Class (or from the inception
of the Fund for the Class A shares). The Funds also may advertise aggregate and
average total return information over different periods of time. Each Fund's
total return will be based upon the value of the shares acquired through a
hypothetical $1,000 investment (including the maximum initial sales charge for
Class A shares) at the beginning of the specified period and the net asset value
of such shares at the end of the period, assuming reinvestment of all
distributions at net asset value and deduction of any applicable CDSC on Class B
shares. Each Fund also may publish a cumulative return for each class over a
specified period based on the change in net asset value over such period. In
addition, each Fund may publish a distribution rate for each Class in
prospective investor communications preceded or accompanied by a copy of the
current Prospectus. The current distribution rate for each Class of the Funds
will be calculated by dividing the maximum offering price per share into the
25
<PAGE>
annualization of the total distributions made by each Class of the Funds during
the stated period. In each case, distribution rates and total return figures
will reflect all recurring charges against the Funds' income. In addition, each
Fund may compare its performance to various indices of investment performance
published by third parties.
Investors should note that the investment results of the Funds will
fluctuate over time, and any presentation of a Fund's performance for any prior
period should not be considered as a representation or prediction of what an
investor's total return may be in any future period. For further information,
including the formula and an example of the total return calculation, see the
Statement of Additional Information.
The Trust's current Annual Report to Shareholders and subsequent Semi-Annual
Report to Shareholders, if applicable, contain additional performance
information respecting the Funds and their shares. A copy of each Report is
available without charge upon request to the Trust at the address or telephone
number set forth on the front page of this Prospectus.
DESCRIPTION OF THE TRUST
Each Fund is a series of the Trust which was organized as a Massachusetts
business trust on May 28, 1986. The Trust's Agreement and Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest without par value, which may be issued
in any number of series (called funds). The assets and liabilities of each
series are separate and distinct from any other series. Currently, the Trust
issues redeemable shares in five series (the "Funds"): 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 Fund. Each of the three
Funds included in this Prospectus currently offers three Classes of shares:
Class A, Class B and Class C shares. The shares of The Pasadena Global Growth
Fund and The Pasadena Small & Mid-Cap Fund are offered in separate Prospectuses.
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 Funds have no
preemptive, conversion, or sinking rights.
The Funds offered herein commenced a continuous public offering of their
Class B and Class C shares on January 3, 1994. Each of the Class A, Class B and
Class C shares of a Fund represents an interest in the assets of that Fund and
has identical voting, dividend, liquidation and other rights on the same terms
and conditions, except that class-specific litigation 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 and Class C shares
are subject to such distribution plans).
Shareholders of each Fund, as a separate series of the Trust, vote
separately on matters affecting only that Fund (e.g., approval of the Management
Agreement); shareholders of all the Funds vote as a single class on matters
affecting all Funds jointly or the Trust as a whole (e.g., election or removal
of Trustees). Voting rights are not cumulative, so the holders of more than 50%
of the shares of all Funds voting in any election of Trustees, can, if they
choose to do so, elect all of the Trustees. While the Funds are not required to,
nor do they intend to, hold annual meetings of shareholders, such 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 a
Fund have exclusive voting rights with respect to the provisions of the
distribution plan covering that Class.
The Trust's Board of Trustees has determined that currently no conflict of
interest exists among the Class A, Class B and Class C shares of any Fund. On an
ongoing basis, the Trust's Board of Trustees, pursuant to their fiduciary duties
under the 1940 Act and state laws, will seek to ensure that no such conflict
arises.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Funds at the Pasadena Group
Service Center, 600 North Rosemead Boulevard, Pasadena, California 91107-2133
(telephone toll free: (800) 648-8050).
26
<PAGE>
GENERAL INFORMATION
Union Bank of California serves as Custodian of the Funds' 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 any such offshore fund will be
disclosed in this Prospectus and/or the Statement of Additional Information, as
it may be amended from time to time. To the extent the number of shares of a
Fund owned by such an offshore fund becomes a significant percentage of that
Fund's outstanding shares, a risk to such Fund may exist to the extent the Fund
is forced to liquidate portfolio securities quickly to meet any significant
redemption requests by the offshore fund. However, as of the date of this
Prospectus no such ownership exists, and even in the event a substantial
percentage of any Fund's outstanding shares subsequently are held by such an
offshore fund, the ability of the Fund to redeem its shares in kind (as
described in the Statement of Additional Information) should substantially
reduce any adverse effect on the Fund of any significant redemption of Fund
shares by the offshore fund.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and information
or representations not herein contained, if given or made, must not be relied
upon as having been authorized by 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 Funds with your correct social
security or taxpayer identification number (each a "TIN"), regardless of whether
you file tax returns. Failure to do so may subject you to certain penalties.
Failure to provide your correct TIN and to complete the section of the
Investment Application entitled "Taxpayer Identification Number Certification
and Signature(s)" could result in backup withholding by the Fund of federal
income tax at the rate of 31% with respect to distributions, redemptions and
other payments made with respect to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the IRS. Backup
withholding could apply to payments made to your account while you are awaiting
receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under the Uniform Transfers to Minors Act, the TIN of the minor
should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you have failed to report interest or dividend income on
your tax return and you have not been notified by the IRS that such withholding
should cease, you should strike clause (2) of section (12) entitled "Taxpayer
I.D. Number Certification/Signatures." 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.
27
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Synopsis..................................... 2
Expense and Fee Tables....................... 3
Financial Highlights......................... 7
Investment Objectives and Policies........... 9
Alternative Purchase Arrangements............ 12
Purchase of Shares........................... 13
Redemption of Shares......................... 19
Management................................... 22
Dividends, Distributions and Taxes........... 24
Determination of Net Asset Value............. 25
Performance Information...................... 25
Description of the Trust..................... 26
Shareholder Inquiries........................ 26
General Information.......................... 27
Backup Withholding Instructions.............. 27
</TABLE>
[INSERT ARTWORK]
PAS 312065
<PAGE>
MAY 1, 1996
------------
<PAGE>
INFORMATION AND INSTRUCTIONS
Please do not use this application for an IRA. If you
have questions about completing this application or need
an IRA application, please call Shareholder Services:
(800) 648-8050
Mail your completed application to:
THE PASADENA GROUP OF MUTUAL FUNDS
P.O. BOX 8505
BOSTON, MA 02266-8505
__________________________________________________
PLEASE TEAR HERE
_______________________________________________________________________________
__________________________________________
[LOGO] THE PASADENA GROUP INVESTMENT APPLICATION
OF MUTUAL FUNDS __________________________________________
Application must be signed in Section 12
TAKE TIME TO GROW on opposite side of form.
-Registered Trademark- This application will not establish an IRA.
/ / New account / / Changes to an existing account
(signature guarantee required)
PLEASE PRINT
1. ACCOUNT REGISTRATION (X ONE BOX ONLY)
/ / INDIVIDUAL / / JOINT TENANT / / COMMUNITY PROPERTY
(FOR CO-OWNERS, JOINT TENANCY WITH RIGHT OF SURVIVORSHIP IS PRESUMED UNLESS
OTHERWISE SPECIFIED.)
_______________________________________________________________________________
Owner's Name (FIRST, INITIAL, LAST)
_______________________________________________________________________________
Owner's Occupation
_______________________________________________________________________________
Owner's Social Security Number
_______________________________________________________________________________
Co-Owner Name (FIRST, INITIAL, LAST)
_______________________________________________________________________________
Co-Owner's Social Security Number
/ / TRANSFER TO A MINOR (ONLY ONE CUSTODIAN AND MINOR)
_______________________________________________________________________________
Custodian's Name (ONE NAME ONLY -- FIRST, INITIAL, LAST)
_______________________________________________________________________________
Minor's Name (ONE NAME ONLY -- first, initial, last)
Under the __________________________ Uniform Gifts/Transfers to Minors Act
(STATE OF MINOR'S RESIDENCE)
Minor's Social Security Number ________________________________________________
Minor's Date of Birth _________________________________________________________
/ / TRUST OR RETIREMENT ACCOUNT
_______________________________________________________________________________
Trustee(s)' Name
_______________________________________________________________________________
Name of Trust Agreement or Retirement Plan
_______________________________________________________________________________
Beneficiary's Name
_______________________________________________________________________________
Taxpayer I.D. Number Full Date of Trust Agreement
/ / CORPORATION, PARTNERSHIP OR OTHER ENTITY
_______________________________________________________________________________
Name of Corporation or Other Entity
_______________________________________________________________________________
Taxpayer I.D. Number
2. ACCOUNT MAILING ADDRESS
_______________________________________________________________________________
Street/Post Office Box Number
_______________________________________________________________________________
City State Zip
_______________________________________________________________________________
Home Phone Business Phone
3. ELIGIBILITY FOR EXEMPTION FROM SALES CHARGE
/ / If you are eligible for exemption from sales charges as described in the
Prospectus, check here and complete separate eligibility form available from The
Pasadena Group of Mutual Funds.
4. INITIAL INVESTMENT
(Fund #)
/ / The Growth Fund $__________ / / A Shares (85)
/ / B Shares (40)
/ / C Shares (70)
/ / The Nifty Fifty Fund $__________ / / A Shares (86)
/ / B Shares (72)
/ / C Shares (79)
/ / The Balanced Return Fund $__________ / / A Shares (87)
/ / B Shares (88)
/ / C Shares (91)
Total $__________
Unspecified orders will be considered Class A Shares.
B and C shares have a maximum purchase of $100,000 per Fund.
I (We) being of legal age and having legal capacity wish to purchase Shares of
the Fund(s) in the amounts indicated above. Enclosed is my (our) total initial
investment for $_______________ (minimum for each Fund Account $1,000; $250 for
IRAs, Custodial Accounts for Minors and Systematic Purchase Plan) payable to
"The Pasadena Group of Mutual Funds." I (We) understand that this purchase will
be executed at the applicable offering price for each Fund as described in the
Prospectus.
5. DISTRIBUTION OPTION (X ONE BOX ONLY)
/ / Please reinvest dividends and capital gains distributions in additional
shares at net asset value.
/ / Please pay my dividends and capital gains distributions in cash.
IF NO SELECTION IS MADE, DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS WILL BE
AUTOMATICALLY REINVESTED AT NET ASSET VALUE.
6. RIGHTS OF ACCUMULATION (A SHARES ONLY)
I (We) apply for reduced sales charges, subject to the Transfer Agent's
confirmation of the following eligible holdings:
_______________________________________________________________________________
Fund Name
_______________________________________________________________________________
Shareholder Name
_______________________________________________________________________________
Account Number
7. LETTER OF INTENT (A SHARES ONLY)
I (We) agree to the terms of the Letter of Intent and provisions for reservation
of shares and grant the Distributor the security interest set forth in the
Prospectus. Although I am not obligated to do so, it is my intention to invest
over a thirteen (13) month period in Shares of one or more Funds in The Pasadena
Group of Mutual Funds an aggregate amount at least equal to that which is
checked below.
Account No. (If applicable) ___________________________________________________
/ / $50,000 -- $99,999 / / $250,000 -- $499,000
/ / $100,000 -- $249,999 / / $500,000 -- $999,000
/ / $1,000,000 or more
<PAGE>
8. SYSTEMATIC PURCHASE PLAN
The undersigned hereby authorizes monthly investments in the following Funds
directly from my bank account as indicated below. ($50 minimum):
/ / Growth Fund $________________________________________________
/ / Nifty Fifty Fund $________________________________________________
/ / Balanced Return Fund $________________________________________________
_______________________________________________________________________________
Fund Account Number (IF APPLICABLE)
_______________________________________________________________________________
Registered Owner
_______________________________________________________________________________
Registered Co-owner
_______________________________________________________________________________
Address
_______________________________________________________________________________
City State Zip
PREFERRED MONTHLY DATE OF TRANSFER:
/ / 3rd business day / / 15th business day
(COMPLETE SECTION 10 FOR BANK INFORMATION)
9. SYSTEMATIC WITHDRAWAL PLAN
/ / Growth Fund $________________________________________________
/ / Nifty Fifty Fund $________________________________________________
/ / Balanced Return Fund $________________________________________________
Existing Account Number (IF APPLICABLE)
You are hereby authorized to redeem shares from the above Funds commencing on or
about the first business day of _______________ and send the proceeds in the
amount indicated as follows:
/ / monthly or / / quarterly
/ / To the undersigned at the address of record on the Fund's books.
/ / To the following bank/person*
_______________________________________________________________________________
Name of Bank/Person
_______________________________________________________________________________
Street/Post Office Box Number
_______________________________________________________________________________
City State Zip
Minimum initial investment: $10,000 ($5,000 if quarterly withdrawals)
*(IF A BANK, ALSO COMPLETE SECTION 10)
10. BANK INFORMATION
Please complete this section if you wish to invest automatically under a
Systematic Purchase Plan (Section 8), or if you want proceeds under a Systematic
Withdrawal Plan (Section 9) or by Telephone Redemption (Section 11) sent to your
bank.
_______________________________________________________________________________
Bank Name
_______________________________________________________________________________
Bank Address
_______________________________________________________________________________
ABA Number
_______________________________________________________________________________
City State Zip
_______________________________________________________________________________
Bank Account in Name of
_______________________________________________________________________________
Bank Account Number
Please attach a voided, unsigned check from this account.
11. TELEPHONE SERVICES
Unless the boxes below are checked, by signing this Application, the investor
authorizes the Funds and their Transfer Agent to act on the investor's telephone
instructions, or on telephone instructions from any person representing to be an
authorized agent of the investor and requesting a redemption or exchange on the
investor's behalf. The undersigned agrees that any redemption or exchange made
pursuant to this authorization shall be subject to the provisions of the current
Prospectus of the Funds, and that neither the Funds nor their Transfer Agent
will be liable for any loss, expense or cost suffered or incurred by the
investor which may arise out of any telephone redemption or exchange request,
including any fraudulent or unauthorized requests, if reasonable procedures are
followed. In an effort to confirm that telephone requests are genuine, the
Funds will employ reasonable procedures, which will include requesting the
taxpayer identification number and other information known only to the
shareholder, plus recording the telephone instructions. Redemption proceeds may
be wired to the shareholder's bank upon request if Section 10 is completed.
(See Prospectus for details.)
(X ONLY if you do NOT want to use telephone authorization.)
/ / I do not elect the telephone exchange privilege
/ / I do not elect the telephone redemption privileges.
12. SIGNATURES/TAXPAYER I.D. NUMBER CERTIFICATION
Under the penalties of perjury, I (we) certify (1) that Social Security
Number(s) or Taxpayer Identification Number(s) shown in Section 1 of this form
is (are) my (our) correct Taxpayer Identification Number(s) and (2) that I (we)
am (are) not subject to backup withholding either because I (we) have not been
notified that I (we) am (are) subject to backup withholding as a result of a
failure to report all interest or dividend income, or the Internal Revenue
Service has not notified me (us) that I (we) am (are) no longer subject to
backup withholding. (Strike clause (2) if it is not correct.)
/ / I (We) am (are) exempt from information reporting and backup withholding
requirements.
I (We) have received and read the Prospectus of the Funds and agree to the terms
thereof. The Funds and any agent thereof are hereby authorized to answer
without liability requests for information about the account established by this
application.
_______________________________________________________________________________
Owner's Signature Date
_______________________________________________________________________________
Co-Owner's Signature Date
13. SIGNATURE GUARANTEE (IF REQUIRED)
A signature guarantee is not required if you are establishing a new account. A
signature guarantee is required if you are adding a Systematic Withdrawal Plan
or making changes to options listed in Sections 9 or 10. We are unable to
accept notarizations.
Signature(s) Guaranteed by:
_______________________________________________________________________________
Name of Institution
_______________________________________________________________________________
Name of Authorized Officer
_______________________________________________________________________________
Signature of Authorized Officer
Guarantor's Stamp:
14. FOR COMPLETION BY YOUR INVESTMENT DEALER
BROKER/DEALER (PLEASE PRINT)
We hereby submit this application for purchase of shares in accordance with the
terms of our Selling Agreement with Pasadena Fund Services, Inc. and with the
Prospectus for the Funds.
_______________________________________________________________________________
Investment Dealer Name
_______________________________________________________________________________
Main Office Address
_______________________________________________________________________________
Branch Number Rep Number
_______________________________________________________________________________
Representative's Name
_______________________________________________________________________________
Branch Address Phone Number
_______________________________________________________________________________
City State Zip
_______________________________________________________________________________
Authorized Signature of Investment Dealer
_______________________________________________________________________________
Title Phone Number
Accepted: Pasadena Fund Services, Inc.
By ____________________________________________________________________________
Date __________________________________________________________________________
REMCO-015
[LOGO] THE PASADENA GROUP
OF MUTUAL FUNDS
TAKE TIME TO GROW-Registered Trademark-
_______________________________________________________________________________
_______________________________________________________________________________
INVESTMENT APPLICATION
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
PART A
_______________________
PROSPECTUS
The Pasadena Global Growth Fund-SM-
_______________________
<PAGE>
THE PASADENA GROUP
OF MUTUAL FUNDS-Registered Trademark-
THE PASADENA
GLOBAL GROWTH
FUND-SM-
THE PASADENA GLOBAL GROWTH FUND (the "Fund") seeks to achieve long-term
growth of capital by investing in a globally diversified portfolio of common
stocks, which may be traded in securities markets in foreign countries and the
United States.
Roger Engemann Management Co., Inc. is the investment manager for the Fund,
a separate series of the Pasadena Investment Trust (the "Trust").
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 May 1, 1996, as it may be amended from time to time.
The Statement of Additional Information, which is incorporated by reference
into this Prospectus, has been filed with the Securities and Exchange
Commission and is available without charge upon request to the Trust at 600
North Rosemead Boulevard, Pasadena, California 91107-2133 (telephone: (818)
351-9686 or (800) 648-8050).
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS DATED MAY 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
Synopsis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 1
Expense and Fee Table. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . 4
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . .19
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . .20
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . 20
Description of the Trust . . . . . . . . . . . . . . . . . . . . . . . . .21
Shareholder Inquiries. . . . . . . . . . . . . . . . . . . . . . . . . . .21
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Backup Withholding Instructions. . . . . . . . . . . . . . . . . . . . . .22
-i-
<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 five separate series
(the "Funds") 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 five series are 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 Fund. This Prospectus relates only to The
Pasadena Global Growth Fund (the "Fund"). The Fund first began offering its
Class A shares to the public on May 1, 1996. This Prospectus covers the Fund's
Class A shares, the only class presently in issue.
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 $30 million, plus 0.80% of net assets
over $30 million up to $100 million, plus 0.60% of net assets over $100 million
up to $500 million, plus 0.40% of net assets over $500 million. The Manager also
performs, and/or assumes the expenses for, all of the Fund's administrative and
most shareholder services for which it receives an annual administration fee
equal to 1.05% of the average daily net assets of the Fund up to $30 million,
plus 0.85% over $30 million up to $100 million, plus 0.65% over $100 million up
to $500 million, plus 0.60% 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 a fee paid to dealers and others, including the
Manager and its affiliates, for servicing shareholder accounts equal to 0.25%
per annum of the Fund's average daily net assets. The management fee for the
Fund will also be subject to a more restrictive limitation imposed by the law of
a state in which the Fund is registered to sell its shares. See "Management."
PURCHASE AND REDEMPTION OF SHARES. The Fund offers its shares continuously and
redeems its shares upon a shareholder's request. 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 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 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." The Fund will
redeem its shares upon a shareholder's request at the 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. See
"Redemption of Shares."
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 correspond to
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 (as well as with changes in foreign currency exchange
rates for securities not traded in United States dollars), an investment in the
Fund may
1
<PAGE>
not be suitable for investors with specific short-term investment return
needs. The Fund's investments in foreign securities, many of which may be
denominated in foreign currencies, also present special risks. 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.
EXPENSE AND FEE TABLE
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 the Fund will bear directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as percentage
of offering price) . . . . . . . . . . . . . . . . . . . . . . . . . . 5.50%
Maximum Sales Charge Imposed on Reinvestment of Distributions . . . . . . .None
Deferred Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . .None
Redemption Fees*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .None
ANNUAL FUND OPERATING EXPENSES**:
(Before Fee Waivers)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
Administration Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05%
Service Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%
----
Total Fund Operating Expenses. . . . . . . . . . . . . . . . . . . . . 2.30%
----
----
* A $10.00 fee may be charged for redemptions made by bank wire (see page
16).
** Operating expense information for the Fund reflects the current fee
schedule under the Management, Administration and Services Agreements,
respectively, assuming total net assets do not exceed $30 million. All such
fees for the fiscal year ended December 31, 1995 were waived by the
Manager.
EXAMPLE
This table illustrates the net transaction and operating expenses that
an investor in the Fund would bear directly or indirectly over
different time periods, assuming a $1,000 investment and a 5% annual
return:
1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 77
3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
2
<PAGE>
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION 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."
FINANCIAL HIGHLIGHTS
The following table contains information for one Class A share of
beneficial interest outstanding throughout each period for the Fund since its
inception, which has been audited by Coopers & Lybrand L.L.P., independent
accountants. The accountants' unqualified report for each of the periods
ended December 31 appears in the Fund's audited financial statements for the
year ended December 31, 1995. The financial highlights should be read in
conjunction with the Fund's audited financial statements for the year ended
December 31, 1995, which are incorporated by reference in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Inception
(November 1,
1993)
For the Year Ended December 31, to
1995 1994 December 31, 1993
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . $ 14.06 $ 11.18 $ 10.00
-------- -------- --------
Gain from Investment Operations:
Net investment income (1,2) . . . . . . . . . . . . . . . . . . . . . . . . .24 .10 .01
Net realized and unrealized gain on investments . . . . . . . . . . . . . . . 3.11 2.78 1.17
-------- -------- --------
Total gain from investment operations . . . . . . . . . . . . . . . . . . . . 3.35 2.88 1.18
-------- -------- --------
Less Dividends:
Dividends from net investment income . . . . . . . . . . . . . . . . . . . . (.14) -- --
-------- -------- --------
Total dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.14) -- --
-------- -------- --------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 17.27 $ 14.06 $ 11.18
-------- -------- --------
-------- -------- --------
TOTAL RETURN (2,3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.84% 25.76% 11.80%
RATIOS/SUPPLEMENTAL Data:
Net assets, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $3,203,426 $140,561 $111,814
Ratio of net expenses to average net assets (2) . . . . . . . . . . . . . . . 0.0% 0.0% 0.0%(4)
Ratio of net investment income to average net assets (2) . . . . . . . . . . 1.4% 0.8% 0.8%(4)
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.0% 479.3% 215.8%
</TABLE>
1 This information was prepared using the average number of shares
outstanding during each period.
2 These amounts reflect a waiver of Manager fees of $42,545, $2,784 and
$410 for the periods ended December 31, 1995, December 31, 1994 and
December 31, 1993, respectively, and the Manager's reimbursement for
income taxes totaling $13,019 during 1994. Had the waivers and
reimbursement not been made, net investment income (loss) per share,
total return (not annualized for the period ended December 31,
1993)and the ratios of net expenses and net investment income (loss)
to average net assets (annualized for the period ended December 31,
1993) would have been ($.15), 22.88%, 2.3% and (0.9%), respectively,
for the period ended December 31, 1995, ($.21), 14.40%, 10.4% (2.3% if
only normal and recurring expenses are taken into account) and (1.7%),
respectively, for the period ended December 31, 1994 and ($.03),
11.40%, 2.3% and (1.5%), respectively, for the period ended December
31, 1993.
3 Total return measures the change in the value of an investment during
the period indicated and does not include the impact of paying any
sales charge. Total return for the period from inception (November 1,
1993) through December 31, 1993 has not been annualized. Prior to May
1, 1996, the Fund's shares were not offered to the public and,
although the Fund's portfolio was managed substantially in accordance
with the investment policies described in this Prospectus during that
period, some management differences did occur due primarily to the
Fund's small asset size. Accordingly, the Fund's performance during
periods prior to May 1, 1996 may not be relevant to an
3
<PAGE>
assessment of the Fund's performance subsequent to such date.
Additionally, the Manager waived all management, administrative
and service fees otherwise payable to it by the Fund for the
indicated periods, which had the effect of increasing the Fund's
total return for those periods.
4 Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term growth of capital. The
Fund will seek to achieve its objective through investments in a diversified
portfolio of marketable securities of companies which are organized or domiciled
in the United States and in foreign countries. Dividend or interest income will
be incidental to any investment decision.
BASIC INVESTMENT STRATEGIES
In seeking growth of capital, the Fund follows a global investment strategy
of investing primarily in common stocks of U.S. and foreign companies which may
be traded in securities markets located throughout the world. This global
investment approach seeks to take advantage of the growing investment
opportunities created by a global economy that has become more highly integrated
in economic, industrial and financial terms, resulting in an increase in growth
stocks from developed and developing countries worldwide.
The Fund will under normal market conditions invest at least 65% of its
total assets in securities of companies located in at least three different
countries, one of which may be the United States, although it may at times
invest up to 100% of its total assets in securities principally traded in
securities markets outside the United States. In unusual market
circumstances when the Manager believes that foreign investing may involve
undue risks, up to 100% of the Fund's total assets may be invested
temporarily in securities of issuers organized or domiciled in the United
States. The Fund also may invest a portion of its assets in cash or money
market instruments (up to 100% of its total assets) for temporary defensive
purposes. Securities of foreign issuers may be owned by the Fund through the
purchase of Depositary Receipts (e.g., American, European, Global,
Continental, etc.), which are traded in the United States securities markets
or foreign markets and denominated in U.S. dollars or foreign currencies.
The Fund may invest up to 100% of its total assets in Depositary Receipts.
The Fund is not required to maintain any particular geographic or currency
mix of its investments, and there is no limitation or requirement on the
percentage of its assets which may be invested in securities of companies
domiciled in any one country. The Fund is intended to provide investors with
the opportunity to invest in a portfolio of common stocks of companies located
and/or doing business throughout the world.
The Fund may invest in securities of companies located in developed
countries, as well as in emerging or developing countries, without limitation.
Emerging or developing countries may have relatively unstable governments,
economies based on only a few industries, and less developed securities
exchanges or markets which trade a small number of securities. Although prices
on these exchanges tend to be volatile, in the past they have offered greater
potential for gain, as well as loss, than exchanges in developed countries. It
is possible that certain Fund investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations."
In analyzing companies for investment, the Manager generally will look for
one or more of the following characteristics: above-average earnings growth
potential; predictable and sustainable earnings growth; high profitability;
strength of management; overall financial strength; significant competitive
advantages; dominant market share; and where possible, limited regulation - all
in relation to the prevailing prices of the securities of such companies.
The Fund is permitted to invest on a worldwide basis in companies and other
organizations of any size, regardless of country of organization or place of
principal business activity.
5
<PAGE>
At times the Manager may judge that conditions in the international
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 equity securities traded
primarily in U.S. markets, or in domestic or foreign debt securities, preferred
stocks, cash or money market instruments, or in other securities the Manager
considers to be consistent with such defensive strategies. It is impossible to
predict when, or for how long, the Fund will use these alternative strategies.
The Fund is designed for long-term investors who can accept international
investment risk. The Fund's share price will reflect the price movements of the
different securities markets in which it is invested as well as the currencies
in which its investments are denominated. The strength or weakness of the U.S.
dollar against foreign currencies also may account for part of the Fund's
investment performance. As with any long-term investment, the value of the
Fund's shares when sold may be higher or lower than when they were purchased.
Because of the Fund's global investment policies and the investment
considerations discussed above, investment in shares of the Fund should not be
considered a complete investment program.
The Fund's investment objective is a fundamental policy which may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. Fund policies that
are not fundamental may be modified by the Trust's Board of Trustees upon prior
notice to shareholders without shareholder approval.
RISK CONSIDERATIONS
While investing in a globally diversified portfolio may reduce the risks
associated with investing in the economy of only one country - where business
cycles and other economic or political events that influence one country's
securities markets may have a lesser effect on the securities markets in other
countries - investments in foreign securities involve risks that may not be
present in securities of U.S. companies.
Because foreign securities are normally denominated and traded in foreign
currencies, the value of the assets of the Fund may be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations. There may be less information publicly available about a foreign
company than about a U.S. company, and the information that is available may not
be of the same quality. Foreign companies are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States. The securities of some foreign companies are
less liquid and at times more volatile than securities of comparable U.S.
companies. Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment or delivery of
securities or in the recovery of the Fund's assets held abroad) and expenses not
present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, limitations on the removal
of securities or other assets, confiscatory taxation, political, social or
financial instability, and diplomatic developments which could affect the value
of the Fund's investments in certain foreign countries. Legal remedies
available to investors in certain foreign countries may be more limited than
those available with respect to investments in the United States or in other
foreign countries. The laws of some foreign countries may limit the Fund's
ability to invest in securities of certain issuers located in those foreign
countries, and special tax considerations apply to foreign securities, including
withholding of foreign taxes on dividends and interest paid with respect to the
Fund's portfolio investments in such countries.
<PAGE>
A MORE DETAILED EXPLANATION OF FOREIGN INVESTMENTS, AND THE RISKS AND
SPECIAL TAX CONSIDERATIONS ASSOCIATED WITH THEM, IS INCLUDED IN THE STATEMENT OF
ADDITIONAL INFORMATION.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may engage in various foreign currency exchange transactions to
protect itself against adverse changes in exchange rates. The Fund may engage
in foreign currency exchange transactions both in connection with the purchase
and sale of portfolio securities ("transaction hedging"), and to protect itself
against changes in the value of specific portfolio positions ("position
hedging"). However, because of the long-term nature of the Fund's investments,
it is not likely that the Fund regularly will engage in these types of
transactions. Accordingly, any such transactions may be limited and there can
be no assurance that even if utilized, they will be successful.
Transaction hedging is designed to protect against a change in foreign
currency exchange rates between the date on which the Fund contracts to purchase
or sell a security and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign currency. 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.
If conditions warrant, 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 as a hedge against changes in
foreign currency exchange rates between the trade and settlement dates on
particular transactions and not for speculation. A foreign currency forward
contract is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign currency
futures contracts are standardized exchange-traded contracts and have margin
requirements. For transaction hedging purposes the Fund may also purchase or
sell exchange-listed and over-the-counter put and call options on foreign
currency futures contracts and on foreign currencies.
Position hedging is intended to protect against a decline relative to the
U.S. dollar in the value of the currencies in which the Fund's portfolio
securities are denominated or quoted (or against an increase in the value of the
currencies in which the securities the Fund intends to buy are denominated, when
the Fund holds cash or short-term investments). For position hedging purposes,
the Fund may purchase or sell foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency futures contracts and
on foreign currencies on exchanges or in over-the-counter markets. In
connection with position hedging, the Fund may also purchase or sell foreign
currency on a spot basis.
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.
Hedging transactions involve costs and may result in losses. The Fund will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Manager, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. There is no
assurance that appropriate foreign currency exchange transactions
7
<PAGE>
will be available with respect to all currencies in which the Fund's
investments may be denominated. The Fund's ability to engage in hedging
transactions also may be limited by tax considerations, and the Fund's
hedging transactions may affect the character or amount of the Fund's
distributions.
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 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.
<PAGE>
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.
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. 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) UNSEASONED COMPANIES.
As a matter of operating policy, the Fund may invest to a limited extent in
securities of unseasoned companies. 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).
(e) 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
9
<PAGE>
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.
(f) 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. 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.
(g) 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.
(h) 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. 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.) High portfolio activity increases the Fund's
transaction costs, including brokerage commissions. See "Financial Highlights"
above.
10
<PAGE>
PURCHASE OF SHARES
Shares of the Fund are offered for purchase to the public continuously
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
will be 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 after the time of
the next determination of the Fund's net asset value will be entered at the next
calculated public offering price.
The public offering price per share will be equal to the net asset value
per share, plus a sales charge, which is reduced on purchases involving amounts
of $50,000 or more, as set forth in the table below. The reduced sales charges
apply to quantity purchases 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).
<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%*
_________________
* Paid by the Manager from its own resources, as described below under
"Purchase at Net Asset Value."
</TABLE>
The Fund also will pay dealers and others, including the Manager and
Pasadena Fund Services, Inc. (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.
RIGHTS OF ACCUMULATION
The reduced sales charges also apply on a cumulative basis over any
period of time. Thus, the value of all shares of the Fund owned by a
shareholder (including the shareholder's own account, IRA, spousal or other
account), taken at the current net asset value, can be combined with a
current purchase of the Fund to determine the rate of sales charges
applicable to the current purchase. In order to receive the cumulative
quantity reduction, the existing shares of the Funds held by a shareholder
must be called to the attention of the Distributor at the time of the current
purchase.
11
<PAGE>
LETTER OF INTENT
An investor may qualify for an immediate reduced sales charge on a purchase
of Class A shares of any publicly-offered fund by completing a Letter of Intent
(the "Letter of Intent"), in which the investor states an intention to purchase
during the next 13 months a specified amount 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 any of the publicly-offered
funds. Additional information regarding the Letter of Intent is provided in the
Statement of Additional Information.
PURCHASE AT NET ASSET VALUE
Shares of the Fund 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
investment advisory clients of the Manager's affiliate, Roger Engemann &
Associates, Inc. ("REA"), who are participants in REA's "President's Circle"
program, and their family members, and by such other persons who are determined
by the Board of Trustees to have acquired shares under special circumstances not
involving any sales expense to the Fund or the Distributor. Shares of the Fund
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. Shares of the Fund may also be acquired at net asset value by
unit trusts, insurance companies or other separate accounts which acquire and
hold shares of the Fund as part of a program or separate offering being made by
them.
Shares of the Fund may be purchased at net asset value with no sales charge
by investors who are existing shareholders of any of the ^ 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 pre-existing 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 Fund. An investor must indicate eligibility
for this privilege at the time of the investment. The Manager or Distributor
may, in its discretion, waive the minimum initial investment requirements for
certain of these investors.
Shares of the Fund 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 Internal Revenue Code of 1986, as
amended (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.
12
<PAGE>
Shares of the Fund also may 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
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 shares meeting the above-referenced requirements is
made through a dealer who has executed a dealer agreement with respect to the
Funds, the Manager may pay out of its own resources a one-time fee to such
dealers, as follows: 1.00% 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 net assets represented by such investments.
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 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.
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 initial investment
requirements for individual retirement accounts, Keogh Plans, employee benefit
plans, or other systematic or periodic purchase plans.
The Fund and the Distributor each reserves 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.
13
<PAGE>
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 sends 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.
Shareholders 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 Individual
Retirement Plan ("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.
PURCHASING SHARES:
------------------------------------------------------------------------------
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
------------------------------------------------------------------------------
By mail See "Purchase Procedures" for $50 minimum for subsequent
initial minimum requirements. purchases. Complete the
Complete account application form at the bottom of a
in its entirety, sign and recent account statement,
return with your check made make your check payable to
payable to the Pasadena the Pasadena Group of Mutual
Group of Mutual Funds address Funds, write your account
listed on the account number on the check and mail
application. in the envelope provided
with your account statement.
------------------------------------------------------------------------------
14
<PAGE>
------------------------------------------------------------------------------
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
------------------------------------------------------------------------------
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
- Fund account
number
------------------------------------------------------------------------------
By contacting Visit any investment dealer Mail directly to your
your investment who is registered in the investment dealer's address
dealer state where the purchase is printed on your account
made and who has a sales statements, or to the
agreement with Pasadena Fund Sub-Transfer Agent at P.O.
Services, Inc. Box 8505, Boston, MA
02266-8505
------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for the Class A shares of the other
Funds on the basis of their relative net asset values (with no sales charge
or exchange fee) at the time of the exchange. Shares of the Fund may not be
exchanged for shares of another Fund unless the amount exchanged satisfies
the other Fund's minimum investment requirement. Exchanges may only be made
in states where shares of the ^ Funds are qualified for sale, and
shareholders 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.
Telephone Exchange Privilege. Investors 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 for the Fund account for which such service has
been authorized. (See "Telephone Redemption Privilege" below for information
regarding the use of telephone authorizations).
GENERAL
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. 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
any 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
15
<PAGE>
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
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. 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. The signature on such
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 address on the Fund's records (provided that the shareholder's address of
record has not been changed with the preceding 30 days). 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.
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. 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.
A telephone redemption privilege is available to shareholders. A
shareholder 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
neither the Fund nor 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, if reasonable procedures are 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.
16
<PAGE>
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 prior written notice of at least 60 days to provide the
shareholder an opportunity to purchase sufficient additional shares to bring the
account up to a value of at least $1000 ($200 and $250, respectively, for
accounts requiring an initial minimum investment of $250).
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, a shareholder with an account value in
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 the Fund on a monthly
or quarterly basis. (Minimum account value for quarterly withdrawals is $5,000.)
Shares of the Fund will be redeemed as necessary in order to meet withdrawal
payments. Dividends and distributions on shares held in a Systematic Withdrawal
Plan account will be reinvested in additional shares at net asset value.
Purchases of additional shares concurrently with periodic withdrawals from
the shareholder's account may be disadvantageous because of sales charges
applied when purchases are made, and because some or all of any loss on
redemption may be disallowed under certain "wash sales" 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 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 the Fund's receipt of
notification of the death or incapacity of the shareholder.
REDEEMING SHARES:
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METHOD PROCEDURE
------------------------------------------------------------------------------
By writing to The Pasadena Group Send a letter of instruction specifying the
of Mutual Funds c/o the name of the Fund, the number of shares or
Sub-Transfer Agent, P.O. dollar amount to be sold, your name and
Box 8505, Boston, Massachusetts account number. For redemptions over
02266-8505 $50,000, and for certain redemptions of
$50,000 or less (trusts, corporations,
partnerships and 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.
17
<PAGE>
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METHOD PROCEDURE
------------------------------------------------------------------------------
By contacting your investment If you redeem shares through your
dealer 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 If you have previously authorized telephone
Mutual Fund Representatives at privileges on your account application, you
(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.
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MANAGEMENT
The Board of Trustees of the Trust oversees the business and affairs of the
Fund 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
18
<PAGE>
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"), all of the 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 and the service fees
paid by the Fund to dealers and others.
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 equal to the annual rate of 1.00% of the Fund's average daily net
assets up to $30 million, plus 0.80% of net assets over $30 million up to
$100 million, plus 0.60% of net assets over $100 million up to $500 million,
plus 0.40% of net assets over $500 million. The Manager also receives under the
Administration Agreement an administration fee from the Fund equal to 1.05% per
annum of the Fund's average daily net assets up to $30 million, plus 0.85% per
annum of net assets over $30 million up to $100 million, plus 0.65% per annum of
net assets over $100 million up to $500 million, plus 0.60% of net assets over
$500 million.
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, and the fees paid to dealers and others
providing services to shareholder accounts), 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 described
above. (See "Expense and Fee Table" on page 2)
19
<PAGE>
During the fiscal years ended December 31, 1995 and 1994, the Manager
waived and absorbed all management and administration fees otherwise payable by
the Fund to the Manager. Also, see the Statement of Additional Information --
"Investment Management and Administrative Services."
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.
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.
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 to elect to be taxed as a regulated
investment company under Subchapter M of the Code ^, but did not qualify as such
for its initial tax year ending October 31, 1994, or for its tax period
November 1, 1994 to December 31, 1994. The Fund did qualify as a regulated
investment company for the fiscal year ending December 31, 1995. 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, the Fund will not be
subject to any federal income taxes, to the extent its earnings are
distributed^. The Manager has paid all applicable taxes to which the Fund was
subject due to its failure to qualify as a regulated investment company during
1993 and 1994 (including all taxes related to the Fund's "built-in" gains in its
assets held on January 1, 1995).
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
20
<PAGE>
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 Fund 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.
The foregoing discussion has been prepared by the management of the Fund,
and does not purport to be a complete description of all tax implications of an
investment in the Fund. Heller, Ehrman, White & McAuliffe, legal counsel to the
Fund, has expressed no opinion in respect thereof. Additional information about
taxes is set forth in the Statement of Additional Information. Shareholders
should consult their own advisers concerning the application of federal, state
and local tax laws to their particular situations.
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.
PERFORMANCE INFORMATION
From time to time, the Fund may publish its total return in advertisements
and communications to investors. Total return information will include the
Fund's total return over the most recent fiscal year and over the period from
the Fund's inception of operations. The Fund also may advertise aggregate and
average total return information over different periods of time. The Fund's
total return will be based upon the value of the shares acquired through a
hypothetical $1,000 investment (at the maximum public offering price) at the
beginning of the specified period and the net asset value of such shares at the
end of the period, assuming reinvestment of all distributions at net asset
value. The Fund also may publish a cumulative return over a specified period
based on
21
<PAGE>
the change in net asset value over such period. In addition, the Fund may
publish a distribution rate in prospective investor communications preceded
or accompanied by a copy of the current Prospectus. The current distribution
rate for the Fund will be calculated by dividing the maximum offering price
per share into the annualization of the total distributions made by 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 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 Semi-Annual Report to
Shareholders, if applicable, contain additional performance information
respecting the Fund. A copy of each Report is available without charge upon
request to the Fund 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 five series (the "Funds"): The Pasadena Growth Fund,
The Pasadena Nifty Fifty Fund, The Pasadena Balanced Return Fund, The Pasadena
Small & Mid-Cap Fund and The Pasadena Global Growth Fund. The Board of Trustees
from time to time may authorize additional series or the termination of existing
series of the Trust. Each of the Funds is authorized to issue Class A, Class B
and Class C shares. The Fund currently offers only Class A shares. This
Prospectus covers only Class A shares of the Fund. The shares of the Funds are
offered in separate prospectuses. Shares issued by the Fund have no preemptive,
conversion, or sinking rights. Shareholders have equal and exclusive rights as
to dividends and distributions as declared by the Fund and to the net assets of
the Fund upon liquidation or dissolution.
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 vote as a single class on matters
affecting all the 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 the Funds voting in any election of Trustees, can,
if they choose to do so, elect all of the Trustees. While the Funds are not
required to, nor do they intend to, hold annual meetings of shareholders, such
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.
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).
22
<PAGE>
GENERAL INFORMATION
State Street Bank and Trust Company serves as Custodian of the 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 Fund.
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 Fund.
Coopers & Lybrand L.L.P. serves as independent auditors for the Fund.
Reports containing financial statements, at least one of which will be audited,
will be sent to shareholders twice during each fiscal year of the Fund, 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 the Fund 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 the 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.
As of March 31, 1996, Pasadena Capital Corporation owned 95.5% of the
Fund's outstanding shares and is therefore a "control" person of the Fund as
defined in the 1940 Act. The Pasadena Capital Corporation Employee Stock
Ownership Plan owned the Fund's remaining outstanding shares on that date.
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
23
<PAGE>
income tax at the rate of 31% with respect to distributions, redemptions and
other payments made with respect to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by
contacting your local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to your account while you are
awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under the Uniform Transfers to Minors Act, the TIN of the minor
should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you have failed to report interest or dividend income on
your tax return and you have not been notified by the IRS that such withholding
should cease, you should strike clause (2) of the section entitled "Taxpayer
Identification Number Certification and Signature(s)." If you are an exempt
recipient, you should furnish your TIN and check the appropriate box in that
section. Exempt recipients include corporations, financial institutions,
registered securities and commodities dealers and others.
For further information regarding backup withholding, see Section 3406 of
the Code and consult your tax adviser.
24
<PAGE>
PART A
-----------------------
PROSPECTUS
The Pasadena Small & Mid-Cap Fund-SM-
-----------------------
<PAGE>
THE PASADENA GROUP
OF MUTUAL FUNDS-Registered Trademark-
THE PASADENA
SMALL & MID-CAP
FUND-SM-
THE PASADENA SMALL & MID-CAP FUND (the "Fund") seeks to achieve
long-term capital appreciation by investing primarily in a diversified
portfolio of equity securities of companies with market capitalizations below
$1.5 billion.
Roger Engemann Management Co., Inc. is the investment manager for the
Fund. The Fund is a separate series of the Pasadena Investment Trust (the
"Trust"), and offers one class of shares (Class A 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
dated May 1, 1996, as it may be amended from time to time. The Statement of
Additional Information, which is incorporated by reference into this
Prospectus, has been filed with the Securities and Exchange Commission and is
available without charge upon request to the Trust at 600 North Rosemead
Boulevard, Pasadena, California 91107-2133 (telephone: (818) 351-9686 or
(800) 648-8050).
- ----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS MAY 1, 1996
<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 five separate
series of the Pasadena Investment Trust (the "Trust"), a Massachusetts business
trust which is organized as a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The one series described in this single Prospectus is The Pasadena
Small & Mid-Cap Fund (the "Fund"). This Prospectus covers the Fund's Class A
shares, the only class presently in issue.
The four other series of the Trust, which are covered by separate
prospectuses, are The Pasadena Growth Fund,-Registered Trademark- The Pasadena
Nifty Fifty Fund,-Registered Trademark- The Pasadena Balanced Return Fund,-
Registered Trademark- and The Pasadena Global Growth Fund.-SM- The five series
of the Trust are collectively referred to as the "Funds." The Fund has not yet
sold its shares to the public. Only Class A shares of the Fund currently are in
issue.
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 $30 million,
plus 0.80% of net assets over $30 million up to $100 million, plus 0.60% of
net assets over $100 million up to $500 million, plus 0.40% of net assets
over $500 million. The Manager also performs, and/or assumes the expenses
for, all of the Fund's administrative and most shareholder services for which
it receives an annual administration fee equal to 1.05% of the average daily
net assets of the Fund up to $30 million, plus 0.85% over $30 million up to
$100 million, plus 0.65% over $100 million up to $500 million, plus 0.60% 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 to dealers and others, including the Manager and its
affiliates, for servicing shareholder accounts equal to 0.25% per annum of
the Fund's average daily net assets. The management fee for the Fund also is
subject to a more restrictive limitation imposed by the law of a state in
which the Fund is registered to sell its shares. See "Management."
PURCHASE AND REDEMPTION OF SHARES. The Fund offers its shares
continuously and redeems its shares upon a shareholder's request. Shares may
be purchased through authorized investment dealers at the public offering
price next determined after the Fund, Pasadena Fund Services, Inc. (the
"Distributor"), or another authorized agent or subagent of the Fund, receives
a purchase order. The public offering price 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 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 Fund, the Distributor, or
another authorized agent or subagent of the Fund, receives a redemption
request in proper form. See "Redemption of Shares."
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
correspond to 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 (as well as
with changes in foreign currency exchange rates for any securities not traded
in United States dollars), an investment in the Fund may not be suitable for
investors with specific short-term investment return needs. The Fund also
may invest part of its assets in securities with special risks,
-2-
<PAGE>
such as foreign securities (which may be denominated in foreign currencies)
and securities representing special situations. 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.
EXPENSE AND FEE TABLE
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.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as percentage of offering price)5.50%
Maximum Sales Charge Imposed on Reinvestment of Distributions. . . . . . . .None
Maximum Deferred Sales Charge. . . . . . . . . . . . . . . . . . . . . . . .None
Redemption Fees+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .None
Exchange Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .None
ANNUAL FUND OPERATING EXPENSES*:
(Before Fee Waivers)
Management Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
Administration Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .None
Service Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%
-----
Total Fund Operating Expenses . . . . . . . . . . . . . . . . . . . . 2.30%
-----
-----
+ A $10.00 fee may be charged for redemptions made by bank wire (see p. 15).
* Operating expense information for the Fund reflects the current fee
schedule under the Management, Administration and Services Agreements,
respectively, assuming total net assets do not exceed $30 million. All
such fees for the fiscal year ended December 31, 1995 were waived by the
Manager.
EXAMPLE
This table illustrates the net transaction and operating expenses that an
investor in the Fund would bear directly or indirectly over different time
periods, assuming a $1,000 investment and a 5% annual return:
1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 77
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION 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."
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
The following table contains information for one Class A share of
beneficial interest outstanding throughout each period for the Fund since its
inception, which has been audited by Coopers & Lybrand L.L.P., independent
accountants. The accountants' unqualified report for each of the periods
ended December 31 appears in the Fund's audited financial statements for the
year ended December 31, 1995. The financial highlights should be read in
conjunction with the Fund's audited financial statements for the year ended
December 31, 1995, which are incorporated by reference in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Inception
(October 10, 1994)
For the Year Ended to
December 31, 1995 December 31,
1994
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period. . . . . . . . . . . . . . . . . . $ 12.07 $ 10.00
------- -------
Gain from Investment Operations:
Net investment income1,2. . . . . . . . . . . . . . . . . . . . . . . . .22 .07
Net realized and unrealized gain on investments . . . . . . . . . . . . 2.87 2.00
------- -------
Total gain from investment operations. . . . . . . . . . . . . . . . . . . . 3.09 2.07
------- -------
Less Dividends and Distributions to Shareholders:
Distributions from net investment income . . . . . . . . . . . . . . . (.08) --
Distributions from capital gains. . . . . . . . . . . . . . . . . . . . (.18) --
------- -------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (.26) --
------- -------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . $ 14.90 $ 12.07
------- -------
------- -------
Total Return2,3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.68% 20.70%
Ratios/Supplemental Data:
Net assets, end of period . . . . . . . . . . . . . . . . . . . . . . . $1,742,290 $ 120,729
Ratio of net expenses to average net assets2 . . . . . . . . . . . . . 0.0% 0.0%4
Ratio of net investment income to average net assets2 . . . . . . . . . 1.5% 2.6%4
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . 121.4% 157.9%
</TABLE>
- ---------------------
1 This information was prepared using the average number of shares
outstanding.
2 These amounts reflect the impact of a waiver of Manager fees of $13,443 and
$585 for the periods ended December 31, 1995, and December 31, 1994,
respectively, and the Manager's reimbursement for income taxes of $6,654
during 1994. Had the waivers and reimbursement not been made, net
investment income (loss) per share, total return (not annualized for the
period ended December 31, 1994) and the ratios of expenses and net
investment income (loss) to average net assets (annualized for the period
ended December 31, 1994) would have been ($.11), 23.40%, 2.3% and (.8%),
respectively, and ($.01), 15.10%, 22.1% (2.3% if only normal and recurring
expenses are taken into account) and (0.4%), respectively, for the periods
ended December 31, 1995 and December 31, 1994, respectively.
3 Total return measures the change in the value of an investment during the
period indicated and does not include the impact of paying any sales
charge. Total return for the period ended December 31, 1994, has not been
annualized. The Manager has waived all management, administrative and
service fees otherwise payable to it by the Fund for the indicated periods,
which had the effect of increasing the Fund's total return for those
periods.
4 Annualized.
-4-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE AND STRATEGIES
The investment objective of the Fund is long-term capital appreciation.
The Fund seeks to achieve its objective by investing primarily in equity
securities of those small- to mid-capitalized companies that the Manager
believes may be the leading companies of tomorrow. The Fund will select its
portfolio investments primarily from among U.S. and foreign companies with
individual market capitalizations below $1.5 billion. Under normal market
conditions, the Fund will invest at least 65% of its total assets in equity
securities of companies that are in that market capitalization range at the time
of purchase. It is expected that under normal market conditions the remaining
portion of the Fund's investment portfolio (up to 35% of its total assets) will
also be invested in a similar manner, although the Manager reserves the right to
invest some or all of this portion of the Fund's assets in equity securities of
companies that, at the time of investment, have a market capitalization of
$1.5 billion or greater. The Fund may continue to hold its investment in a
company whose capitalization subsequently increases to $1.5 billion or greater
if the company continues to satisfy the Fund's other investment policies.
The Fund emphasizes the purchase of equity securities of companies with
rapidly growing earnings per share. The Fund also invests in companies that,
although not growing rapidly, are undervalued by other criteria compared to the
Manager's opinion of their fundamental net worth.
INVESTMENTS. The Fund may invest in the securities of companies listed on
any exchange or traded in the over-the-counter market, and is expected to invest
principally in common stocks. In addition to common stocks, the Fund's
investments may also include other types of securities with equity
characteristics such as preferred stocks, warrants, options on stocks and stock
indices, and convertible debt obligations that, in the Manager's opinion, offer
the possibility of capital appreciation over the course of approximately two or
more years because of the timing of such investments. In addition to the
interest received from such debt instruments, if interest rates fall these
instruments are likely to increase in value. Conversely, if interest rates rise
a decrease in value can be expected. The Fund does not, however, anticipate
investing a significant portion of its total assets in such instruments.
Dividend and interest income received from portfolio securities is largely
incidental.
Except for temporary defensive and liquidity purposes and its investments
in convertible debt securities described above, the Fund will not under normal
market conditions invest in debt securities. While the Fund primarily
emphasizes investments in U.S. companies, it can invest up to 50% of its total
assets in securities of foreign companies (directly or through depositary
receipts) which meet the same criteria applicable to domestic investments.
The Fund may also (subject to the limitations described herein) invest in
unseasoned companies and special situations. Such securities often involve
greater risks than investments in more established domestic companies, primarily
because they may be more likely to experience unexpected fluctuations in price.
See "Investment Policies" below for a further discussion of the policies
regarding investments in unseasoned companies and special situations.
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 on the amount of income that may be realized on the sale
of assets held for less than three months. This factor, together with the
adjustment of the investment portfolio whenever deemed advisable, may, from time
to time, result in a relatively high rate of portfolio turnover, which is
generally not anticipated to exceed 150%. (The portfolio turnover rate is
computed by dividing the lesser of total purchases or proceeds of sales effected
-5-
<PAGE>
during the period, excluding short-term securities, by the monthly average of
the value of portfolio securities during that period.) High portfolio activity
increases the Fund's transaction costs, including brokerage commissions.
Because prices of common stocks and other securities fluctuate, the value
of an investment in the Fund will vary, based upon the Fund's investment
performance. The volatility of the Fund's investment portfolio is likely to be
greater than that of the Standard & Poor's 500 Stock Index. For this and other
reasons described below in "Investment Policies" and "Risk Considerations," the
net asset value per share of the Fund may fluctuate substantially, and the Fund
may not be appropriate for short-term investors. There is, of course, no
assurance that the Fund will achieve its investment objective. The Fund
attempts to reduce its overall exposure to risk from declines in individual
securities by spreading its investments over different companies and a variety
of industries.
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 or agency
securities. All such investments will be made for temporary defensive purposes
to protect against the erosion of capital and pending investment in other
securities. In any repurchase transaction in which the Fund engages, the Fund's
position during the entire term of the repurchase agreement will be fully
collateralized.
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; 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. 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 the
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
-6-
<PAGE>
index to the extent that it holds securities in its portfolio whose price
changes, in the Manager's judgment, are expected to 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 experience delays in recovering, or be 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.
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. The Fund's investment
objective is also fundamental. 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, it 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, it will not
acquire more than 10% of the outstanding voting securities of any one issuer.
This limitation does not apply with respect to the remaining 25% of the Fund's
total 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
-7-
<PAGE>
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 the Fund's total assets.
(e) Unseasoned Companies.
As a matter of operating policy, the Fund may invest in securities of
unseasoned companies. 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 predesignated expiration date.
(g) 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 the Fund's 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 the Fund's 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.
RISK CONSIDERATIONS
GENERAL. Like any investment program, an investment in the Fund entails
certain inherent risks. The stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when stock prices generally
decline. Investments in debt securities are also exposed to interest rate risk
- -- i.e., fluctuations in the market value of debt securities due to changing
interest rates.
SMALL CAP AND UNSEASONED COMPANIES. Investing in small cap or unseasoned
companies carries more risk than investing in larger or more established
companies. Reliance by small cap or unseasoned
-8-
<PAGE>
companies on limited product lines, management, markets, financial resources
and other factors may make them more susceptible to market or economic
setbacks or downturns. Also, the securities of small cap or unseasoned
companies may trade less frequently and in limited volume, and only in the
over-the-counter market or a regional securities exchange. As a result, the
stock prices of small cap or unseasoned companies may be particularly
volatile.
FOREIGN SECURITIES. The Fund may invest up to 50% of its assets in foreign
securities, including those traded on foreign markets and denominated in foreign
currencies, and investors should note that investments in foreign securities
involve risks that may not be present in securities of U.S. companies.
Securities of foreign issuers may be owned by the Fund through the purchase of
Depositary Receipts (e.g., American, European, Global, Continental, etc.) which
are traded in the United States securities markets or foreign markets and
denominated in U.S. dollars or foreign currencies. The Fund may invest up to
50% of its total assets in Depositary Receipts.
Because foreign securities are normally denominated and traded in foreign
currencies, the value of the assets of the Fund may be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations. There may be less information publicly available about a foreign
company than about a U.S. company, and the information that is available may not
be of the same quality. Foreign companies are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States. The securities of some foreign companies are
less liquid and at times more volatile than securities of comparable U.S.
companies. Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment or delivery of
securities or in the recovery of the Fund's assets held abroad) and expenses not
present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, limitations on the removal
of securities or other assets, confiscatory taxation, political, social or
financial instability, and diplomatic developments which could affect the value
of the Fund's investments in certain foreign countries. Legal remedies
available to investors in certain foreign countries also may be more limited
than those available with respect to investments in the United States or in
other foreign countries. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in those
foreign countries, and special tax considerations apply to foreign securities,
including withholding of foreign taxes on dividends and interest paid with
respect to the Fund's portfolio investments in such countries.
The Fund also may, to the extent it owns securities denominated in a
foreign currency, engage in various foreign currency transactions to protect
itself against adverse changes in exchange rates. The Fund may engage in the
purchase and sale of foreign currency on a spot or cash basis, the entering into
of foreign currency forward or futures contracts, and the purchase and sale of
put and call options on foreign currency futures contracts and on foreign
currencies. The Fund has the right to engage in foreign currency exchange
transactions both in connection with the purchase and sale of portfolio
securities ("transaction hedging") and to protect against changes in the value
of specific portfolio positions ("position hedging"). However, because of the
long-term nature of the Fund's investments, it is not likely that the Fund
regularly will engage in these types of transactions. Accordingly, any such
transactions may be limited and there can be no assurance that even if utilized,
they will be successful.
Hedging transactions involve costs and may result in losses. The Fund will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Manager, the
pricing mechanism and liquidity are satisfactory and the
-9-
<PAGE>
participants are responsible parties likely to meet their contractual
obligations. There is no assurance that appropriate foreign currency
exchange transactions will be available with respect to all currencies in
which the Fund's investments may be denominated. The Fund's ability to
engage in hedging transactions also may be limited by tax considerations, and
the Fund's hedging transactions may affect the character or amount of the
Fund's distributions.
A more detailed explanation of foreign investments and foreign currency
exchange transactions, and the risks and special tax considerations associated
with them, is included in the Statement of Additional Information.
SPECIAL SITUATIONS. Investing in special situations often involves much
greater risk than is inherent in ordinary investment securities due to the often
unusual circumstances surrounding each special situation.
PURCHASE OF SHARES
GENERAL
Shares of the Fund are offered continuously for purchase at the public
offering price next determined after a purchase order in proper form is received
by the Fund, the Distributor, or another authorized agent or subagent of the
Fund. The public offering price is effective for orders received by the Fund,
the Distributor, 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 after the time of the next determination of the Fund's net asset value
will be entered at the next calculated public offering price.
The public offering price per share is equal to the net asset value per
share, plus a sales charge, which is reduced on purchases involving $50,000 or
more, as set forth in the table below. The reduced sales charges apply to
quantity purchases made at one time by (i) an individual, (ii) members of a
family (i.e., an individual, spouse, children and 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.)
<TABLE>
<CAPTION>
Sales Charge as
Percentage of
----------------------------
Public Net Dealer Commission
Amount of Purchase Offering Amount as Percentage of the
At the Public Offering Price Price Invested 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."
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<PAGE>
The Fund also will pay dealers and others, including the Manager and
Pasadena Fund Services, Inc. (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.
RIGHTS OF ACCUMULATION
The reduced sales charges also apply on a cumulative basis over any period
of time. Thus, the value of all shares of the Funds owned by a Shareholder
(including the Shareholder'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 the Fund to determine the rate of sales charge
applicable to the current purchase. In order to receive the cumulative quantity
reduction, the existing shares of all Funds held by a shareholder must be called
to the attention of Pasadena Fund Services, Inc. at the time of the current
purchase.
LETTER OF INTENT
An investor may qualify for an immediate reduced sales charge on a purchase
of Class A shares of any of the 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 Funds. Additional information regarding the Letter of
Intent is provided in the Statement of Additional Information.
PURCHASE AT NET ASSET VALUE
Shares of the Fund 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
investment advisory clients of the Manager's affiliate Roger Engemann &
Associates, Inc. ("REA"), who are participants in REA's "President's Circle"
program, 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.
Shares of the Fund 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. Shares of the Fund may also be acquired at
net asset value by unit trusts, insurance companies or other separate accounts,
including funds organized and offered outside of the United States, which
acquire and hold such shares of the Fund as part of a program or separate
offering being made by them.
Shares of the Fund may be purchased at net asset value with no sales charge
by investors who are existing shareholders of any of the 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
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<PAGE>
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 Fund. 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.
Shares of the Fund 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 Internal Revenue Code of 1986, as
amended (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.
Shares of the Fund 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
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 shares meeting the above-referenced requirements is
made through a dealer who has executed a dealer agreement with respect to the
Funds, the Manager may pay out of its own resources a one-time fee to such
dealers, as follows: 1.00% 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.
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 they will be
received by the Distributor 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 prior to its close of business on the same day.
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<PAGE>
Investment applications, accompanied by a check, in U.S. dollars, payable
to the "Pasadena Group of Mutual Funds," should be sent to the Distributor, 600
N. Rosemead Boulevard, Pasadena, California 91107. 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 made by the investor directly to the
dealer. Full and fractional shares will be issued for the amount of the
purchase.
The minimum initial investment for the Fund is $1,000 per account ($250 for
IRAs 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 Distributor may, in its discretion, waive
the minimum investment requirements for 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 sends 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, an investor 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.
-13-
<PAGE>
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 the trust
account maintained by Pasadena National Trust Company, an affiliate of the
Manager, is available with no separate fees.
EXCHANGE PRIVILEGE
GENERAL. Shares of the Fund may be exchanged for the Class A shares of the
other Funds on the basis of their relative net asset values (with no sales
charge or exchange fee) at the time of the exchange. Shares of the Fund may not
be exchanged for shares of another Fund unless the amount exchanged satisfies
the other Fund's minimum investment requirement. Exchanges may only be made in
states where shares of the Funds are qualified for sale, and investors should
note that an exchange may result in recognition of a gain or loss for income tax
purposes. Exchange privileges may be modified or suspended by the Funds upon
60-days' prior notice to shareholders.
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 included with this
Prospectus. By electing the telephone exchange privilege, shareholders
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.)
GENERAL
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. Telephone orders and requests for information from shareholders
will be recorded for the protection of the Fund.
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. The redemption price will be the net asset
value per share next determined after receipt in proper form of the redemption
request by the Fund, the Distributor, 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 the Fund, c/o Pasadena Fund Services, Inc., 600 N. Rosemead Boulevard,
Pasadena, California 91107. 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.
-14-
<PAGE>
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.
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 prior written notice of at least 60 days to provide the
shareholder an opportunity to purchase sufficient additional 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 by the second business day
following the redemption. A shareholder desiring to redeem shares by this
procedure must provide the Distributor with a written authorization, including
specific bank account information, which instructs the Distributor to honor wire
redemption requests. (Please see Sections 10 and 11 of the Investment
Application.) 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 Distributor upon notice to
shareholders.
TELEPHONE REDEMPTION PRIVILEGE
Shareholders will be deemed to have elected the telephone redemption
privilege unless they indicate to the contrary by marking the appropriate
section of the Investment Application. By electing the telephone redemption
privilege, shareholders authorize the Fund and the Distributor 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
neither the Fund nor the Distributor 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, if reasonable procedures are 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
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 the Fund on a monthly
or quarterly basis. (Minimum account value for quarterly withdrawals is
$5,000.) Shares of the Fund will be redeemed as necessary in order to meet
withdrawal payments. Dividends and distributions on shares held in a Systematic
Withdrawal Plan account will be reinvested in additional shares at net asset
value.
Purchases of additional shares concurrently with periodic withdrawals from
the shareholder's account may be disadvantageous because of sales charges
applied when purchases are made, and because some or all of any loss on
redemption 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
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<PAGE>
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 section of the Investment Application. The Fund and the
Distributor 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 the
Fund's receipt of notification of the death or incapacity of the shareholder.
MANAGEMENT
The Board of Trustees of the Trust oversees the business and affairs of the
Fund 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 91107-2138. 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 investment management of the Fund, and have been since the
Fund's inception in October, 1994. Mr. Engemann has been President of the
Manager since its organization in 1985, and has been President of REA since its
inception in 1969. 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 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"), all of the
administrative and shareholder servicing for the Fund and
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<PAGE>
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.
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 equal to the annual rate of 1.00% of the Fund's average daily net
assets up to $30 million, plus 0.80% of net assets over $30 million up to $100
million, plus 0.60% of net assets over $100 million up to $500 million, plus
0.40% of net assets over $500 million. The Manager also receives under the
Administration Agreement an administration fee from the Fund equal to 1.05% per
annum of the Fund's average daily net assets up to $30 million, plus 0.85% per
annum of net assets over $30 million up to $100 million, plus 0.65% per annum of
net assets over $100 million up to $500 million, plus 0.60% of net assets over
$500 million.
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, also 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, and the distribution fees paid by Class B and
Class C shares), which are normally paid directly by other investment companies,
such as compensation of the Trust's trustees, cost of shareholder reports,
insurance, and all fees and expenses of the Fund's 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 described above. (See "Expense and Fee Table" on page 2.)
During the fiscal years ended December 31, 1995 and 1994, the Manager
waived all management and administration fees otherwise payable by the Fund to
the Manager. Also, see the Statement of Additional Information -- "Investment
Management and Administrative Services."
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.
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 recognized 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.
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
-17-
<PAGE>
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 its 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 to elect to be taxed as a
regulated investment company under Subchapter M of the Code, but did not
qualify as such for its initial fiscal period ending December 31, 1994. The
Fund did qualify as a regulated investment company for the fiscal year ended
December 31, 1995. 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, the Fund will not be subject to any federal income
taxes, to the extent its earnings are distributed. The Manager has paid all
applicable taxes to which the Fund was subject due to its failure to qualify
as a regulated investment company during 1994 (including all taxes related to
the Fund's "built-in" gain in its assets held on January 1, 1995).
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 Fund 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 Fund, and does not purport to be a complete description of all
tax implications of an investment in the Fund. Shareholders should consult
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<PAGE>
their own advisers concerning the application of federal, state and local tax
laws to their particular situations. Heller, Ehrman, White & McAuliffe, counsel
to the Trust, 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 (or at such earlier time
as such 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.
PERFORMANCE INFORMATION
From time to time, the Fund may publish its total return in advertisements
and communications to shareholders. Total return information will include the
Fund's total return over the most recent fiscal year and over the period from
the Fund's inception of operations. The Fund also may advertise aggregate and
average total return information over different periods of time. The Fund's
total return will be based upon the value of the shares acquired through a
hypothetical $1,000 investment (at the maximum public offering price) at the
beginning of the specified period and the net asset value of such shares at the
end of the period, assuming reinvestment of all distributions at net asset
value. The Fund also may publish a cumulative return over a specified period
based on the change in net asset value over such period. ln addition, the Fund
may publish a distribution rate in prospective investor communications preceded
or accompanied by a copy of its current Prospectus. The current distribution
rate for the Fund will be calculated by dividing the maximum offering price per
share into the annualization of the total distributions made by 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 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 Semi-Annual Report to
Shareholders, if applicable, contain additional performance information
respecting the Fund. A copy of each Report is
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<PAGE>
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 five series: 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 Fund. The Board of Trustees from time to
time may authorize additional series or the termination of existing series of
the Trust. Each of the Funds is authorized to issue Class A, Class B and Class
C shares. The Fund currently offers only Class A shares. This Prospectus
covers only Class A shares of the Fund. The shares of the other Funds are
covered by separate Prospectuses.
Shares issued by the Fund have no preemptive, conversion, or sinking
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution.
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 vote as a single class on matters
affecting all Funds jointly or the Trust as a whole (e.g., election or removal
of Trustees). Voting rights are not cumulative, so the holders of more than 50%
of the shares of all Funds voting in any election of Trustees, can, if they
choose to do so, elect all of the Trustees. While the Funds are not required
to, nor do they intend to, hold annual meetings of shareholders, such 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.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Fund at the Pasadena Group
Service Center, 600 North Rosemead Boulevard, Pasadena, California 91107-2133
(telephone toll free: (800) 648-8050).
GENERAL INFORMATION
The Union Bank of California serves as Custodian of the 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 Fund.
Coopers & Lybrand L.L.P. serves as independent auditors for the Fund.
Reports containing financial statements, at least one of which will be audited,
will be sent to shareholders twice during each fiscal year of the Fund, which
ends on December 31. Only one copy of each report may be sent to
-20-
<PAGE>
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 the Fund 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 the Fund's shares owned by any 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 such an 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), subject to any required
regulatory approvals, 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.
As of March 31, 1996, Pasadena Capital Corporation owned 75.6% of the
Fund's outstanding shares and is therefore a "control person" of the Fund as
defined in the 1940 Act. The Pasadena Capital Corporation Employee Stock
Ownership Plan owned the Fund's remaining outstanding shares on that date.
BACKUP WITHHOLDING INSTRUCTIONS
You are required by law to provide the Fund with your correct social
security or taxpayer identification number (each a "TIN"), regardless of whether
you file tax returns. Failure to do so may subject you to certain penalties.
Failure to provide your correct TIN and to complete the section of the
Investment Application entitled "Taxpayer Identification Number Certification
and Signature(s)" could result in backup withholding by the Fund of federal
income tax at the rate of 31% with respect to distributions, redemptions and
other payments made with respect to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by
contacting your local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to your account while you are
awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under the Uniform Transfers to Minors Act, the TIN of the minor
should be furnished.
-21-
<PAGE>
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 section (12) entitled "Taxpayer
I.D. Number Certification/Signatures." 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.
-22-
<PAGE>
TABLE OF CONTENTS
Page
----
Synopsis . . . . . . . . . . . . 2
Expense and Fee Table. . . . . . 3
Financial Highlights . . . . . . 4
Investment Objective and
Policies . . . . . . . . . . . . 5
Purchase of Shares . . . . . . .10
Redemption of Shares . . . . . .14
Management . . . . . . . . . . .16
Dividends, Distributions and
Taxes. . . . . . . . . . . . . .17
Determination of Net Asset
Value. . . . . . . . . . . . . .18
Performance Information. . . . .19
Description of the Trust . . . .19
Shareholder Inquiries. . . . . .20
General Information. . . . . . .20
Backup Withholding
Instructions . . . . . . . . . .21
THE PASADENA GROUP
OF MUTUAL FUNDS-Registered
Trademark-
THE PASADENA
SMALL & MID-CAP
FUND-SM-
Prospectus
MAY 1, 1996
MANAGED BY:
ROGER ENGEMANN MANAGEMENT CO., INC.
600 NORTH ROSEMEAD BOULEVARD
PASADENA, CALIFORNIA 91107-2138
(818) 351-9686
<PAGE>
PART B
_______________________
STATEMENT OF
ADDITIONAL INFORMATION
The Pasadena Growth Fund-Registered Trademark-
The Pasadena Nifty Fifty Fund-Registered Trademark-
The Pasadena Balanced Return Fund-Registered Trademark-
_______________________
<PAGE>
THE PASADENA GROUP OF MUTUAL FUNDS-Registered Trademark-
THE PASADENA GROWTH FUND-Registered Trademark-
THE PASADENA NIFTY FIFTY FUND-Registered Trademark-
THE PASADENA BALANCED RETURN FUND-Registered Trademark-
600 North Rosemead Boulevard
Pasadena, California 91107-2133
800-648-8050 (Toll-Free)
818-351-9686
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
The Pasadena Investment Trust (the "Trust") is a diversified, open-end
management investment company offering redeemable shares of beneficial interest
in five separate series. The three series covered by this Statement of
Additional Information are: The Pasadena Growth Fund (the "Growth Fund"), The
Pasadena Nifty Fifty Fund (the "Nifty Fifty Fund") and The Pasadena Balanced
Return Fund (the "Balanced Return Fund") (sometimes referred to herein
individually as a "Fund," and collectively as the "Funds"). The fourth and
fifth series of the Trust, The Pasadena Global Growth Fund and The Pasadena
Small & Mid-Cap Fund, are covered by separate prospectuses and statements of
additional information.
The Growth Fund and the Nifty Fifty Fund each have an investment objective
of long-term capital appreciation. In seeking its objective, the Growth Fund
invests primarily in securities issued by companies that Roger Engemann
Management Co., Inc. (the "Manager") believes are rapidly growing or are
undervalued by the market. The Nifty Fifty Fund seeks to achieve its objective
by investing in approximately 50 different securities which the Manager believes
offer the best potential for long-term capital appreciation. The Balanced
Return Fund seeks to maximize a total investment return consistent with
reasonable risk through a balanced approach using moderate asset allocation by
its Manager.
B-1
<PAGE>
This Statement of Additional Information is not a prospectus. It contains
information which supplements the combined Prospectus for the Growth Fund, the
Balanced Return Fund and the Nifty Fifty Fund dated May 1, 1996, as it may be
amended from time to time. This Statement of Additional Information is to be
read in conjunction with such Prospectus, which is hereinafter referred to as
the "Prospectus." Some of the information required in this Statement of
Additional Information has been included in the Prospectus. A copy of the
Prospectus may be obtained from the Trust, 600 North Rosemead Boulevard,
Pasadena, California 91107-2133.
TABLE OF CONTENTS
-----------------
PAGE
----
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Objectives and Policies . . . . . . . . . . . . . . . . . B-2
Management of the Trust. . . . . . . . . . . . . . . . . . . . . . . B-8
Investment Management and Administrative Services. . . . . . . . . . B-11
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . B-15
Principal Underwriter. . . . . . . . . . . . . . . . . . . . . . . . B-17
Class B and Class C Distribution Plans . . . . . . . . . . . . . . . B-19
Purchase, Redemption, and Pricing of Fund Shares . . . . . . . . . . B-20
Distributions and Tax Status . . . . . . . . . . . . . . . . . . . . B-25
Performance Information. . . . . . . . . . . . . . . . . . . . . . . B-28
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-32
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-33
Appendix "A" . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-34
THE TRUST
The Pasadena Investment Trust (the "Trust") is an open-end diversified
management investment company organized as a Massachusetts business trust. The
Trust issues shares of beneficial interest in five series, three of which are
the "Funds" covered by this Statement of Additional Information. Each Fund has
a separate investment objective and policies, and maintains a separate
investment portfolio. Each Fund offers three classes of shares (Class A, Class
B and Class C shares) (each a "Class"). As of January 1, 1994, all of the
previously outstanding shares of each Fund were redesignated as Class A shares
without any other changes.
INVESTMENT OBJECTIVES AND POLICIES
The following information concerning the investment objectives and policies
of the Funds supplements the Prospectus. The information contained in the
Prospectus section relating to
B-2
<PAGE>
each Fund's Investment Objective and Policies is incorporated herein by
reference.
ADDITIONAL INVESTMENT POLICIES
REPURCHASE AGREEMENTS. The Funds may, for temporary defensive purposes,
invest their 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 by the Federal
Reserve Board as primary dealers and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. In
addition, to the extent a Fund has over $10 million in assets, the Fund will
limit the amount of its transactions with any one bank or Government securities
dealer to a maximum of 25% of its assets. Any repurchase agreements entered
into by the Funds will be of short duration, from overnight to one week,
although the underlying securities generally have longer maturities. A Fund may
not enter into a repurchase agreement with more than seven days to maturity if,
as a result, more than 10% of the value of the Fund's total assets would be
invested in such repurchase agreements and other illiquid assets.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from a Fund to the seller of the
U.S. Government security subject to the repurchase agreement. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, 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 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 a Fund, the Manager seeks to minimize the risk of loss through
B-3
<PAGE>
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, a 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 a Fund will be unsuccessful in
seeking to impose on the seller a contractual obligation to deliver additional
securities, however.
FOREIGN SECURITIES. Each Fund may purchase foreign securities that are
listed on a principal foreign securities exchange or over-the-counter market,
are represented by Depositary Receipts (e.g. American Depositary Receipts,
European Depositary Receipts, Global Depositary Receipts, Continental Depositary
Receipts or other forms of Depositary Receipts) listed on a domestic securities
exchange, or are traded in the domestic over-the-counter market. Such
securities may include foreign debt obligations. While none of these Funds
anticipates investing a significant portion of its assets in foreign securities,
each Fund reserves the right to invest up to 15% of the value of its total
assets (at time of purchase, giving effect thereto) in the securities of foreign
issuers and obligors.
Investments in foreign securities may offer benefits not available from
investments solely in securities of domestic issuers. Such benefits include the
opportunity to invest in foreign securities that appear to the Manager to offer
better opportunities for long-term capital appreciation than investments in
domestic securities, the opportunity to invest in securities reflecting foreign
countries' economic policies or business cycles different from those of the
United States, and the opportunity to reduce fluctuations in portfolio value by
taking advantage of foreign stock markets that do not move in a manner parallel
to U.S. markets.
Investors should recognize that investments in foreign companies involve
certain considerations not typically associated with domestic investments.
Foreign investments may be affected
B-4
<PAGE>
by changes in currency exchange rates and in exchange control regulations (E.G.,
currency blockage). There may be less publicly available information about a
foreign company. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Some foreign stock markets have substantially
less trading volume than the New York Stock Exchange, and securities traded on
such foreign markets may therefore be less liquid than securities of comparable
domestic companies. Also, commissions on transactions in foreign securities may
be higher than on similar transactions on domestic stock markets. There is
generally less government regulation of stock exchanges, brokers, and listed and
unlisted companies in foreign countries than in the United States. In addition,
with respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, imposition of withholding taxes on
dividend or interest payments, limitations on the removal of funds or other
assets of each Fund, political or social instability, or diplomatic developments
that could adversely affect investments in those countries. Individual foreign
economies may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Each of the Funds may convert U.S. dollars into foreign currency, but only
to effect transactions in foreign securities and not to hold foreign currency as
an investment. The Funds will not invest in forward foreign currency contracts.
SPECIAL SITUATIONS. Subject to the limitations in the Prospectus, each
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-5
<PAGE>
OTHER INVESTMENT RESTRICTIONS. Unless otherwise noted, the following
restrictions have been adopted as matters of fundamental policy for each Fund.
These fundamental policies may not be changed for any of the Funds without the
approval of the lesser of (i) two-thirds or more of the voting securities
present at a duly held meeting at which at least 50% of the outstanding voting
securities of that Fund are present in person or by proxy, or (ii) more than
one-half of the outstanding voting securities of that Fund. Each Fund MAY NOT:
1. Underwrite the securities of other issuers;
2. Purchase or sell real estate or interests in real estate, but a
Fund may purchase marketable securities or publicly traded limited partnership
interests of companies or partnerships holding real estate or interests in real
estate. As a matter of operating policy, the Funds have undertaken with a state
securities agency that they "may not purchase or sell real property (including
limited partnership interests, but excluding readily marketable interests in
real estate investment trusts or readily marketable securities of companies
which invest in real estate)." As long as this operating policy is in effect
and to the extent the operating policy is more restrictive than the fundamental
policy, the Fund will observe the operating policy;
3. Purchase or sell financial futures, commodities or commodity
contracts, including futures contracts on physical commodities;
4. Except as otherwise permitted, make loans to persons except by
the purchase of a portion of an issue of publicly or privately distributed
bonds, debentures, or other debt securities. However, no Fund may invest in any
illiquid securities, a term which means securities that cannot be disposed of
within seven days in the normal course of business at approximately the amount
at which the Fund has valued the securities, including certain privately sold
bonds, debentures or other debt securities or other illiquid assets, including
repurchase agreements maturing in over seven (7) days, which would cause the
then aggregate value of all such securities to exceed 10% of such Fund's total
assets (at the time of investment, giving effect thereto);
5. Purchase securities on margin, but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions for
purchases and sales of its portfolio securities;
6. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes, including meeting redemption requests that might otherwise
require the untimely disposition of securities, in an aggregate amount not
exceeding 5% of the value
B-6
<PAGE>
of the Fund's total assets at the time any borrowing is made, or except to the
extent allowed by its investment policies;
7. Make short sales of securities;
8. Purchase or sell puts and calls on securities (this is an
operating policy);
9. Participate on a joint or joint and several basis in any
securities trading account (this is an operating policy);
10. Purchase the securities of any other investment company except
(1) in an initial public offering or in the open market or in privately
negotiated transactions where, in any case, to the best information of the Fund,
no commission, profit or sales charge to a sponsor or dealer (other than the
customary broker's commission or underwriting discount) results from such
purchase, but no such purchase shall exceed 5% of the Fund's total assets in
either category (not in the aggregate), or (2) if such purchase is part of a
merger, consolidation, or acquisition of assets, or (3) so-called "prime" and
"score" components of unit investment trusts;
11. Purchase the securities of issuers with less than three years
continuous operation in an amount in excess of 5% (30% for the Balanced Return
Fund) of the Fund's total assets;
12. Purchase the voting securities of any issuer in an amount in
excess of 10% of the voting securities of such issuer at the time of purchase;
13. Invest in or hold securities of any issuer if, to the knowledge
of the Fund, any officers or Trustees of the Trust or the Manager own
individually more than 1/2 of 1% of the securities of such issuer or if such
persons collectively own more than 5% of the securities of such issuer; and
14. Invest in interests in oil, gas or other mineral leases or
exploration or development programs, but a Fund may purchase marketable
securities of companies or partnerships holding such interests (this is an
operating policy).
Each Fund, notwithstanding any other investment policy or limitation
(whether or not fundamental), may invest all of its assets in the securities or
beneficial interests of a single pooled investment fund having substantially the
same objectives, policies and limitations as the Fund.
Some of the practices referred to above, even if approved by shareholders,
are subject to restrictions contained in the 1940 Act. In addition to the
restrictions described above, each of the Funds may from time to time agree to
additional investment
B-7
<PAGE>
restrictions for purposes of compliance with the securities laws of those states
and foreign jurisdictions where that Fund intends to offer or sell its shares.
Any such additional restrictions that would have a material bearing on a Fund's
operations will be reflected in the Prospectus or a Prospectus supplement and
may require shareholder approval.
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 each 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 each Fund. The current Trustees and
officers of the Trust and their principal occupations during the last five years
are the following:
<TABLE>
<CAPTION>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ----------------- -----------------------
<S> <C> <C>
Roger Engemann* Chairman of the President of Roger
600 North Rosemead Board, President and Engemann & Associates,
Boulevard Trustee Inc., an investment
Pasadena, management firm, since
California 91107 1972, and the Manager
(55) since 1985. President
and a Director of
Pasadena Capital
Corporation.
John S. Tilson* Chief Financial Executive Vice
600 North Rosemead Officer, Secretary President, Portfolio
Boulevard and Trustee Manager and Securities
Pasadena, Analyst with Roger
California 91107 Engemann & Associates,
(52) Inc. since 1983 and the
Manager since 1985.
Officer and a Director
of Pasadena Capital
Corporation.
Barry E. McKinley Trustee Certified Public
201 South Lake Accountant; head of
Avenue, Suite 400 B.E. McKinley &
Pasadena, Associates since its
California 91101 inception in 1971.
(60)
B-8
<PAGE>
<CAPTION>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ----------------- -----------------------
<S> <C> <C>
Robert L. Peterson Trustee Private investor. From
P.O. Box 80784 1988 - 1995, Regional
San Marino, Manager for Commercial
California 94118 Real Estate Brokerage
(58) in the Pasadena 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
525 "B" Street, and Company, Inc., an
Suite 1080 investment adviser and
San Diego, broker-dealer since
California 92101 1975, and President of
(50) Seaport Venturers,
Inc., a venture capital
firm since 1982.
Director of Pasadena
Capital Corporation
since February 1994.
Richard C. Taylor Trustee President of Richard
2485 Huntington Taylor Company, Inc., a
Drive, #2 food ingredients
San Marino, broker, since 1987.
California 91108
(49)
Angela Wong Trustee Since 1986, Ms. Wong
11355 West Olympic has been of counsel to
Boulevard the law firm of Manatt,
Los Angeles, Phelps, Phillips &
California 90064 Kantor, specializing in
(44) employee benefits.
B-9
<PAGE>
<CAPTION>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ----------------- -----------------------
<S> <C> <C>
Richard A. Watson Controller - Fund Vice President and
600 North Rosemead Accounting and Controller - Fund
Boulevard Assistant Secretary Accounting of Roger
Pasadena, Engemann Management
California 91107 Co., Inc. From
(42) September 1988 to June
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.
- ----------
</TABLE>
* 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
Funds. The table provides information regarding all series of The Pasadena
Group of Mutual Funds for the fiscal year ended December 31, 1995. The officers
and Trustees of the Trust as a group, together with officers of the Manager,
beneficially owned or controlled less than 1% of the outstanding shares of each
of the Funds as of December 31, 1995.
B-10
<PAGE>
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement Respecting
Benefits Estimated Registrant
Accrued As Annual And
Name of Part of Benefits Fund Complex
Person, Aggregate Fund Upon Paid to
Position Compensation Expenses Retirement Trustees
- -------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Roger Engemann None None None None
Chairman of the Board, President
and Trustee
John S. Tilson None None None None
Chief Financial Officer,
Secretary and Trustee
Barry E. McKinley $10,000 None None $10,000
Trustee
Robert L. Peterson $10,000 None None $10,000
Trustee
Michael Stolper $10,000 None None $10,000
Trustee
Richard C. Taylor $10,000 None None $10,000
Trustee
Angela Wong $10,000 None None $10,000
Trustee
Richard A. Watson None None None None
Controller -Fund Accounting and
Assistant Secretary
</TABLE>
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The following information concerning the investment management and
administrative services provided to each of the Funds supplements the
information contained in the section in the Prospectus entitled "Management."
INVESTMENT MANAGEMENT AGREEMENT. The Manager, Roger Engemann Management
Co., Inc., has entered into an Investment Management Agreement (the "Management
Agreement") with the Trust, on behalf of each of the Funds, to provide
investment advice and investment management services with respect to the assets
of each Fund, provide personnel, office space, facilities and equipment as may
be needed by the Funds in their day-to-day operations, provide the officers of
the Trust, and provide the Funds with fund accounting, including assistance and
personnel necessary to price the portfolio securities of each Fund, calculate
each
B-11
<PAGE>
Fund's net asset value, and maintain the books and records of each Fund's
investment portfolio as required by applicable law. The Management Agreement
has been approved by the Board of Trustees of the Trust with respect to each
Fund, including a majority of the Trustees who are not a party to the Management
Agreement or interested persons of a party to the Management Agreement, and by a
majority of the outstanding voting shares of each Fund.
The Management Agreement dated March 1, 1993, currently is in effect
through February 28, 1997. The Management Agreement may be continued thereafter
for successive periods not to exceed one year, provided that such continuance is
specifically approved annually by a vote of a majority of each Fund's
outstanding voting securities or by the Board of Trustees, and by the vote of a
majority of the Trustees who are not parties to the Management Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
EXPENSES. Except as set forth in the separate Administration Agreement
discussed below, the Manager is not responsible under the Management Agreement
for any expenses related to the operation of the Funds.
Under the Management Agreement, each Fund is responsible and has assumed
the obligation for paying all of its expenses, including but not limited to:
(i) brokerage and commission expenses, (ii) federal, state, or local taxes,
including issue and transfer taxes, incurred by or levied on the Fund,
(iii) interest charges on borrowings, (iv) charges and expenses of the Fund's
custodian and transfer agent, (v) payment of all investment advisory and
management fees, (vi) insurance premiums on the Fund's property and personnel,
including the fidelity bond and liability insurance for officers and Trustees,
(vii) printing and mailing of all reports, including semi-annual and annual
reports, prospectuses, and statements of additional information to existing
shareholders, (viii) fees and expenses of registering the Fund's shares under
the federal securities laws and of qualifying its shares under applicable state
securities (Blue Sky) laws subsequent to the Fund's initial fiscal period,
including expenses attendant upon renewing and increasing such registrations and
qualifications, (ix) legal fees and expenses, (x) auditing expenses, including
auditing fees of independent public accountants, (xi) all costs associated with
shareholders meetings and the preparation and dissemination of proxy
solicitation materials, except for meetings called solely for the Manager's
benefit, (xii) payments due under the Administration Agreement between the Trust
and the Manager, (xiii) dues and other costs of membership in industry
associations, subject to the approval of any such membership by the Board of
Trustees, (xiv) service fees to be paid to dealers and other shareholder service
providers pursuant to Services Agreements between the
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Trust and such service providers, and (xv) any extraordinary and non-recurring
expenses, except as otherwise prescribed therein. In addition, the Class B and
Class C shares of each Fund are subject to annual distribution fees pursuant to
plans adopted in accordance with Rule 12b-1 under the 1940 Act. See "Class B
and Class C Distribution Plans."
As compensation for its services under the Management Agreement, the
Manager is paid a monthly fee at an annual rate equal to 1.0% of each Fund's
average daily net assets up to $30 million, which rate is reduced at higher
levels of net assets as set forth in the Prospectus. For the years ended
December 31, 1993, 1994, and 1995, pursuant to the then-effective investment
management agreements with the Manager, the Growth Fund paid management fees to
the Manager of approximately $3,981,000, $2,951,000, and $2,985,000,
respectively. For the years ended December 31, 1993, 1994, and 1995, pursuant
to the then-effective investment management agreements with the Manager, the
Balanced Return Fund paid management fees to the Manager of approximately
$773,000, $596,000, and $512,000, respectively. For the years ended December
31, 1993, 1994, and 1995 pursuant to the then-effective investment management
agreement, the Nifty Fifty Fund paid management fees to the Manager of
approximately $1,386,000, $940,000, and $1,131,000, respectively.
The Management Agreement is terminable on 60-days' written notice by vote
of a majority of each 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 of the Funds. Under
the Administration Agreement, the Manager, in its capacity as Administrator (a)
furnishes each Fund with various administrative and shareholder services
including, but not limited to (i) preparing and distributing all shareholder
reports, (ii) preparing all tax returns and other regulatory filings, and (iii)
blue sky compliance services, and (b) pays for all of the normal operating fees
and expenses of each Fund (as referenced above under "Expenses"), except for the
fees and expenses related to the services to be provided by the Manager under
the Investment Management Agreement, the fees under the Administration
Agreement, the services fees paid under the Services Agreements, the
distribution fees paid under the Class B and Class C Rule 12b-1 distribution
plans, and brokerage and
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commission expenses. See "Class B and Class C Distribution Plans." As
compensation for its services and obligations under the Administration
Agreement, the Administrator is paid a monthly fee at an annual rate equal to
1.05% of each Fund's average daily net assets up to $30 million, which rate is
reduced at higher levels of net assets. The Administration Agreement dated
March 1, 1993, was approved, with respect to each Fund, by the Board of Trustees
of the Trust, including a majority of the Trustees who are not parties to the
Administration Agreement, and continues in effect until terminated on behalf of
any Fund by either party on 60-days' written notice. For the year ended
December 31, 1993, the Growth Fund, the Balanced Return Fund and the Nifty Fifty
Fund paid administrative fees to the Manager of approximately $3,887,000,
$749,000, and $1,306,000, respectively. For the year ended December 31, 1994,
the Growth Fund, the Balanced Return Fund and the Nifty Fifty Fund paid
administrative fees to the Manager of approximately $3,179,000, $630,000, and
$997,000, respectively. For the year ended December 31, 1995, the Growth Fund,
the Balanced Return Fund and the Nifty Fifty Fund paid administrative fees to
the Manager of approximately $3,212,000, $541,000, and $1,203,000, respectively.
SERVICES AGREEMENTS. Under the Services Agreements, each Fund will pay a
continuing service fee to service providers, in an amount, computed and prorated
on a daily basis, equal to 0.25% per annum of each Fund's average daily net
assets, which will include the Manager or the Distributor for shareholder
accounts not serviced by other service providers. Such amounts are compensation
for providing certain services to clients owning shares of the Funds, including
personal services such as processing purchase and redemption transactions,
assisting in change of address requests and similar administrative details, and
providing other information and assistance with respect to a Fund, including
responding to shareholder inquiries. For the year ended December 31, 1994, the
Growth Fund, the Balanced Fund and the Nifty Fifty Fund paid service fees of
approximately $1,124,000, $168,000, and $284,000, respectively, of which
approximately $191,000, $31,000, and $41,000, respectively, were received by the
Manager or the Distributor. For the year ended December 31, 1995, the Growth
Fund, the Balanced Return Fund and the Nifty Fifty Fund paid service fees of
approximately $1,133,000, $140,000, and $363,000, respectively, of which
approximately $199,000, $24,000, and $51,000, respectively, were received by the
Manager or the Distributor.
Notwithstanding the above-described division of expenses, the Manager will
reduce its fees to each Fund under the Management Agreement for the amount, if
any, by which each respective Fund's annual operating expenses, expressed as a
percentage of average daily net assets, exceed the most restrictive limitation
imposed by any state in which such Fund's shares are then qualified for sale.
Currently the most
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restrictive such limitation is 2-1/2% of the first $30 million of average net
assets of the Fund, plus 2% of the next $70 million, plus 1-1/2% of the average
net assets in excess of $100 million. Operating expenses for these purposes
include the Manager's management and administration fee but do not include any
taxes, interest, brokerage commissions, expenses incurred in connection with any
merger or reorganization, the distribution fees paid under the Class B and Class
C Rule 12b-1 distribution plans, and, with the prior written approval of any
state securities commission requiring the same, any extraordinary expenses, such
as litigation. The Manager also may choose, in its discretion, to reimburse or
waive expenses specific to one or more Classes on a temporary basis. The amount
of any such expenses waived or reimbursed by the Manager may vary from Class to
Class. In 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. Personnel of
the Manager are affiliated with another investment adviser that has numerous
advisory clients and will devote portions of their time to such clients.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager, in connection with advising each Fund on its portfolio
decisions and subject to instructions of the Board of Trustees, will select the
broker or dealer for each Fund's portfolio transactions. In executing each
Fund's portfolio transactions, the Manager seeks to obtain the total costs or
proceeds in each transaction which are more favorable under all the
circumstances, taking into account such factors as the net economic result to
the Fund (involving both price paid or received and any commission or spread and
other costs paid), the efficiency of the transaction execution, the ability to
effect the transaction when a large block of securities is involved, the known
practices of brokers and their availability to execute possibly difficult
transactions in the future, and the financial strength and stability of the
broker or dealer. While the Manager generally seeks reasonably competitive
commission rates or spreads as part of this policy, a Fund may not necessarily
pay the lowest commission or spread available for a particular transaction.
Each Fund and the Manager may direct portfolio transactions to persons or
firms because of research and investment services provided by such persons or
firms if the commissions or spreads on the transactions are reasonable in
relation to the value of
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the investment information provided. Among such research and investment
services are those that brokerage houses customarily provide to institutional
investors and include statistical and economic data and research reports on
companies and industries. Such research provides lawful and appropriate
assistance to the Manager in the performance of its investment decision-making
responsibilities. The Manager may use these services in connection with all of
its investment activities, and some services obtained in connection with a
Fund's transactions may be used in connection with other investment advisory
clients of the Manager, including other mutual funds, other series of the Trust,
or the Manager's affiliates.
Each Fund may invest in securities that are traded exclusively on the over-
the-counter market. The Funds may also purchase securities listed on a national
securities exchange through the "third market" (I.E., through markets other than
the exchanges on which the securities are listed). When executing transactions
in the over-the-counter market or the third market, the Manager will seek to
execute transactions through brokers or dealers that, in the Manager's opinion,
will provide the best overall price and execution so that the resultant price to
the Fund is as favorable as possible under prevailing market conditions.
None of the Funds allocates brokerage business in return for sales of a
Fund's shares, although such sales may be a factor in selecting broker-dealers
for portfolio transactions, provided the Fund is receiving best execution.
Neither the Manager, the Distributor nor any affiliated person thereof will
participate in commissions or spreads paid by a Fund to brokers or dealers nor
will they receive any reciprocal business, directly or indirectly, as a result
of such commissions or spreads.
Stolper & Company, Inc., of which Michael Stolper, a Trustee of the Trust
and a Director of Pasadena Capital Corporation, is the sole shareholder, has in
the past received brokerage business from Roger Engemann & Associates, Inc.
Mr. Stolper owns 6.5% of the Manager and is a director of Pasadena Capital
Corporation. 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 any of the Funds nor receive any reciprocal business as a result of
commissions paid by the Funds, although a Fund may pay usual and customary
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brokerage commissions to Bear, Stearns & Company for brokerage business by the
Funds.
It is possible that purchases or sales of securities for each Fund also may
be considered for other clients of the Manager or its affiliates, including the
Trust's other series. Any transactions in such securities at or about the same
time will be allocated among the participating Funds and such other clients in a
manner deemed equitable to all by the Manager, taking into account the
respective sizes of the Fund or Funds and the other clients' accounts, and the
amount of securities to be purchased or sold. It is recognized that it is
possible that in some cases this procedure could have a detrimental effect on
the price or volume of the security so far as the participating Fund is
concerned. However, in other cases, it is possible that the ability to
participate in volume transactions and to negotiate lower commissions will be
beneficial to the participating Fund.
The Board of Trustees of the Trust periodically monitors the operation of
these brokerage policies by reviewing the allocation of brokerage orders. The
total brokerage commissions paid by the Growth Fund during 1993, 1994, and 1995,
were $969,099, $1,411,544, and 839,679, respectively. For the years ended
December 31, 1993, 1994, and 1995, the Balanced Return Fund paid $23,347,
$94,899, and $33,853, respectively, in brokerage commissions. For the years
ended December 31, 1993, 1994, and 1995, the Nifty Fifty Fund paid $89,808,
$123,205, and $132,426, respectively, in brokerage commissions. The amounts
shown for each Fund for 1993 and 1994 include mark-ups paid by the Fund on
principal trades.
PRINCIPAL UNDERWRITER
Pasadena Fund Services, Inc. (the "Distributor"), acts as the principal
underwriter for each of the Funds in a continuous offering of each Fund's
shares. The Distributor uses its best efforts to distribute the Funds' shares,
primarily through investment dealers, and is not obligated to purchase or
distribute any specified number of shares.
An underwriting agreement (the "Underwriting Agreement") dated August 12,
1994, as amended, between the Trust, on behalf of each of the Funds, and the
Distributor is currently in effect through February 28, 1997. The Underwriting
Agreement shall continue in effect thereafter for periods not exceeding one year
if approved at least annually by (i) the Board of Trustees or a vote of a
majority of the outstanding shares of the Trust (as defined in the 1940 Act) and
(ii) a majority of the Trustees who are not interested persons of any such
party, in each case cast in person at a meeting called for the purpose of voting
on such approval. The Underwriting Agreement may be terminated without
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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 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.
For the year ended December 31, 1993, the Distributor received front-end
sales charges of $666,826, $59,696, and $79,723, after reallowance to dealers of
$5,044,333, $478,711, and $561,836, respectively, for sales of the Growth Fund,
the Balanced Return Fund, and the Nifty Fifty Fund, respectively. For the year
ended December 31, 1994, the Distributor received front-end sales charges of
$116,677, $18,160, and $34,210, after reallowance to dealers of $754,323,
$52,840, and $198,790, respectively, for sales of Class A shares of the Growth
Fund, the Balanced Return Fund, and the Nifty Fifty Fund, respectively. For the
year ended December 31, 1995, the Distributor received front-end sales charges
of $67,982, $6,600, and $36,183, after reallowances of front-end sales charges
to dealers of $857,929, $55,177, and $491,687, respectively, for sales of Class
A shares of the Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund,
respectively. In some instances dealers may receive 100% of the sales charge
for sales of shares of a Fund and may, therefore, be deemed "underwriters" under
the Securities Act of 1933, as amended.
For the year ended December 31, 1994, the Distributor received contingent
deferred sales charges of $6,132, $196, and $6,662 for redemptions of the Class
B shares of the Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund,
respectively. For the year ended December 31, 1995, the Distributor received
contingent deferred sales charges of $77,111, $18,276, and $71,711 for
redemptions of the Class B shares of the Growth Fund, the Balanced Return Fund,
and the Nifty Fifty Fund, respectively.
The Distributor is responsible for certain expenses of distribution of the
shares of each 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. The Class B
and Class C shares of each Fund pay distribution fees to the Distributor to
reimburse the Distributor for its distribution costs with respect to those
Classes. See "Class B and Class C Distribution Plans."
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The Distributor is a wholly-owned subsidiary of Pasadena Capital
Corporation.
CLASS B AND CLASS C DISTRIBUTION PLANS
Pursuant to separate Distribution Plans (each a "Plan" and collectively the
"Plans") adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act, the
Distributor incurs the expenses of distributing each Fund's Class B and Class C
shares. See "Principal Underwriter."
Prior to January 3, 1994, the Funds offered only Class A shares. 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 Fund. The initial shareholder of the Class B and
Class C shares of each Fund approved the Plan covering each Class as of
January 3, 1994.
Under the Plans, each Fund pays distribution fees to the Distributor at an
annual rate of 0.75% of the Fund's aggregate average daily net assets
attributable to its Class B shares and Class C shares, respectively, to
reimburse the Distributor for its expenses in connection with the promotion and
distribution of those Classes.
Each Plan provides that the Distributor may use the distribution fees
received from the Class of the Fund covered by that Plan only to pay for the
distribution expenses of that Class. Distribution fees are accrued daily and
paid monthly, and are charged as expenses of the Class B and Class C shares as
accrued.
Class B and Class C shares are not obligated under the Plans to pay any
distribution expense in excess of the distribution fee. Thus, if a Plan were
terminated or otherwise not continued, no amounts (other than current amounts
accrued but not yet paid) would be owed by the Class to the Distributor.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of the Trust, including a
majority of the Rule 12b-1 Trustees, vote annually to continue the Plan. Each
Plan (and any distribution agreement between the Distributor and a selling agent
with respect to the Class C shares) may be terminated without penalty 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
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majority of the outstanding shares (as defined in the 1940 Act) of the Class to
which the Plan applies.
All distribution fees paid by the Funds under the Plans will be paid in
accordance with Article III, Section 26 of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as such Section may change
from time to time. Pursuant to each Plan, the Board of Trustees will review at
least quarterly a written report of the distribution expenses incurred by the
Distributor on behalf of the Class B and Class C shares of each Fund. In
addition, as long as the Plans remain in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust shall be made by the Trustees then in office who are not interested
persons of the Trust.
For the year ended December 31, 1994, the Distributor received distribution
fees of $39,764, $5,918, and $18,699, respectively, with respect to the Class B
shares of the Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund.
For the year ended December 31, 1995, the Distributor received distribution fees
of $183,948, $14,223, and $135,151, respectively, with respect to the Class B
shares of the Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund.
Such amounts were used by the Distributor in connection with the distribution of
the Funds' Class B shares to compensate dealers for the sale of such shares.
For the year ended December 31, 1994, the Distributor retained distribution
fees of $204, $32, and $95, respectively, with respect to the Class C shares of
the Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund, after
reallowances to dealers of $23,519, $5,940, and $12,102, respectively. For the
year ended December 31, 1995, the Distributor retained distribution fees of
$729, $47, and $1,254, respectively, with respect to the Class C shares of the
Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund, after
reallowances to dealers of $92,591, $13,900, and $68,639, respectively. Such
amounts were used by the Distributor in connection with the distribution of the
Funds' Class C shares to compensate dealers for the sale of such shares.
PURCHASE, REDEMPTION, AND PRICING OF FUND SHARES
Reference is made to the information under the captions "Alternative
Purchase Arrangements," "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, each Fund's management in its discretion may
elect to waive such requirements in connection
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with individual purchases and sales. The following is additional information
regarding purchase, redemption, and pricing of Fund shares:
ALTERNATIVE PURCHASE ARRANGEMENTS. Each Fund offers investors three
Classes of shares which bear sales and distribution charges in different forms
and amounts. Class A shares are subject to a maximum front-end sales charge at
time of purchase of 5.50% of the public offering price per share. Certain
purchases of Class A shares may qualify for reduced sales charges. Class A
shares do not pay a 12b-1 distribution fee, and redemptions of Class A shares
are not subject to a contingent deferred sales charge. Class B shares are sold
without an initial sales charge, but are subject to a contingent deferred sales
charge 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 contingent deferred sales charge,
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 each Fund is
determined once daily as of 4:00 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). It is expected that during 1996
the Exchange will be closed on Saturdays and Sundays and on Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. No Fund expects 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 on such days to
materially affect the net asset value per share.
In valuing the Funds' 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. 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
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day, the security is valued by such method as the Board of Trustees shall
determine in good faith to reflect the security's fair value. All other assets
of each Fund are valued in such manner as the Board of Trustees in good faith
deems appropriate to reflect their fair value.
U.S. Government securities are traded in the over-the-counter market and
will be valued as follows: securities having a maturity of 60 days or less will
be valued at cost with interest accrued or discount amortized to date of
valuation included in the interest receivable; securities having a maturity of
more than 60 days and for which market quotations are readily available will be
valued at the last reported bid price; securities having a maturity of over 60
days and for which market 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.
Occasionally, events affecting the values of a Fund's securities may occur
between the times at which the values are determined and the close of trading,
and the effect of these events will not be reflected in the computation of 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 at the close of trading as determined in good faith by, or under
procedures established by, the Board of Trustees. The Funds 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.
PURCHASE OF SHARES. If an order for the purchase of a Fund's shares,
together with payment in proper form, is received directly by Boston Financial
Data Services, Inc. (the "Sub-Transfer Agent"), the Fund, or another authorized
agent or subagent of the Fund, before 4:00 p.m., New York City time, Fund shares
will be purchased at the public offering price (I.E., net asset value, plus the
applicable front-end sales charge set forth in that Fund's Prospectus for 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 Sub-Transfer Agent on a timely
basis as described in the Prospectus. If an application for the purchase of
shares of any Fund is received by the Sub-Transfer Agent, the Fund, 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
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Distributor, for servicing and pay the applicable dealer concession to such
firm. The appointment of a dealer of record does not change or affect in any
way the price at which shares of the Fund are purchased or the rights of the
shareholder, and the shareholder may change at any time the designation of the
dealer of record to any other dealer by written notice to the Fund.
When purchasing shares of a Fund, an investor must specify whether he
wishes to purchase Class A, Class B or Class C shares. Orders for Class B or
Class C shares in the aggregate for more than $100,000 per Fund will not be
accepted.
PURCHASE OF CLASS A SHARES AT NET ASSET VALUE. Certain family members of
officers, trustees, directors and full-time employees of the Trust, the Manager,
the Distributor and their affiliates and such other persons who are determined
by the Board of Trustees under circumstances not involving any sales expense to
the Funds or the Distributor may purchase Class A shares of the Funds at net
asset value. Family members are defined as current spouse, children, parents,
grandchildren, grandparents, uncles, aunts, siblings, nephews, nieces, step
relatives, relations at law and cousins.
LETTER OF INTENT -- CLASS A SHARES ONLY. An investor may qualify for an
immediate reduced front-end sales charge on the purchase of Class A shares of
any of the funds in The Pasadena Group of Mutual Funds by completing the Letter
of Intent section of the application for investment (the "Letter of Intent" or
"Letter"), in which the investor states its intention to purchase during the
following 13 months a specified amount of Class A shares which, if made at one
time, would qualify for a reduced sales charge. A minimum initial investment
equal to 5% of such specified amount is required in one of the Funds. After the
investor files the Letter of Intent, each additional investment made in Class A
shares of any of the 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 Funds within 90
days before the Letter of Intent is filed will be counted towards completion of
the Letter of Intent but will not be entitled to a retroactive downward
adjustment of the sales charge. If the Letter of Intent is not completed within
the 13-month period, there will be an upward adjustment of the sales charge as
specified below, depending upon the amount actually purchased during the period.
The Letter of Intent requires that five percent (5%) of the amount of the
total intended purchase will be reserved in Class A shares of the applicable
Fund, registered in the investor's name,
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to assure that the full applicable sales charge will be paid if the investor
does not complete the intended purchase. However, the reserved shares will be
included in the total Class A shares owned as reflected on the monthly
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
B-24
<PAGE>
than customary weekend and holiday closings) or during which the SEC determines
that trading thereon is restricted, or for any period during which an emergency
(as determined by the SEC) exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or as a result of which it
is not reasonably practicable for such Fund fairly to determine the value of its
net assets, or for such other period as the SEC may by order permit for the
protection of security holders of the Fund.
Each Fund may pay the redemption price (net of any CDSC imposed on Class B
shares) either in cash or in portfolio securities of the Fund (selected in the
discretion of the Board of Trustees and taken at their value used in determining
net asset value), or partly in cash and partly in portfolio securities. As a
practice, each Fund will redeem shares wholly in cash unless the Board of
Trustees believes that economic conditions make cash redemption detrimental to
that Fund's interests. If payment for redeemed shares is made wholly or partly
in portfolio securities, the shareholder will ordinarily incur brokerage costs
in converting the securities to cash. The Trust has filed a formal election
with the SEC stating that each Fund may effect a redemption in portfolio
securities provided it pays redemptions in cash during any 90-day period for any
shareholder equal to the lesser of $250,000 or 1% of that Fund's total net
assets at the beginning of such period. Each Fund currently expects, however,
that the amount of a redemption request would have to be significantly greater
than $250,000 or 1% of total net assets before the Fund would make a redemption
in portfolio securities. Any such redemptions will be subject to receipt by the
Fund of any necessary regulatory approvals.
Class B shares are subject to payment of a contingent deferred sales charge
of up to 5.00% if redeemed within four years of purchase. See "Alternative
Purchase Arrangements."
If an investor owns more than one class of shares in a Fund, the redemption
request must specify which class is being redeemed. Absent such specification,
the investor's shares will 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 captions
"Dividends, Distributions, and Taxes" in the Prospectus, which is incorporated
herein by reference. The following is additional information with reference to
each Fund's distributions and tax status:
B-25
<PAGE>
DIVIDENDS AND DISTRIBUTIONS. The Funds declare and pay income dividends
and any capital gains distributions at least once a year as stated in the
Prospectus.
Each shareholder may elect either to receive dividends and distributions in
cash or to have them reinvested in additional whole or fractional shares of the
Fund which was the source of the dividend or distribution. The election to
receive dividends and distributions in cash or shares is made at the time of the
subscription order. A shareholder may change such election at any time prior to
the record date for a particular dividend or distribution by written request to
the applicable Fund. The value of whole and fractional shares shall be computed
in accordance with the provisions of "Determination of Net Asset Value." No
sales or other types of charge will be assessed in connection with the
reinvestment of dividends and capital gains distributions.
TAXES. Each of the Funds is treated as a separate entity for federal
income tax purposes. Each Fund has elected to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), has qualified as such for the fiscal year ended
December 31, 1995 and intends to continue to so qualify. Qualification as a
"regulated investment company" does not involve supervision of the Funds'
management or investment practices or policies by any governmental agency. By
distributing substantially all of its net investment income and realized net
capital gains for any fiscal year and by satisfying certain other requirements
relating to the sources of its income and diversification of its assets, each
Fund will not be liable for federal income taxes, to the extent its earnings are
distributed, or excise taxes based on net income, with respect to such year.
Dividends of net investment income (including any net realized short-term
capital gains) paid by each Fund are taxable to the recipient shareholders as
ordinary income. In the case of corporate shareholders, such distributions may
qualify for the corporate dividends-received deduction to the extent each Fund
designates the amount distributed as a qualifying dividend. Availability of the
deduction is subject to certain holding period and debt-financing limitations.
The aggregate amount so designated cannot, however, exceed the aggregate amount
of qualifying dividends received by the Fund for its taxable year. In view of
each Fund's investment policies, it is expected that dividends from domestic
corporations will be part of the Funds' gross income and that, accordingly, part
of such distributions by the Funds may be eligible for the dividends-received
deduction for corporate shareholders; however, the portion of each Fund's gross
income attributable to qualifying dividends is largely dependent on that Fund's
investment activities for a particular year and therefore cannot be predicted
with any certainty.
B-26
<PAGE>
Distributions of net capital gains (I.E., the excess of net long-term
capital gains over net short-term capital losses) by each Fund are taxable to
the recipient shareholders as a long-term capital gain, without regard to the
length of time a shareholder has held Fund shares. Capital gain distributions
are not eligible for the dividends-received deduction referred to in the
preceding paragraph. Any loss on a sale or exchange of shares held for six
months or less will be treated as long-term capital loss to the extent of such
long-term capital gain distributions with respect to those shares.
Exchanges and redemptions of shares of a Fund may result in gains or losses
for tax purposes to the extent of the difference between the proceeds from the
shares disposed of and the shareholder's adjusted tax basis for such shares. If
a shareholder of a Fund exercises the exchange privilege within 90 days of
acquiring shares in such Fund, any loss that would otherwise be recognized on
the exchange will be reduced (or any gain increased) to the extent the sales
charge paid on the purchase of the shares surrendered reduces any sales charge
that would be payable on the purchase of the new shares in the absence of the
exchange privilege. Instead, the amount of the reduction in loss (or increase
in gain) will be treated as an amount paid for the new shares. Pursuant to a
ruling issued by the IRS to the Funds, the conversion of Class B shares of a
Fund into Class A shares of the same Fund will not result in gains or losses for
federal income tax purposes.
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency denominated securities are
subject to Section 988 of the Code, which will generally cause such gains and
losses to be treated as ordinary income and losses rather than capital gains and
losses and may affect the amount, timing and character of distributions to
shareholders.
If more than 50% of a regulated investment company's assets at year end
consist of securities issued by foreign corporations, the regulated investment
company may elect under the Code to pass through to its shareholders certain
taxes paid by it to foreign countries. It is not anticipated that any Fund will
qualify to make this election.
An investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to additional U.S. federal income tax or other charge on
the proceeds from the disposition of its investment in such a company. This tax
can be avoided, however, by the Fund 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.
B-27
<PAGE>
A shareholder of each 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 gains distributions paid to shareholders or reinvested
by that Fund and other amounts distributed by that Fund, including proceeds of
redemptions, unless such shareholder provides a social security or taxpayer
identification number, certifies as to exemption from backup withholding, and
otherwise complies with applicable requirements of the Code.
Reports containing appropriate federal income tax information (relating to
the tax status of dividends and capital gain distributions by each Fund) will be
furnished to each shareholder following the close of the calendar year during
which the payments are made.
The discussions herein and in the Prospectus have been prepared by the
management of the Trust, are general by nature and do not purport to be a
complete description of all tax implications of an investment in one or more of
the Funds. 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. Heller, Ehrman, White & McAuliffe has expressed no opinion in
respect thereof.
PERFORMANCE INFORMATION
From time to time, each Fund may state its total return in advertisements
and investor communications. Total return is computed separately for the
Class A, Class B and Class C shares of each Fund. Total return may be stated
for any relevant period as specified in the advertisement or communication. Any
statements of total return or other performance data for any Class of a Fund
will be accompanied by information on that Class's average annual compounded
rate of return over the most recent four calendar quarters and the period from
the inception of the Class (or from the inception of operations of the Fund for
the Class A shares). Each Fund may also advertise aggregate and average total
return information over different periods of time.
B-28
<PAGE>
Each Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which
the maximum front-end sales charge is deducted (Class A
shares only)
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 from which the maximum applicable
contingent deferred sales charge is deducted (Class B shares
only)
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that the maximum front-end
sales charge (Class A shares only) 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. Each
calculation for Class B shares also assumes that the maximum applicable
contingent deferred sales charge has been paid upon redemption at the end of the
period.
The average annual compounded rates of return, or total return, for the
Class A, Class B and Class C shares of each of the Funds for the indicated
periods ended December 31, 1995 were as follows:
CLASS A
<TABLE>
<CAPTION>
One Five Inception(1) to
Year Years December 31, 1995
---- ----- -----------------
<S> <C> <C> <C>
The Growth Fund 20.14% 13.31% 10.92%
The Balanced 20.16% 11.29% 13.47%
Return Fund
The Nifty Fifty 21.14% 16.18% 15.97%
Fund
</TABLE>
B-29
<PAGE>
CLASS B
<TABLE>
<CAPTION>
One Inception(2) to
Year December 31, 1995
---- -----------------
<S> <C> <C>
The Growth Fund 21.26% 8.38%
The Balanced
Return Fund 21.20% 7.76%
The Nifty
Fifty Fund 22.26% 11.56%
</TABLE>
CLASS C
<TABLE>
<CAPTION>
One Inception(2) to
Year December 31, 1995
---- -----------------
<S> <C> <C>
The Growth Fund 26.26% 10.22%
The Balanced
Return Fund 26.23% 9.62%
The Nifty
Fifty Fund 27.26% 13.34%
</TABLE>
1 The inception dates of the Funds are as follows:
Growth Fund -- June 24, 1986
Balanced Return Fund -- June 8, 1987
Nifty Fifty Fund -- December 17, 1990
2 The inception date for Class B and Class C shares was January 1, 1994.
Each Fund may also state its yield in advertisements and investor
communications. Yield is computed separately for each Class of each Fund. The
yield computation is determined by dividing the net investment income per share
of the Class earned 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,
according to the following formula:
6
Yield = 2 [((a-b) + 1) -1]
-------
cd
where
a = dividends and interest earned during the period;
B-30
<PAGE>
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
Yield calculations for Class A shares assume the maximum front-end sales
charge applicable to purchases of those shares. Yield calculations for Class B
shares assume the maximum contingent deferred sales charge applicable to
redemptions of those shares. Actual yield may be affected by variances in sales
charges on investments. Until such time as this Statement of Additional
Information is amended to include the amount of yield for each Fund for the
30-day period ended December 31, 1995, the amount of such yield will not be
advertised on behalf of that Fund.
Each Fund may also, from time to time, include a reference to the current
distribution rate of each Class of shares in investor communications and sales
literature preceded or accompanied by a prospectus for that Fund, reflecting the
amounts 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 with respect to that Class by the maximum offering price per share of the
Class on the last day of the period and annualizing the resulting figure. The
distribution rate does not reflect capital appreciation or depreciation in the
price of each Fund's shares and should not be confused with yield or considered
to be a complete indicator of the return to the investor on his investment.
The performance of the Funds may be compared to that of various indices of
investment performance published by third parties (including, for example and
not limited to, the Dow Jones Industrial Index, Standard & Poor's 500 Stock
Index, Nasdaq Composite Index, the Value Line Arithmetic Index, the Value Line
Geometric Index, Russell 1000, Russell 2000, Russell 3000, Wilshire 4500,
Wilshire 5000, Salomon Brothers High-Grade Bond Index, Goldman Sachs Convertible
100 Index, Lipper Non-Government Money Market Average and Lipper Government
Money Market Average). Furthermore, the Funds' standard performance may also be
compared to the Funds' performance calculated as if no sales charges were
deducted.
B-31
<PAGE>
From time to time, information concerning each Fund's performance by
independent sources such as Morningstar and similar organizations may also be
used in advertisements and in information furnished to present or prospective
investors in the Funds.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a 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.
GENERAL
Each 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 each Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of Trust assets, including the Funds, 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 Fund 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 Funds. 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-32
<PAGE>
As of March 31, 1996 the following shareholders, to the Trust's knowledge,
owned of record 5% or more of each Fund's outstanding shares by class, as noted:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
THE GROWTH FUND
Merrill Lynch, Pierce, 50.33% 48.07% 75.75%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32246-6485
THE BALANCED RETURN FUND
Merrill Lynch, Pierce, 29.76% 36.67% 68.59%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32246-6485
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
THE PASADENA NIFTY FIFTY FUND
Merrill Lynch, Pierce, 57.71% 51.17% 63.62%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32216
</TABLE>
- ----------
* Record owner only for its individual customers. To the Trust's knowledge,
no customer beneficially owned 5% or more of the total outstanding shares
of any Class of any Fund.
FINANCIAL STATEMENTS
The Funds' audited financial statements contained in their Annual Reports
to Shareholders for the period ended December 31, 1995 (the "Reports"), are
incorporated herein by reference to the Reports which have been filed with the
Securities and Exchange Commission. Any person not receiving the Reports with
this Statement of Additional Information should call or write to the Trust to
obtain a free copy.
B-33
<PAGE>
APPENDIX "A"
BOND RATINGS
MOODY'S INVESTORS SERVICE. Bonds which are rated Aaa are judged to be the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong positions of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as "high
grade" bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as "upper medium grade" obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered "medium grade" obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time; such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
In Moody's corporate bond rating system, Moody's applies numerical
modifiers, 1, 2, and 3, in each generic rating classification from Aa through B.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
In Moody's municipal bond rating system, those bonds in the Aa, A, Baa, Ba,
and B groups which Moody's believes possess the
B-34
<PAGE>
strongest investment attributes are designated by the symbols Aa 1, A 1, Baa 1,
Ba 1, and B 1.
STANDARD & POOR'S CORPORATION. Bonds which are rated AAA have received the
highest rating assigned by Standard & Poor's to a debt obligation, indicating an
extremely strong capacity to pay interest and repay principal. Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from
the higher rated issues only in a small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in the higher rated categories. Debt rated BBB is regarded
as having adequate capacity to pay interest and repay principal. Whereas such
rating normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. Debt rated in categories below BBB (I.E., BB, B, CCC,
and CC) is considered to be predominately speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CC the highest
degree of speculation.
B-35
<PAGE>
PART B
------------------------
STATEMENT OF
ADDITIONAL INFORMATION
The Pasadena Global Growth Fund(SM)
------------------------
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
600 North Rosemead Boulevard
Pasadena, California 91107-2133
1-800-648-8050 (Toll-Free)
1-818-351-9686
----------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
The Pasadena Investment Trust (the "Trust") is a diversified, open-end
management investment company offering redeemable shares of beneficial interest
in five separate series. This Statement of Additional Information relates only
to one of the series, The Pasadena Global Growth Fund (the "Fund"). Separate
Statements of Additional Information relate to the other series.
The Fund's investment objective is long-term growth of capital, which it
seeks to achieve through investments in a globally diversified portfolio of
securities.
This Statement of Additional Information is not a prospectus. It contains
information which supplements the Prospectus for the Fund dated May 1, 1996, as
it may be amended from time to time. This Statement of Additional Information
is to be read in conjunction with such Prospectus, which is hereinafter referred
to as the "Prospectus." Some of the information required in this Statement of
Additional Information has been included in the Prospectus. A copy of the
Prospectus may be obtained from the Trust, 600 North Rosemead Boulevard,
Pasadena, California 91107-2133.
B-1
<PAGE>
TABLE OF CONTENTS
PAGE
The Trust.................................................B-2
Investment Objective and Policies.........................B-2
Management of the Trust...................................B-24
Investment Management and Administrative Services.........B-28
Brokerage Allocation and Other Practices..................B-31
Principal Underwriter.....................................B-33
Purchase, Redemption, and Pricing of Fund Shares..........B-33
Distributions and Tax Status..............................B-38
Performance Information...................................B-42
General...................................................B-44
Financial Statements......................................B-45
THE TRUST
The Pasadena Investment Trust (the "Trust") is an open-end diversified
management investment company organized as a Massachusetts business trust. The
Trust issues shares of beneficial interest in five series (the "Funds"). Each
of the Funds has a separate investment objective and policies and maintains a
totally separate investment portfolio. Each of the Funds is authorized to issue
three classes of shares (Class A, Class B and Class C shares). This Statement
of Additional Information relates solely to the Class A shares of one of the
series, The Pasadena Global Growth Fund (the "Fund"). The Fund currently issues
only Class A shares.
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
B-2
<PAGE>
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.
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 represent agreements to purchase or sell
specified currencies at specified dates and prices. The Fund will only purchase
and sell forward foreign 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 correctly to 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
B-3
<PAGE>
call options on foreign currencies for the purpose of increasing its return.
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.
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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.
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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.
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
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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 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.
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
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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.
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,
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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 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
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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 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
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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.
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
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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 the 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.
Although futures contracts by their terms call for actual delivery or
acceptance of commodities or 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
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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
U.S. Government securities. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds to finance the transactions. Rather, initial margin is
similar to a performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage
costs.
Subsequent payments, called "variation margin," to and from the broker (or
the custodian) are made on a daily basis as the price of the underlying security
or commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to the market." For
example, when 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.
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
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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.
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.
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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 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
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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 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
B-16
<PAGE>
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.
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
B-17
<PAGE>
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 were not 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.
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.
B-18
<PAGE>
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 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 a Fund, the Manager seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, 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.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to
not more than 25% 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"
B-19
<PAGE>
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.
DEPOSITARY RECEIPTS
The Fund may invest some or all of its 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
B-20
<PAGE>
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
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.
OTHER INVESTMENT RESTRICTIONS
Unless otherwise noted as an operating policy, the following restrictions
have been adopted as matters of fundamental policy for the Fund. These
fundamental policies may not be changed without the approval of the lesser of
(i) two-thirds or more of the voting securities present at a duly held meeting
at which at least 50% of the outstanding voting securities of the Fund are
present in person or by proxy, or (ii) more than one-half of the outstanding
voting securities of the Fund. The Fund MAY NOT:
B-21
<PAGE>
(1) With respect to 75% of the Fund's total assets, purchase any security
(other than obligations of the U.S. Government, its agencies or
instrumentalities) if, as a result, more than 5% of the value of the Fund's
total assets would be invested in securities of any one issuer.
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of its
portfolio securities, and may make margin payments in connection with
transactions in permissible futures and options contracts) or make short sales.
(3) With respect to 75% of the Fund's total assets, acquire more than 10%
of any one class of securities of an issuer. (For this purpose all common
stocks of an issuer are regarded as a single class, and all preferred stocks of
an issuer are regarded as a single class.)
(4) With respect to 75% of the Fund's total assets, acquire more than 10%
of the outstanding voting securities of any one issuer.
(5) Borrow money in excess of 20% of its total assets (taken at cost) and
then only as a temporary measure for extraordinary or emergency reasons and not
for investment. (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.)
(6) Pledge more than 25% of its total assets (taken at cost) in connection
with permissible borrowings. For the purposes of this restriction, the deposit
of underlying securities and other assets in connection with the writing of put
and call options and collateral arrangements with respect to margin for currency
futures contracts are not deemed to be a pledge of assets.
(7) Invest more than 5% of its total assets in securities of any one
issuer which, together with any predecessor, has been in continuous operation
for less than three years.
(8) Invest in securities of any company, if officers and Trustees of the
Trust and officers and directors of the Manager who beneficially own more than
0.5% of the shares or securities of that company collectively own more than 5%
of such securities.
B-22
<PAGE>
(9) Make loans, except (a) by purchase of marketable bonds, debentures,
commercial paper or corporate notes, and similar marketable evidences of
indebtedness which are a part of an issue to the public or to financial
institutions, (b) by entry into repurchase agreements, or (c) through the
lending of its portfolio securities with respect to not more than 25% of its
total assets.
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts or commodities or commodity contracts, except for transactions in
futures contracts and options thereon entered into for hedging purposes.
(11) Act as an underwriter except to the extent that, in connection with
the disposition of its portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(12) Make investments for the purpose of gaining control of a company's
management. (This is an operating policy.)
(13) Concentrate its investments in particular industries and in no event
invest more than 25% of the value of its total assets in any one industry.
(14) As a matter of operating policy, engage in puts, calls, straddles,
spreads or any combination thereof, except that, to the extent described in the
Prospectus and this Statement of Additional Information, 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.
(15) As a matter of operating policy, purchase warrants if as a result its
warrant holdings, valued at the lower of cost or market, would exceed 5% of 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.
(16) Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Fund, or by a person designated by the
Trustees of the Fund, 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.
B-23
<PAGE>
(17) Purchase or sell real property (including limited partnership
interests), except that the Fund may (a) purchase or sell readily marketable
interests in real estate investment trusts or readily marketable securities of
companies which invest in real estate, (b) purchase or sell securities that are
secured by interests in real estate or interests therein, or (c) acquire real
estate through exercise of its rights as a holder of obligations secured by real
estate or interests therein or sell real estate so acquired.
(18) Participate on a joint or joint and several basis in any securities
trading account. (This is an operating policy.)
(19) Purchase the securities of any other investment company except (a)
within the limits of the 1940 Act, (b) in a public offering or in the open
market or in privately negotiated transactions where, in either case, to the
best information of the Fund, no commission, profit or sales charge to a sponsor
or dealer (other than a customary broker's commission or underwriting discount)
results from such purchase, or (c) if such purchase is part of a merger,
consolidation, or acquisition of assets.
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, even if approved by shareholders,
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. Any such additional restrictions that would have a material bearing
on a Fund's operations will be reflected in the Prospectus or a Prospectus
supplement and may require shareholder approval.
Portfolio Turnover. As stated in the Prospectus, 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 rates for 1995 and 1994 were 29.0% and
479.3%, respectively. The decrease in the Fund's portfolio turnover rate during
1995 is primarily due to a decrease in the amount of short-term portfolio trades
by the Fund.
MANAGEMENT OF THE TRUST
The Trustees of the Trust have been appointed for an indefinite term. They
are responsible for the overall management of the Trust, including general
supervision and review of the Fund's investment activities. The Trustees, in
turn, elect the
B-24
<PAGE>
officers of the Trust who are responsible for administering the day-to-day
operations of the Trust and the Fund. The current Trustees and officers of the
Trust and their principal occupations during the last five years are the
following:
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ----------------- ----------------------
ROGER ENGEMANN(*) Chairman of the President of Roger
600 North Rosemead Board, President and Engemann & Associates,
Boulevard Trustee Inc, an investment
Pasadena, management firm, since
California 91107 1972, and the Manager
(55) since 1985. President
and a Director of
Pasadena Capital
Corporation.
JOHN S. TILSON(*) Chief Financial Executive Vice
600 North Rosemead Officer, Secretary President, Portfolio
Boulevard and Trustee Manager and Securities
Pasadena, Analyst with Roger
California 91107 Engemann & Associates,
(52) Inc. since 1983 and
the Manager since
1985. Officer and a
Director of Pasadena
Capital Corporation.
BARRY E. MCKINLEY Trustee Certified Public
201 South Lake Accountant; head of
Avenue, Suite 400 B.E. McKinley &
Pasadena, Associates since its
California 91101 inception in 1971.
(60)
ROBERT L. PETERSON Trustee Private investor.
P.O. Box 80784 From 1988 - 1995,
San Marino, Regional Manager for
California 91118 Commercial Real Estate
(58) Brokerage in the
Pasadena office of Jon
Douglas Company.
Prior thereto he was
associated with the
real estate brokerage
firm of R.A. Rowan &
Co.
B-25
<PAGE>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ----------------- ----------------------
MICHAEL STOLPER(*)+ Trustee President of Stolper
525 "B" Street, and Company, Inc., an
Suite 1080 investment advisor and
San Diego, broker-dealer since
California 92101 1975, and President of
(50) Seaport Venturers,
Inc., a venture
capital firm since
1982. Director of
Pasadena Capital
Corporation since
February 1994.
RICHARD C. TAYLOR Trustee President of Richard
2485 Huntington Taylor Company,
Drive, #2 Inc., a food
San Marino, ingredients broker,
California 91108 since 1987.
(49)
ANGELA WONG Trustee Since 1986, Ms. Wong
11355 West Olympic has been of counsel to
Boulevard the law firm of
Los Angeles, Manatt, Phelps,
California 90064 Phillips & Kantor,
(44) specializing in
employee benefits.
RICHARD A. WATSON Controller - Fund Vice President and
600 North Rosemead Accounting and Controller - Fund
Boulevard Assistant Secretary Accounting of Roger
Pasadena, Engemann Management
California 91107 Co., Inc. From
(42) September 1988 to June
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.
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<PAGE>
+ 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 and
administration 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.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement Respecting
Benefits Estimated Registrant
Accrued As Annual And
Name of Part of Benefits Fund Complex
Person, Aggregate Fund Upon Paid to
Position Compensation Expenses Retirement Trustees
-------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Roger Engemann None None None None
Chairman of the
Board, President
and Trustee
John S. Tilson None None None None
Chief Financial
Officer, Secretary
and Trustee
Barry E. McKinley $10,000 None None $10,000
Trustee
Robert L. Peterson $10,000 None None $10,000
Trustee
Michael Stolper $10,000 None None $10,000
Trustee
Richard C. Taylor $10,000 None None $10,000
Trustee
Angela Wong $10,000 None None $10,000
Trustee
Richard A. Watson None None None None
Controller-Fund
Accounting and
Assistant Secretary
</TABLE>
B-27
<PAGE>
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 of the 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 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
B-28
<PAGE>
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 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 1.0% of the Fund's
average daily net assets up to $30 million, which rate is reduced at higher
levels of net assets as set forth in the Prospectus. For the periods ended
December 31, 1993, 1994 and 1995, the Manager was entitled to receive fees under
the Management Agreement in the amounts of $178, $1,210 and $18,498,
respectively. The Manager has waived receipt of all such fees.
The Management Agreement is terminable 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, and brokerage and
commission expenses. As compensation for its services and obligations under the
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Administration Agreement, the Administrator is paid a monthly fee at an annual
rate equal to 1.05% of the Fund's average daily net assets up to $30 million,
which rate is reduced at higher levels of net assets. The Administration
Agreement dated March 1, 1993, was approved 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 by either
party on 60-days' written notice. For the periods ended December 31, 1993, 1994
and 1995, the Manager was entitled to receive fees pursuant to the
Administration Agreement in the amounts of $187, $1,271 and $19,423,
respectively. The Manager has waived receipt of all such fees.
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. For the periods ended December 31, 1993, 1994 and
1995, service fees in the amounts of $45, $303 and $4,624, respectively, were
payable by the Fund to the Manager. The Manager has waived receipt of all
such fees.
Notwithstanding the above-described division of expenses, the Manager will
reduce its fees to 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 the Fund's shares are then qualified for sale. Currently the
most restrictive such limitation is 2-1/2% of the first $30 million of average
daily net assets of the Fund, plus 2% of the next $70 million, plus 1-1/2% of
the average daily net assets in excess of $100 million. Operating expenses for
these purposes include the Manager's management and administration fee but do
not include any taxes, interest, brokerage commissions, expenses incurred in
connection with any merger or reorganization, and, with the prior written
approval of any state securities commission requiring the same, any
extraordinary expenses, such as litigation. The Manager also may at its
discretion from time to time pay other Fund expenses from its own resources in
excess of that required by the most restrictive applicable state limitation or
reduce or waive the management fee of the Fund.
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
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are affiliated with another investment adviser that has numerous advisory
clients and will devote portions of their time to such clients.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager, in connection with advising 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. It 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.
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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 participating Funds and such other clients
in a manner deemed equitable to all by the Manager, taking into account the
respective sizes of the Fund or Funds and the other clients' accounts, and the
amount of securities to be purchased or sold. It is recognized that it is
possible that in some cases this procedure could have a detrimental effect on
the price or volume of the security so far as the 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. The
total brokerage commissions paid by the Fund during 1993, 1994 and 1995 were
$3,218, $10,627 and $4,931, respectively. The amounts shown for 1993 and 1994
include mark-ups paid by the Fund on principal trades.
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<PAGE>
PRINCIPAL UNDERWRITER
Pasadena Fund Services, Inc. (the "Distributor") acts as the principal
underwriter for the shares of the Fund. The Distributor intends to use its best
efforts to 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, between the Trust, on behalf of each of the Funds, and the Distributor is
currently in effect through February 28, 1997. The Underwriting Agreement
shall continue in effect thereafter for periods not exceeding one year if
approved at least annually by (i) the Board of Trustees or a vote of a majority
of the outstanding shares of the Trust (as defined in the 1940 Act) and (ii) a
majority of the Trustees who are not interested persons of any such party, in
each case by vote 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 would be automatically
terminated in the event of its assignment as defined in the 1940 Act. All sales
of Fund 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 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.
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:
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<PAGE>
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 1996 the Exchange will be closed on Saturdays and Sundays
and for Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas and New Year's. 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 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
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<PAGE>
Funds 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
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 Boston Financial Data
Services, Inc. (the "Sub-Transfer Agent"), the Fund, 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 Fund's Prospectus) 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 Sub-Transfer Agent on a timely basis as described in the
Prospectus. If an application for the purchase of shares of the Fund is
received by the Sub-Transfer
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<PAGE>
Agent, the Fund, 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 or retain it
where the Distributor is the dealer of record. 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.
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 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. An investor may qualify for an immediate reduced sales
charge on its purchase of shares of any of the Funds by completing a Letter of
Intent (the "Letter of Intent" or "Letter"), in which the investor states its
intention to purchase during the following 13 months a specified amount 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. After the investor files the Letter of Intent, each additional
investment made in any of the 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 in more than one
of the 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 any of the Funds within 90 days before the Letter of Intent is
filed will be counted towards completion of the Letter of Intent but will not be
entitled to a retroactive downward adjustment of 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 shares of the Fund, registered in
the investor's name, to assure that the full applicable sales charge will be
paid if the investor does not complete the intended purchase. However, the
reserved shares will be included in the total shares owned as reflected on the
monthly 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
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<PAGE>
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 shares will be deposited to the investor's Open
Account. If the total amount of purchases equals or exceeds the amount
specified under the Letter and is an amount which would qualify for a further
quantity discount, a retroactive price adjustment will also 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 made
after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional 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 if the total of such purchases had been made
at a single time. Upon such remittance, the reserved 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 shares to realize such
difference will be made. In the event of a total redemption of 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, the investor grants to the Distributor
a security interest in the reserved shares and agrees to irrevocably appoint the
Distributor as its attorney-in-fact to surrender for redemption any or all
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 in the Prospectus, except for any period during which the Exchange is
closed (other than customary weekend and holiday closings) or during which the
SEC determines that trading thereon is restricted, or for any period during
which an emergency (as determined by the SEC) exists as a result of which
disposal by 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.
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<PAGE>
The Fund may pay the redemption price 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 in-kind redemptions will be subject to receipt by the Fund of any necessary
regulatory approvals.
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:
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare and pay income dividends and any capital gain
distributions at least once a year as stated in the Prospectus.
Each shareholder may elect either to receive dividends and distributions in
cash or to have them reinvested in additional whole or fractional shares of the
Fund. 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 to elect to be
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<PAGE>
taxed as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund did not qualify to be
treated as a "regulated investment company" during 1993 and 1994, but did so
qualify during 1995 . See "Dividends, Distributions and Taxes" in the
Prospectus. Qualification as a "regulated investment company" does not involve
supervision of the 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 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 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 with
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<PAGE>
other Funds in the Trust 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.
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
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing, and character of distributions to
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.
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<PAGE>
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 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.
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
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<PAGE>
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 may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return or other performance data on the Fund will be accompanied by information
on the Fund's average annual compounded rate of return over the most recent four
calendar quarters and the period from the Fund's inception of operations. 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.
B-42
<PAGE>
The average annual compounded rates of return, or total return, for the
Fund's Class A shares for the indicated periods ended December 31, 1995 were as
follows:
ONE YEAR(*) Inception
(November 1, 1993)
to
December 31, 1995(*)
------------------
17.40% 25.85%
- ---------------
(*) Prior to May 1, 1996, the Fund's shares were not offered to the public
and, although the Fund's portfolio was managed substantially in accordance
with the investment policies described in its current Prospectus during
that period, some management differences did occur due primarily to the
Fund's small asset size. Accordingly, the Fund's performance during
periods prior to May 1, 1996 may not be relevant to an assessment of the
Fund's performance subsequent to such date. Additionally, the Manager
waived all management, administrative and service fees otherwise payable to
it by the Fund during 1993, 1994 and 1995, which had the effect of
increasing the Fund's total return for those periods.
The yield computation is determined by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the resulting figure, according to
the following formula:
6
Yield = 2 [((a-b) + 1) -1]
------
cd
where
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
Yield calculations assume the maximum sales charge applicable to the Fund.
Actual yield may be affected by variances in sales charges on investments.
Until such time as this Statement of Additional Information is amended to
include the amount of yield for the Fund for an appropriate 30-day
B-43
<PAGE>
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 its current
distribution rate in investor communications and sales literature preceded or
accompanied by a prospectus for the Fund, reflecting the amounts actually
distributed to shareholders which could include capital gains and other items of
income, as well as interest and dividend income received by the Fund and
distributed to shareholders. All calculations of the Fund's distribution rate
are based on the distributions per share which are declared, but not necessarily
paid, during the fiscal year. The distribution rate is determined by dividing
the distributions declared during the period by the maximum offering price per
share 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, 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.
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 Agreement and
B-44
<PAGE>
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 Fund 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 the unlikely circumstances in which both inadequate insurance exists
and the Trust itself is unable to meet its obligations.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such a registration does not involve supervision
of the management or policies of the Fund. The Prospectus and this Statement of
Additional Information omit certain information contained in the Registration
Statement of the Trust filed with the Securities and Exchange Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.
As of March 31, 1996, Pasadena Capital Corporation and the Pasadena
Capital Corporation Employee Stock Ownership Plan, 600 N. Rosemead Boulevard,
Pasadena, California 91107, owned 95.5% and 4.5%, respectively, of the Fund's
outstanding shares.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated herein by
reference to such financial statements which have been filed with the Securities
and Exchange Commission. Any person wishing to receive such financial
statements should call or write to the Trust to obtain a free copy.
B-45
<PAGE>
PART B
-----------------------
STATEMENT OF
ADDITIONAL INFORMATION
The Pasadena Small & Mid-Cap Fund-SM-
-----------------------
<PAGE>
THE PASADENA SMALL & MID-CAP FUND-SM-
600 North Rosemead Boulevard
Pasadena, California 91107-2133
800-648-8050 (Toll-Free)
818-351-9686
----------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
The Pasadena Investment Trust (the "Trust") is a diversified, open-end
management investment company offering redeemable shares of beneficial
interest in five separate series. This Statement of Additional Information
relates only to one of the series, The Pasadena Small & Mid-Cap Fund (the
"Fund"). Separate Statements of Additional Information relate to the other
series.
The Fund's investment objective is long-term capital appreciation, which
it seeks to achieve through investments primarily in equity securities of
companies with market capitalizations below $1.5 billion.
This Statement of Additional Information is not a prospectus. It
contains information which supplements the Prospectus for the Fund dated
May 1, 1996, as it may be amended from time to time. This Statement of
Additional Information is to be read in conjunction with such Prospectus,
which is hereinafter referred to as the "Prospectus." Some of the
information required in this Statement of Additional Information has been
included in the Prospectus. A copy of the Prospectus may be obtained from
the Trust, 600 North Rosemead Boulevard, Pasadena, California 91107-2133.
B-1
<PAGE>
TABLE OF CONTENTS
------------------
Page
----
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-2
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . .B-2
Management of the Trust. . . . . . . . . . . . . . . . . . . . . . . . .B-26
Investment Management and Administrative Services. . . . . . . . . . . .B-29
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . .B-33
Principal Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . .B-35
Purchase, Redemption, and Pricing of Fund Shares . . . . . . . . . . . .B-35
Distributions and Tax Status . . . . . . . . . . . . . . . . . . . . . .B-40
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . .B-44
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-47
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .B-47
THE TRUST
The Pasadena Investment Trust (the "Trust") is an open-end diversified
management investment company organized as a Massachusetts business trust. The
Trust issues shares of beneficial interest in five series (the "Funds"). 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). This Statement of
Additional Information relates solely to the Class A shares of one of the
series, The Pasadena Small & Mid-Cap Fund (the "Fund"). The Fund currently
issues only Class A shares.
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
B-2
<PAGE>
U.S. companies, and foreign brokerage commissions and custodian fees are
generally higher than in the United States.
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 foreign 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 correctly to 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 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.
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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 the 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.
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Although futures contracts by their terms call for actual delivery or
acceptance of commodities or 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
U.S. Government securities. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds to finance the transactions. Rather, initial margin is
similar to a performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage
costs.
Subsequent payments, called "variation margin," to and from the broker (or
the custodian) are made on a daily basis as the price of the underlying security
or commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to the market." For
example, when 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.
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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.
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<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
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<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
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<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.
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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 were not 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.
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<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.
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DEPOSITARY RECEIPTS
The Fund may invest up to 50% of the value of its net assets in the
securities of foreign issuers in the form of Depositary Receipts ("DRs"), e.g.,
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs"), Continental Depositary Receipts ("CDRs"),
or other forms of DRs. DRs are receipts typically issued by a United States or
foreign bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. The Fund may invest in DRs through "sponsored"
or "unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depository, whereas a depository may
establish an unsponsored facility without participation by the issuer of the
deposited security. The depository of unsponsored DRs generally bears all the
costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
ILLIQUID SECURITIES
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
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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
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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.
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OTHER INVESTMENT RESTRICTIONS
Unless otherwise noted, the following restrictions have been adopted as
matters of fundamental policy for the Fund. These fundamental policies may not
be changed without the approval of the lesser of (i) two-thirds or more of the
Fund's voting securities present at a duly held meeting at which at least 50% of
the outstanding voting securities of the Fund are present in person or by proxy,
or (ii) more than one-half of the outstanding voting securities of the Fund.
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.
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of its
portfolio securities, and may make margin payments in connection with
transactions in permissible futures and options contracts) or make short sales.
(3) With respect to 75% of the Fund's total assets, acquire more than 10%
of any one class of securities of an issuer. (For this purpose all common
stocks of an issuer are regarded as a single class, and all preferred stocks of
an issuer are regarded as a single class.)
(4) With respect to 75% of the Fund's total assets, acquire more than 10%
of the outstanding voting securities of any one issuer.
(5) Borrow money in excess of 20% of its total assets (taken at cost) and
then only as a temporary measure for extraordinary or emergency reasons and not
for investment. (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.)
B-23
<PAGE>
(6) Pledge more than 25% of its total assets (taken at cost) in connection
with permissible borrowings. For the purposes of this restriction, the deposit
of underlying securities and other assets in connection with the writing of put
and call options and collateral arrangements with respect to margin for currency
futures contracts are not deemed to be a pledge of assets.
(7) Invest more than 5% of its total assets in securities of any one
issuer which, together with any predecessor, has been in continuous operation
for less than three years.
(8) Invest in securities of any company, if officers and Trustees of the
Trust and officers and directors of the Manager who beneficially own more than
0.5% of the shares or securities of that company collectively own more than 5%
of such securities.
(9) Make loans, except (a) by purchase of marketable bonds, debentures,
commercial paper or corporate notes, and similar marketable evidences of
indebtedness which are part of an issue to the public or to financial
institutions, (b) by entry into repurchase agreements, or (c) through the
lending of its portfolio securities with respect to not more than 25% of its
total assets.
(10) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts or commodities or commodity contracts, except for transactions in
futures contracts and options thereon entered into for hedging purposes.
(11) Act as an underwriter except to the extent that, in connection with
the disposition of its portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(12) Make investments for the purpose of exercising control of a company's
management. (This is an operating policy.)
(13) Concentrate its investments in particular industries and in no event
invest more than 25% of the value of its total assets in any one industry.
(14) As a matter of operating policy, engage in puts, calls, straddles,
spreads or any combination thereof, except that, to the extent described in the
Prospectus and this Statement of Additional Information, 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.
B-24
<PAGE>
(15) As a matter of operating policy, purchase warrants if as a result its
warrant holdings, valued at the lower of cost or market, would exceed 5% of 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.
(16) Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Fund, or by a person designated by the
Trustees of the Fund, 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.
(17) Purchase or sell real property (including limited partnership
interests), except that the Fund may (a) purchase or sell readily marketable
interests in real estate investment trusts or readily marketable securities of
companies which invest in real estate, (b) purchase or sell securities that are
secured by interests in real estate or interests therein, or (c) acquire real
estate through exercise of its rights as a holder of obligations secured by real
estate or interests therein or sell real estate so acquired.
(18) Participate on a joint or joint and several basis in any securities
trading account. (This is an operating policy.)
(19) Purchase the securities of any other investment company except
(a) within the limits of the 1940 Act, (b) in a public offering or in the open
market or in privately negotiated transactions where, in either case, to the
best information of the Fund, no commission, profit or sales charge to a sponsor
or dealer (other than a customary broker's commission or underwriting discount)
results from such purchase, or (c) if such purchase is part of a merger,
consolidation, or acquisition of assets.
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, even if approved by shareholders,
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. Any such additional restrictions that would
B-25
<PAGE>
have a material bearing on the Fund's operations will be reflected in the
Prospectus or a Prospectus supplement and may require shareholder approval.
MANAGEMENT OF THE TRUST
The Trustees of the Trust have been appointed for an indefinite term. They
are responsible for the overall management of the Trust, including general
supervision and review of the Fund's investment activities. The Trustees, in
turn, elect the officers of the Trust who are responsible for administering the
day-to-day operations of the Trust and the Fund. The current Trustees and
officers of the Trust and their principal occupations during the last five years
are the following:
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- ---------------------- ---------------------- ----------------------
Roger Engemann* Chairman of the President of Roger
- -------------- Board, President and Engemann & Associates,
600 North Rosemead Trustee Inc., an investment
Boulevard management firm, since
Pasadena, 1972, and the Manager
California 91107 since 1985. President
(55) and a Director of
Pasadena Capital
Corporation.
John S. Tilson* Chief Financial Executive Vice
- -------------- Officer, Secretary President, Portfolio
600 North Rosemead and Trustee Manager and Securities
Boulevard Analyst with Roger
Pasadena, Engemann & Associates,
California 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; head of
201 South Lake B.E. McKinley &
Avenue, Suite 400 Associates since its
Pasadena, inception in 1971.
California 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
- ------------------ 1988-1995, Regional
P.O. Box 80784 Manager for Commercial
San Marino, Real Estate Brokerage
California 91118 in the Pasadena office
(58) 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 Company, Inc., an
525 "B" Street, investment adviser and
Suite 1080 broker-dealer since
San Diego, 1975, and President of
California 92101 Seaport Venturers,
(50) Inc., a venture capital
firm since 1982.
Director of Pasadena
Capital Corporation
since February 1994.
Richard C. Taylor Trustee President of Richard
- ----------------- Taylor Company, Inc., a
2485 Huntington food ingredients
Drive, #2 broker, since 1987.
San Marino,
California 91108
(49)
Angela Wong Trustee Since 1986, Ms. Wong
- ----------- has been of counsel to
11355 West Olympic the law firm of Manatt,
Boulevard Phelps, Phillips &
Los Angeles, Kantor, specializing in
California 90064 employee benefits.
(44)
B-27
<PAGE>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- ---------------------- ---------------------- ----------------------
Richard A. Watson Controller - Fund Vice President and
- ----------------- Accounting and Controller - Fund
600 North Rosemead Assistant Secretary Accounting of Roger
Boulevard Engemann Management
Pasadena, Co., Inc. From
California 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.
B-28
<PAGE>
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement Respecting
Benefits Estimated Registrant
Accrued As Annual And
Name of Part of Benefits Fund Complex
Person, Aggregate Fund Upon Paid to
Position Compensation Expenses Retirement Trustees
-------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C>
Roger Engemann None None None None
Chairman of the
Board, President and
Trustee
John S. Tilson None None None None
Chief Financial
Officer, Secretary
and Trustee
Barry E. McKinley $10,000 None None $10,000
Trustee
Robert L. Peterson $10,000 None None $10,000
Trustee
Michael Stolper $10,000 None None $10,000
Trustee
Richard C. Taylor $10,000 None None $10,000
Trustee
Angela Wong $10,000 None None $10,000
Trustee
Richard A. Watson None None None None
Controller -
Fund Accounting
and Assistant
Secretary
</TABLE>
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The following information concerning the investment management and
administrative services provided to the 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 of the 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
B-29
<PAGE>
asset 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
B-30
<PAGE>
providers pursuant to Services Agreements between the Trust and 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 1.0% of the Fund's
average daily net assets up to $30 million, which rate is reduced at higher
levels of net assets as set forth in the Prospectus. For the periods ended
December 31, 1994 and 1995, the Manager was entitled to receive fees under the
Management Agreement in the amounts of $254 and $5,845, respectively. The
Manager has waived receipt of all such fees.
The Management Agreement is terminable 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, and brokerage and commission expenses. As
compensation for its services and obligations under the Administration
Agreement, the Administrator is paid a monthly fee at an annual rate equal to
1.05% of the Fund's average daily net assets up to $30 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. For the periods ended
December 31, 1994 and 1995, the Manager was entitled to receive fees pursuant to
the Administration Agreement in the amounts of $267 and $6,137, respectively.
The Manager has waived receipt of all such fees.
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. During 1994 and 1995,
service fees in the amounts of $64 and $1,461 were payable by the Fund to the
Manager. The Manager has waived receipt of all such fees.
Notwithstanding the above-described division of expenses, the Manager
will reduce its fees to 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 the Fund's shares are then qualified for sale. Currently the
most restrictive such limitation is 2-1/2% of the first $30 million of average
daily net assets of the Fund, plus 2% of the next $70 million, plus 1-1/2% of
the average daily net assets in excess of $100 million. Operating expenses for
these purposes include the Manager's management and administration fee but do
not include any taxes, interest, brokerage commissions, expenses incurred in
connection with any merger or reorganization, and, with the prior written
approval of any state securities commission requiring the same, any
extraordinary expenses, such as litigation. The Manager also may at its
discretion from time to time pay other Fund expenses from its own resources in
excess of that required by the most restrictive applicable state limitation or
reduce or waive the management fee of the Fund.
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. It 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 participating Funds and such other
clients in a manner deemed equitable to all by the Manager, taking into account
the respective sizes of the Fund or Funds and the other clients' accounts, and
the amount of securities to be purchased or sold. It is recognized that it is
possible that in some cases this procedure could have a detrimental effect on
the price or volume of the security so far as the 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.
The total brokerage commissions paid by the Fund during 1994 and 1995 were
$2,400 and $2,523, respectively. The amount shown for 1994 includes mark-ups
paid by the Fund on principal trades.
B-34
<PAGE>
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 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.
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.
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:
B-35
<PAGE>
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 1996 the Exchange
will be closed on Saturdays and Sundays and for Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and
New Year's Day. The 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
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,
B-36
<PAGE>
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
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 of 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 Fund's Prospectus)
determined on that day. Otherwise, Fund shares
B-37
<PAGE>
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 of 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.
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 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
An investor may qualify for an immediate reduced sales charge on the
purchase of shares of any of the 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 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. After the investor files the
Letter of Intent, each additional investment made in any of the 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 in more than one of the 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 any one of the Funds within 90 days before the
Letter of Intent is filed will be counted towards completion of the Letter of
Intent but will not be entitled to a retroactive downward adjustment of the
sales charge. If the Letter of Intent is not completed within the 13-month
period, there will be an upward adjustment of the sales charge as specified
below, depending upon the amount actually purchased during the period.
B-38
<PAGE>
The Letter of Intent requires that five percent (5%) of the amount of
the total intended purchase will be reserved in shares of the Fund, registered
in the investor's name, to assure that the full applicable sales charge will be
paid if the investor does not complete the intended purchase. However, the
reserved shares will be included in the total shares owned as reflected on the
monthly 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 shares will be deposited to the
investor's Open Account. If the total amount of purchases equals or exceeds the
amount specified under the Letter and is an amount which would qualify for a
further quantity discount, a retroactive price adjustment will also 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 made
after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional 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 if the total of such purchases had been made
at a single time. Upon such remittance, the reserved 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 shares to realize such
difference will be made. In the event of a total redemption of 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, the investor grants to the
Distributor a security interest in the reserved shares and agrees to irrevocably
appoint the Distributor as its attorney-in-fact to surrender for redemption any
or all 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
B-39
<PAGE>
accordance with the procedures set forth in the Prospectus, except for any
period during which the Exchange is closed (other than customary weekend and
holiday closings) or during which the SEC determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
SEC) exists as a result of which disposal by 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 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 in-kind redemptions will be subject to receipt by the Fund of any necessary
regulatory approvals.
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:
DIVIDENDS AND DISTRIBUTIONS
The Fund will declare and pay income dividends and any capital gain
distributions at least once a year as stated in the Prospectus.
B-40
<PAGE>
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. 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 elect to be taxed as a "regulated investment
company" under Subchapter M of the Code, and intends to so qualify. The Fund
did not so qualify for the fiscal period ending December 31, 1994, but did so
qualify during 1995. See "Dividends, Distributions and Taxes" in the
Prospectus. Qualification as a "regulated investment company" does not involve
supervision of the 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 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.
B-41
<PAGE>
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.
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 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.
B-42
<PAGE>
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.
PASSIVE FOREIGN INVESTMENT COMPANIES
An investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to additional U.S. federal income tax or other
charges on the proceeds from the disposition of its investment in such a
company; however, this tax can be avoided by the Fund 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
B-43
<PAGE>
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 may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return or other performance data on the Fund will be
accompanied by information on the Fund's average annual compounded rate of
return over the most recent four calendar quarters and the period from the
Fund's inception of operations. 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
B-44
<PAGE>
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. Each calculation assumes the maximum sales
charge is deducted from the initial $1,000 investment at the time it is made and
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
The average annual compounded rates of return, or total return, for
the Fund's shares for the indicated periods ended December 31, 1995 were as
follows:
Inception
(October 10, 1994)
One Year* to
--------- December 31, 1995*
--------------------
18.79% 34.21%
- -----------------------
* The Manager has waived all management, administrative and service fees
otherwise payable to it by the Fund during 1994 and 1995, which
had the effect of increasing the Fund's total return for those
periods.
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-45
<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 in investor communications and sales literature
preceded or accompanied by a prospectus for the Fund, reflecting the amounts
actually distributed to shareholders 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 the Fund's
distribution rate are based on the distributions per share which are declared,
but not necessarily paid, during the fiscal year. The distribution rate is
determined by dividing the distributions declared during the period by the
maximum offering price 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-46
<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.
As of March 31, 1996, Pasadena Capital Corporation and the Pasadena
Capital Corporation Employee Stock Ownership Plan, 600 N. Rosemead Boulevard,
Pasadena, California 91107, owned 75.6% and 24.4%, respectively, of the
Fund's outstanding shares.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated herein by
reference to such financial statements which have been filed with the Securities
and Exchange Commission. Any person wishing to receive such financial
statements should call or write to the Trust to obtain a free copy.
B-47
<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:
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.
The following audited financial statements for the year ended
December 31, 1995 for The Pasadena Global Growth Fund are filed
herewith as Exhibit No. 17A, 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.
The following audited financial statements for the year ended
December 31, 1995 for The Pasadena Small & Mid-Cap Fund are filed
herewith as Exhibit No. 17B, 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.
(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)
C-1
<PAGE>
(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)(A) Financial Statements of The Pasadena Global Growth Fund
(17)(B) Financial Statements of The Pasadena Small & Mid-Cap Fund
(18) Multiple Class Plan
__________________
(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.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1996, the Registrant had the following approximate number
of shareholder accounts:
C-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS ACCOUNTS
-------------- --------
<S> <C>
Shares of beneficial interest:
The Pasadena Growth Fund 36,779
The Pasadena Balanced Return Fund 3,910
The Pasadena Nifty Fifty Fund 14,257
The Pasadena Global Growth Fund 2
The Pasadena Small & Mid-Cap Fund 2
</TABLE>
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.
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.
C-3
<PAGE>
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:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Tod H. Parrott President, Director, None
30 East Elm Street Chairman of the Board
Greenwich, CT 06830 and Chief Executive
Officer
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
Andrew T. Donnelly Vice President None
30 East Elm Street
Greenwich, CT 06830
Thomas A. Feilke Senior Vice President None
30 East Elm Street
Greenwich, CT 06830
Vincent J. Finnegan Senior Vice President None
600 North Rosemead
Boulevard
Pasadena, CA 91107-2138
Robert A. Fredrickson Senior Vice President None
30 East Elm Street
Greenwich, CT 06830
Neil G. Gaffney Senior Vice President None
30 East Elm Street
Greenwich, CT 06830
C-4
<PAGE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
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
Traci Parrott Assistant Vice President None
30 East Elm Street
Greenwich, CT 06830
Elizabeth C. Vilece Senior Vice President None
30 East Elm Street
Greenwich, CT 06830
</TABLE>
(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.
No new undertakings.
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 certifies that it
meets all of the requirements for the effectiveness of this Amendment to
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended, and 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 23rd day of April, 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 April 23, 1996
- ------------------- Officer and Trustee
Roger Engemann
JOHN S. TILSON* Principal Financial April 23, 1996
- ------------------- and Accounting
John S. Tilson Officer and Trustee
BARRY E. McKINLEY* Trustee April 23, 1996
- -------------------
Barry E. McKinley
ROBERT L. PETERSON* Trustee April 23, 1996
- -------------------
Robert L. Peterson
MICHAEL STOLPER* Trustee April 23, 1996
- -------------------
Michael Stolper
RICHARD C. TAYLOR* Trustee April 23, 1996
- -------------------
Richard C. Taylor
ANGELA WONG* Trustee April 23, 1996
- -------------------
Angela Wong
*By: /S/ JULIE ALLECTA
------------------------
Julie Allecta, Attorney-in-Fact,
pursuant to Powers of Attorney previously filed.
C-6
<PAGE>
File Nos. 33-1922
811-4506
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
E X H I B I T S
TO
F O R M N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 20
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 23
__________________
PASADENA INVESTMENT TRUST
(Exact name of Registrant as specified in its charter)
<PAGE>
EXHIBIT INDEX
EXHIBIT
-------
11 Consents of Certified Public Accountants
17(A) Financial Statements of The Pasadena Global Growth Fund
17(B) Financial Statements of The Pasadena Small & Mid-Cap Fund
18 Multiple Class Plan of Pasadena Investment Trust
<PAGE>
Exhibit No. 11
Consents of Certified Public Accountants
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of Pasadena Investment Trust:
We consent to the incorporation by reference in Post-Effective Amendment No. 20
to the Registration Statement on Form N-1A of Pasadena Investment Trust (File
No. 33-1922) of our report dated February 16, 1996 on our audit of the financial
statements and financial highlights of The Pasadena Growth Fund, The Pasadena
Nifty Fifty Fund and The Pasadena Balanced Return Fund, which report is included
in the Annual Report to Shareholders for the year ended December 31, 1995 which
is incorporated by reference in the Registration Statement. We also consent to
the references to our Firm under the captions "Financial Highlights" and
"General Information" in the Prospectus.
/s/ Coopers & Lybrand L.L.P.
Los Angeles, California COOPERS & LYBRAND L.L.P.
April 24, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of Pasadena Investment Trust:
We consent to the inclusion in Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A of Pasadena Investment Trust (File No. 33-
1922) of our report dated February 16, 1996 on our audit of the financial
statements and financial highlights of The Pasadena Global Growth Fund, which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1995 which is included in the Registration Statement. We also
consent to the references to our Firm under the captions "Financial Highlights"
and "General Information" in the Prospectus.
/s/ Coopers & Lybrand L.L.P.
Los Angeles, California COOPERS & LYBRAND L.L.P.
April 24, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of Pasadena Investment Trust:
We consent to the inclusion in Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A of Pasadena Investment Trust (File No.
33-1922) of our report dated February 16, 1996, except as to the information
presented in paragraph 5 of Note 2 for which the date is February 26, 1996 on
our audit of the financial statements and financial highlights of The
Pasadena Small & Mid-Cap Fund, which report is included in the Annual Report
to Shareholders for the year ended December 31, 1995 which is included in the
Registration Statement. We also consent to the references to our Firm under
the captions "Financial Highlights" and "General Information" in the
Prospectus.
/s/ Coopers & Lybrand L.L.P.
Los Angeles, California COOPERS & LYBRAND L.L.P.
April 24, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
Exhibit No. 17(A)
Financial Statements of The Pasadena Global Growth Fund
<PAGE>
- --------------------------------------------------------------------------------
THE PASADENA
GLOBAL GROWTH FUND
------------------
ANNUAL REPORT
TO SHAREHOLDERS
----------
FOR THE YEAR ENDED
DECEMBER 31, 1995
------------------
- --------------------------------------------------------------------------------
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
INVESTMENT IN SECURITIES AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
COMMON STOCKS
ARGENTINA - 1.3%
- ----------------
<S> <C> <C>
TELECOMMUNICATIONS SERVICES - 1.3%
Telecom Argentina Stet-France
Telecom S.A . . . . . . . . . . . . 500 $ 23,812
Telefonica de Argentina
Sponsored ADR, CL B. . . . . . . . 700 19,075
--------
42,887
--------
BOLIVIA - 1.0%
- --------------
UTILITIES - ELECTRIC - 1.0%
Compania Bolivia de Energia
Electria, S.A. . . . . . . . . . . 1,000 33,250
--------
CHINA - 1.4%
- ------------
UTILITIES - ELECTRIC - 1.4%
Huaneng Power International, Inc.* . 1,500 21,562
Consolidated Electric Power Asia
Limited ADR . . . . . . . . . . . . 2,500 22,812
--------
44,374
--------
CZECHOSLOVAKIA - 0.5%
- ---------------------
MEDIA - BROADCASTING - 0.5%
Central European Media Enterprises*. 700 14,350
--------
FINLAND - 0.9%
- --------------
TELECOMMUNICATIONS EQUIPMENT - 0.9%
Nokia Corporation ADS. . . . . . . . 700 27,212
--------
HONG KONG - 3.1%
- ----------------
BANKING - 0.5%
HSBC Holdings PLC Sponsored ADR. . . 100 15,132
--------
CONGLOMERATES - 2.2%
Hutchison Whampoa Ltd. ADR . . . . . 700 $ 21,321
New World Development Company,
Ltd. ADR. . . . . . . . . . . . . . 2,000 17,434
Swire Pacific Ltd. ADR . . . . . . . 2,000 15,520
Wharf Holdings Ltd. Sponsored ADR. . 1,000 16,652
--------
70,927
--------
UTILITIES - ELECTRIC - 0.4%
China Light & Power Company, Ltd. ADR. 3,000 13,813
--------
TOTAL HONG KONG 99,872
--------
INDONESIA - 0.8%
- ----------------
TELECOMMUNICATIONS SERVICES - 0.8%
P.T. Telekomunikasi Indonesia
(Persero) ADS . . . . . . . . . . . 500 12,625
Indosat PT Sponsored ADR . . . . . . 320 11,680
--------
24,305
--------
IRELAND - 1.4%
- --------------
PHARMACEUTICALS - 0.9%
Elan Corporation, PLC ADS* . . . . . 600 29,175
--------
TELECOMMUNICATIONS SERVICES - 0.5%
Saville Systems PLC* . . . . . . . . 1,000 14,250
--------
TOTAL IRELAND 43,425
--------
ISRAEL - 0.4%
- -------------
PHARMACEUTICALS - 0.4%
Teva Pharmaceutical Industries
Limited. . . . . . . . . . . . . . 300 13,912
--------
See notes to financial statements.
1
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
INVESTMENT IN SECURITIES AT DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
ITALY - 0.6%
- ------------
CONSUMER PRODUCTS - 0.4%
Luxottica Group SpA Sponsored ADR. . . 200 $ 11,700
--------
FURNITURE MANUFACTURING - 0.2%
Industrie Natuzzi SpA ADR. . . . . . 150 6,806
--------
TELECOMMUNICATIONS SERVICES - 0.0%
STET Societa Finanziaria Telefonica ADR 25 708
--------
TOTAL ITALY 19,214
--------
JAPAN - 4.7%
- ------------
ELECTRONICS & ELECTRICAL EQUIPMENT - 0.9%
Kyocera Corp. ADR. . . . . . . . . . 200 29,850
--------
HOUSEHOLD PRODUCTS - 1.9%
Amway Japan Limited. . . . . . . . . 1,500 31,313
Kao Corp. ADR. . . . . . . . . . . . 225 27,920
--------
59,233
--------
OFFICE EQUIPMENT - 1.0%
Canon Inc. ADR . . . . . . . . . . . 350 31,981
--------
RETAIL - GROCERY STORE - 0.9%
Ito-Yokada Co. ADR Ltd.. . . . . . . 120 29,535
--------
TOTAL JAPAN 150,599
--------
KOREA - 2.1%
- ------------
UTILITIES - ELECTRIC - 2.1%
Korea Electric Power Corporation ADS 2,500 66,875
--------
MALAYSIA - 0.4%
- ---------------
GAMING - 0.4%
Genting Berhad ADR . . . . . . . . . 1,500 12,525
--------
MEXICO - 0.1%
- -------------
RETAIL - GENERAL MERCHANDISE - 0.1%
Cifra S.A. de C.V.*. . . . . . . . . 4,000 $ 4,204
--------
NETHERLANDS - 3.1%
- ------------------
MEDIA - PUBLISHING - 0.9%
Wolters Kluwer NV Sponsored ADR. . . 299 28,315
--------
COMMUNICATIONS EQUIPMENT - 1.4%
Madge Networks N.V.* . . . . . . . . 1,000 44,750
--------
RECORDED MUSIC - 0.8%
Polygram NV. . . . . . . . . . . . . 500 26,250
--------
TOTAL NETHERLANDS 99,315
--------
PHILIPPINES - 0.5%
- ------------------
TELECOMMUNICATIONS SERVICES - 0.5%
Philippine Long Distance Telephone Company
Sponsored ADR . . . . . . . . . . . 300 16,238
--------
SPAIN - 0.6%
- ------------
TELECOMMUNICATIONS SERVICES - 0.6%
Telefonica de Espana SA Sponsored ADR 500 20,938
--------
SWEDEN - 2.3%
- -------------
TELECOMMUNICATIONS EQUIPMENT - 1.7%
Ericsson LM Telefonaktiebolaget
ADR CL B. . . . . . . . . . . . . . 2,750 53,625
--------
ELECTRIC TRANSMISSION & DISTRIBUTION
EQUIPMENT - 0.6%
Asea AB Sponsored ADR. . . . . . . . 200 19,375
--------
TOTAL SWEDEN 73,000
--------
See notes to financial statements.
2
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
INVESTMENT IN SECURITIES AT DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
SWITZERLAND - 1.9%
- ------------------
PHARMACEUTICALS - 1.2%
Roche Holdings Ltd. Sponsored ADR. . 500 $ 39,651
--------
ELECTRIC TRANSMISSION & DISTRIBUTION
EQUIPMENT - 0.7%
BBC Brown Boveri LTD Sponsored ADR . 200 23,291
--------
TOTAL SWITZERLAND 62,942
--------
UNITED KINGDOM - 2.8%
- ---------------------
BUSINESS SERVICES - 1.2%
Reuters Holdings PLC ADS B . . . . . 700 38,588
--------
ENVIRONMENTAL SERVICES - 0.1%
Waste Management International PLC
Sponsored ADS*. . . . . . . . . . . 200 2,150
--------
INVESTMENT MANAGEMENT - 1.2%
Invesco PLC. . . . . . . . . . . . . 1,000 38,750
--------
TELECOMMUNICATIONS SERVICES - 0.3%
Vodafone Group ADR . . . . . . . . . 300 10,575
--------
TOTAL UNITED KINGDOM 90,063
--------
UNITED STATES - 57.4%
- ---------------------
ADVERTISING - 1.0%
The Interpublic Group
of Companies, Inc.. . . . . . . . . 700 30,362
--------
BANKING - 3.8%
First Interstate Bankcorp. . . . . . 400 54,600
NationsBank Corporation. . . . . . . 200 13,925
Wells Fargo & Company. . . . . . . . 250 54,000
--------
122,525
--------
BUSINESS SERVICES - 2.8%
Federal Express Corporation* . . . . 400 29,550
Harper Group, Inc. . . . . . . . . . 1,500 26,625
VeriFone, Inc.*. . . . . . . . . . . 1,200 34,350
--------
90,525
--------
COMMUNICATIONS EQUIPMENT - 1.2%
Cisco Systems* . . . . . . . . . . . 500 $ 37,312
--------
COMPUTER HARDWARE - 2.0%
COMPAQ Computer* . . . . . . . . . . 300 14,400
Hewlett-Packard. . . . . . . . . . . 600 50,250
--------
64,650
--------
COMPUTER SOFTWARE - 1.4%
Microsoft Corporation* . . . . . . . 200 17,550
Oracle Systems*. . . . . . . . . . . 650 27,544
--------
45,094
--------
CONSUMER PRODUCTS - 4.9%
Avon Products, Inc.. . . . . . . . . 300 22,613
Duracell International Inc.. . . . . 600 31,050
The Gillette Company . . . . . . . . 2,000 104,250
--------
157,913
--------
DIVERSIFIED MANUFACTURING - 0.9%
General Electric . . . . . . . . . . 400 28,800
--------
ELECTRONICS & ELECTRICAL EQUIPMENT - 3.6%
Applied Materials, Inc.* . . . . . . 400 15,750
Intel Corporation. . . . . . . . . . 700 39,725
LSI Logic Corporation* . . . . . . . 600 19,650
Linear Technology Corporation. . . . 500 19,625
Maxim Integrated Products, Inc.* . . 500 19,250
--------
114,000
--------
ENVIRONMENTAL SERVICES - 1.1%
WMX Technologies, Inc. . . . . . . . 1,200 35,850
--------
FINANCIAL SERVICES - 4.1%
Dean Witter Discover . . . . . . . . 700 32,900
Federal Home Loan Mortgage Corporation 600 50,100
Federal National Mortgage Association 400 49,650
--------
132,650
--------
FOOD & BEVERAGE PRODUCTS - 5.3%
CPC International. . . . . . . . . . 500 34,313
The Coca-Cola Company. . . . . . . . 300 22,275
International Flavors & Fragrances Inc. 300 14,400
PepsiCo. Inc.. . . . . . . . . . . . 800 44,700
Wrigley (Wm.) Jr.. . . . . . . . . . 1,000 52,500
--------
168,188
--------
GAMING - 0.8%
Circus Circus Enterprises, Inc.* . . 700 19,512
Mirage Resorts, Incorporated*. . . . 200 6,900
--------
26,412
--------
See notes to financial statements.
3
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
INVESTMENT IN SECURITIES AT DECEMBER 31, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
SHARES VALUE
------ -----
HOSPITAL COMPANIES - 1.0%
Columbia/HCA Healthcare Corporation. 600 $ 30,450
--------
HOUSEHOLD PRODUCTS - 1.4%
Colgate-Palmolive Company. . . . . . 300 21,075
The Procter & Gamble Company . . . . 300 24,900
--------
45,975
--------
INVESTMENT COMPANIES - 5.7%
The Asia Tigers Fund, Inc. . . . . . 2,500 27,812
The Central European Equity Fund, Inc. 2,000 32,750
The India Fund, Inc. . . . . . . . . 7,500 66,563
The Korea Fund, Inc. . . . . . . . . 811 17,842
The Thai Fund, Inc.. . . . . . . . . 1,533 34,301
--------
179,268
--------
LEISURE - 3.7%
Carnival Corporation . . . . . . . . 1,000 24,375
The Walt Disney Company. . . . . . . 1,600 94,400
--------
118,775
--------
MEDICAL EQUIPMENT & SUPPLIES - 1.1%
Medtronic, Inc.. . . . . . . . . . . 600 33,525
--------
MOTOR VEHICLE PARTS & SUPPLIES - 0.2%
Detroit Diesel Corporation*. . . . . 400 7,450
--------
PHARMACEUTICALS - 2.6%
Merck & Co., Inc.. . . . . . . . . . 300 19,725
Pfizer, Inc. . . . . . . . . . . . . 1,000 63,000
--------
82,725
--------
RESTAURANTS - 1.4%
McDonald's Corporation . . . . . . . 1,000 45,125
--------
RETAIL - APPAREL & ACCESSORIES - 0.6%
Kohl's Corporation*. . . . . . . . . 350 18,375
--------
RETAIL - AUTO SUPPLY STORES - 0.8%
AutoZone, Inc.*. . . . . . . . . . . 900 25,988
--------
RETAIL - CATALOG - 0.4%
Viking Office Products, Inc.*. . . . 300 13,950
--------
RETAIL - GENERAL MERCHANDISE - 0.8%
Wal-Mart Stores, Inc.. . . . . . . . 1,200 26,850
--------
TELECOMMUNICATIONS EQUIPMENT - 2.5%
Motorola, Inc. . . . . . . . . . . . 1,200 $ 68,400
Tellabs, Inc.* . . . . . . . . . . . 300 11,100
--------
79,500
--------
TOBACCO PRODUCTS - 1.1%
Philip Morris Companies, Inc.. . . . 400 36,200
--------
VETERINARIAN PRODUCTS - 1.2%
IDEXX Laboratories, Inc.*. . . . . . 800 37,600
--------
TOTAL UNITED STATES 1,836,037
---------
TOTAL COMMON STOCKS - 87.3%
(COST $2,467,098) . . . . . . . . . 2,795,537
---------
PREFERRED STOCKS
AUSTRALIA - 1.0%
- ----------------
MEDIA PUBLISHING - 1.0%
The News Corporation Limited . . . . 1,700 32,725
--------
TOTAL PREFERRED STOCKS - 1.0%
(COST $31,219) 32,725
--------
TOTAL INVESTMENT IN SECURITIES - 88.3%
(COST $2,498,317) $2,828,262
----------
----------
</TABLE>
- --------------------
*Non-income producing securities.
See notes to financial statements.
4
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities, at value (Cost $2,498,317)
See accompanying schedule. . . . . . . . . . . . . . . . . . . $ 2,828,262
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,510
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . 10,520
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 3,233,292
-----------
LIABILITIES:
Payable for investments purchased. . . . . . . . . . . . . . . . 29,866
-----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 29,866
-----------
NET ASSETS AT DECEMBER 31, 1995. . . . . . . . . . . . . . . . . $ 3,203,426
-----------
-----------
NET ASSETS CONSIST OF:
Capital paid-in. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,876,019
Accumulated undistributed income:
Net investment income. . . . . . . . . . . . . . . . . . . . . 1,389
Net realized loss on investments . . . . . . . . . . . . . . . (3,927)
Net unrealized appreciation in value of investments. . . . . . . 329,945
-----------
$ 3,203,426
-----------
-----------
PER SHARE VALUES:
CLASS A:
Shares of beneficial interest, no par value, issued and outstanding
(unlimited shares authorized). . . . . . . . . . . . . . . . . 185,509
-----------
-----------
Net asset value, offering price and redemption price per share . $ 17.27
-----------
-----------
CLASS B AND CLASS C:
Shares of beneficial interest, no par value, issued and outstanding
(unlimited shares authorized). . . . . . . . . . . . . . . . . 0
-----------
-----------
Net asset value, offering price and redemption price per share . $ 0
-----------
-----------
</TABLE>
See notes to financial statements.
5
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $758). . . . . . . . $ 26,281
---------
EXPENSES:
Administration fees. . . . . . . . . . . . . . . . . . . . . . . 19,423
Investment management fees . . . . . . . . . . . . . . . . . . . 18,498
Service fees . . . . . . . . . . . . . . . . . . . . . . . . . . 4,624
---------
Total expenses before waiver by Manager. . . . . . . . . . . . 42,545
Manager's expense waiver . . . . . . . . . . . . . . . . . . . (42,545)
---------
Total net expenses . . . . . . . . . . . . . . . . . . . . . . 0
---------
Net investment income. . . . . . . . . . . . . . . . . . . . . 26,281
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments . . . . . . . . . . . . . . . . (40,382)
Net increase in unrealized appreciation. . . . . . . . . . . . . 326,966
---------
Net gain on investments. . . . . . . . . . . . . . . . . . . . . 286,584
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $ 312,865
---------
---------
</TABLE>
See notes to financial statements.
6
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1995 1994
---------- ----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . $ 26,281 $ 989
Net realized gain (loss) on investments. . . . . . . . . . . . . (40,382) 26,003
Net increase in unrealized appreciation in value of investments. 326,966 1,755
---------- ----------
Net increase in net assets resulting from operations . . . . . . 312,865 28,747
---------- ----------
Dividends to Shareholders:
Net investment income. . . . . . . . . . . . . . . . . . . . . . (26,019) --
---------- ----------
Decrease in net assets resulting from dividends to shareholders. (26,019) --
---------- ----------
Capital Share Transactions:
Proceeds from shares sold (173,997 shares) . . . . . . . . . . . 2,750,000 --
Proceeds from shares issued in reinvestment of dividends
(1,512 shares). . . . . . . . . . . . . . . . . . . . . . . . . 26,019 --
---------- ----------
Net increase in assets resulting from capital share transactions 2,776,019 --
---------- ----------
Total increase in net assets . . . . . . . . . . . . . . . . . . . 3,062,865 28,747
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 140,561 111,814
---------- ----------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,203,426 $ 140,561
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
7
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED INCEPTION
DECEMBER 31, (NOVEMBER 1, 1993)
----------------------- THROUGH
1995 1994 DECEMBER 31, 1993
----------- --------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . . . . . . . . $ 14.06 $ 11.18 $ 10.00
----------- --------- -----------
GAIN FROM INVESTMENT OPERATIONS:
Net investment income (1)(2) . . . . . . . . . . . . . . . . . .24 .10 .01
Net realized and unrealized gain on investments. . . . . . . . 3.11 2.78 1.17
----------- --------- -----------
Total gain from investment operations. . . . . . . . . . . . 3.35 2.88 1.18
----------- --------- -----------
LESS DIVIDENDS:
Dividends from net investment income . . . . . . . . . . . . . (.14) -- --
----------- --------- -----------
Total dividends. . . . . . . . . . . . . . . . . . . . . . . (.14) -- --
----------- --------- -----------
Net asset value, end of period . . . . . . . . . . . . . . . . $ 17.27 $ 14.06 $ 11.18
----------- --------- -----------
----------- --------- -----------
TOTAL RETURN (2)(3). . . . . . . . . . . . . . . . . . . . . . 23.84 % 25.76 % 11.80 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period . . . . . . . . . . . . . . . . . . $ 3,203,426 $ 140,561 $ 111,814
Ratio of expenses to average net assets (2) . . . . . . . . . 0.0 % 0.0 % 0.0 %(4)
Ratio of net investment income (loss) to average net
assets (2). . . . . . . . . . . . . . . . . . . . . . . . . 1.4 % 0.8 % 0.8 %(4)
Portfolio turnover rate. . . . . . . . . . . . . . . . . . . . 29.0 % 479.3 % 215.8 %
</TABLE>
- --------------------
The table above provides condensed information concerning income and capital
changes for one Class A share of The Pasadena Global Growth Fund. Such
information is based on the Fund's audited financial statements for the periods
presented.
(1) This information was prepared using the average number of shares
outstanding.
(2) These amounts reflect the impact of a waiver of Manager fees of $42,545,
$2,784 and $410 for the periods ended December 31, 1995, 1994 and 1993,
respectively, and the Manager's reimbursement for income taxes of $13,109
during 1994. Had the waivers and reimbursement not been made, net
investment income (loss) per share, total return (not annualized for the
period ended December 31, 1993) and the ratios of expenses and net
investment income (loss) to average net assets (annualized for the period
ended December 31, 1993) would have been ($.15), 22.88%, 2.3%, and (0.9%),
respectively, ($.21), 14.40%, 10.4% (2.3% if only normal and recurring
expenses are taken into account) and (1.7%), respectively, and ($.03),
11.40%, 2.3% and (1.5%), respectively, for the periods ended December 31,
1995, 1994 and 1993, respectively.
(3) Total return measures the change in the value of an investment during the
period indicated and does not include the impact of paying any sales
charge. Total return for the period from inception (November 1, 1993)
through December 31, 1993, has not been annualized.
(4) Annualized.
See notes to financial statements.
8
<PAGE>
THE PASADENA GLOBAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES: The Pasadena Global Growth Fund (the
"Fund") is a series of the Pasadena Investment Trust (the "Trust"), a
Massachusetts business trust registered under the Investment Company Act of 1940
as a diversified, open-end management investment company. The Fund offers three
Classes of shares (Class A, Class B and Class C). Class A, Class B and Class C
shares are currently offered at their net asset value. Class B shares redeemed
during the first four years of ownership may be subject to a maximum contingent
deferred sales charge of 5%. At the beginning of the seventh year after
purchase, Class B shares automatically convert into Class A shares based upon
the relative net asset values of the two Classes, without any imposition of any
sales charges. To date, only Class A shares have been issued. The significant
accounting policies of the Fund are as follows:
A. SECURITIES VALUATION. Securities traded on a principal securities exchange
(foreign or domestic) or on Nasdaq are stated at the last sales price
determined as of 4:15 P.M. Eastern Time on the day of valuation; securities
for which no sales were reported on that date are stated at the last sales
price on the business day the security was last traded. Securities traded
only in the over-the-counter market and not on Nasdaq are valued at the
current or last quoted bid price. If no bid price is quoted that day, the
security is valued by such method as the Trust's Board of Trustees shall
determine in good faith reflects the security's fair value.
B. INCOME AND EXPENSE ALLOCATION. All items of income and expense not
directly related to a specific Class of shares are allocated among the
Classes based upon the relative value of the outstanding shares of each
Class.
C. FOREIGN CURRENCY TRANSACTIONS. The books and records of the Fund are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies, if any, are converted into U.S. dollars at the exchange rates
at the end of the period being reported upon. Purchases and sales of
investment securities, dividend and interest income, and expenses are
translated at the rates of exchange prevailing on the respective dates of
such transactions.
Net realized foreign exchange gains and losses arise from the
differences between asset and liability amounts initially stated in foreign
currencies and the U.S. dollar value of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes
in the unrealized value of assets and liabilities at the end of the
reporting period resulting from changes in the exchange rates.
The Fund did not have any material transactions denominated in a
foreign currency during the periods covered by these financial statements.
D. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required for
1995.
The aggregate cost of securities for federal income tax purposes is
the same as it is for financial reporting purposes.
At December 31, 1995, the Fund had available for federal income tax
purposes a capital loss carryforward of $40,382 expiring in 2003.
E. OTHER. The Fund follows industry practice and recognizes security
transactions on the trade date. Realized gains and losses on sales of
investments are determined on the identified cost basis. Dividend income
less foreign taxes withheld, if any, is recognized on the ex-dividend date
or in the case of foreign securities upon receipt of ex-dividend
notification, if later. Interest income is recorded on an accrual basis.
Distributions to shareholders are recorded on the ex-dividends date.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES: Under an investment management
agreement with the Fund, Roger Engemann Management Co., Inc. (the "Manager")
furnishes advice and recommendations with respect to the Fund's securities
portfolio, supervises the Fund's investments, provides all required Fund
accounting and provides the Trust's Board of Trustees with periodic and special
reports on investment securities, economic conditions and other pertinent
subjects.
The Manager also performs various administrative and shareholder services
to the Fund under an administration agreement. All normal operating expenses of
the Fund except for fees and expenses associated with investment management
services, continuing service fees and distribution fees are paid by the Manager
pursuant to the administration agreement.
For the services provided and expenses assumed under the management and
administration agreements, the Manager receives separate fees computed and
prorated on a daily basis, which fees on a combined basis range from an
annualized 2.05% of the Fund's average daily net assets up to $30 million,
reduced for various average daily net assets levels thereafter, to a combined
annualized fee of 1.00% of the Fund's average daily net assets when its average
daily net assets exceed $500 million.
Each of the Fund's Classes of shares of beneficial interest are subject to
continuing service fees of an annualized .25% of each Class' average daily net
asset value for services to shareholder accounts. In addition, Class B and
Class C shares are subject to an annualized .75% distribution fee of each Class'
average daily net asset value to reimburse the Fund's distributor, Pasadena
Fund Services, Inc. (the "Distributor"), for its distribution costs with respect
to those Classes.
The Manager has elected to waive all of the applicable above fees until
such time that the Fund begins selling its shares to the public.
Roger Engemann & Associates, Inc., a wholly-owned subsidiary of Pasadena
Capital Corporation, owns 93.5% of the Manager's capital stock. The Distributor
is also an affiliate of Pasadena Capital Corporation. Roger Engemann, the
controlling shareholder of Pasadena Capital Corporation, is the Chairman of the
Board and President of the Trust. As of December 31, 1995, the sole
shareholders of the Fund were Pasadena Capital Corporation and the Pasadena
Capital Corporation Employee Stock Ownership Plan.
3. INVESTMENT TRANSACTIONS: For the year ended December 31, 1995, purchases
and sales of securities, other than short-term securities, were $2,915,809 and
$475,210, respectively.
At December 31, 1995, net unrealized appreciation for federal income tax
purposes was $329,945 of which $393,216 related to appreciated securities and
$63,271 related to depreciated securities.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Pasadena Investment Trust:
We have audited the accompanying statement of assets and liabilities of The
Pasadena Global Growth Fund (the "Fund"), which Fund is a series of the Pasadena
Investment Trust, including the schedule of investment in securities as of
December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for the two years then ended and
the financial highlights for the two years then ended and for the period from
November 1, 1993 (inception) to December 31, 1993. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Pasadena Global Growth Fund, as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for the two
years then ended, and the financial highlights for the two years then ended and
for the period from November 1, 1993 (inception) to December 31, 1993, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 16, 1996
10
<PAGE>
Exhibit No. 17(B)
Financial Statements of The Pasadena Small & Mid-Cap Fund
<PAGE>
- --------------------------------------------------------------------------------
THE PASADENA
SMALL & MID-CAP FUND
--------------------
ANNUAL REPORT
TO SHAREHOLDERS
----------
FOR THE YEAR ENDED
DECEMBER 31, 1995
--------------------
- --------------------------------------------------------------------------------
<PAGE>
THE PASADENA SMALL & MID-CAP FUND
INVESTMENT IN SECURITIES AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -------
<S> <C> <C>
COMMON STOCKS
BUSINESS SERVICES - 8.0%
American List Corporation . . . . . . . 500 $12,750
CKS Group, Inc.* . . . . . . . . . . . 1,000 39,000
Electro Rent Corporation* . . . . . . . 1,200 26,100
The Harper Group, Inc. . . . . . . . . 800 14,200
Labor Ready, Inc.* . . . . . . . . . . 1,200 19,200
VeriFone, Inc.* . . . . . . . . . . . . 1,000 28,625
-------
139,875
-------
COMPUTER HARDWARE - 1.9%
Visioneer Inc.* . . . . . . . . . . . . 1,500 33,375
-------
COMPUTER SOFTWARE - 5.4%
Advent Software, Inc. . . . . . . . . , 1,500 26,625
Comshare, Inc.* . . . . . . . . . . . . 1,050 27,300
Insignia Solutions ADR* . . . . . . . . 1,600 18,800
Legato Systems, Inc.* . . . . . . . . . 700 21,700
-------
94,425
-------
COMMUNICATIONS EQUIPMENT - 4.3%
Cisco Systems* . . . . . . . . . . . . 125 9,328
Madge Networks N.V.* . . . . . . . . . 900 40,275
MicroCom, Inc.* . . . . . . . . . . . . 1,000 26,000
-------
75,603
-------
CONSUMER PRODUCTS - 2.9%
Action Performance Companies, Inc.* . . 1,700 23,375
Department 56, Inc.* . . . . . . . . . 700 26,863
-------
50,238
-------
CONSUMER SERVICES - 3.0%
Aaron Rents, Inc., Class B . . . . . . 1,800 32,400
Mail Boxes Etc.* . . . . . . . . . . . 1,605 20,062
-------
52,462
-------
ELECTRONICS & ELECTRICAL EQUIPMENT -
19.7%
ANADIGICS, Inc.* . . . . . . . . . . . 2,000 42,500
Burr-Brown, Corp.* . . . . . . . . . . 1,600 40,800
Elantec Semiconductor, Inc.* . . . . . 3,650 37,413
Etec Systems, Inc.* . . . . . . . . . 2,500 28,125
LSI Logic Corporation* . . . . . . . . 400 13,100
Linear Technology Corporation . . . . . 900 35,325
Maxim Integrated Products, Inc.* . . . 250 9,625
Micrel Incorporated* . . . . . . . . . 1,840 35,880
Photon Dynamics, Inc.* . . . . . . . . 2,700 21,600
Pinnacle Systems, Inc.* . . . . . . . . 760 18,810
Silicon Valley Group* . . . . . . . . . 1,200 30,300
VLSI Technology, Inc.* . . . . . . . . 1,600 29,000
-------
342,478
-------
FINANCIAL SERVICES - 6.7%
Imperial Credit Industries, Inc.* . . . 1,600 34,800
Mercury Finance Company . . . . . . . . 500 6,625
The Money Store . . . . . . . . . . . . 500 7,812
Quick & Reilly . . . . . . . . . . . . 800 16,400
Rockford Industries, Inc.* . . . . . . 3,000 28,500
Roosevelt Financial Group, Inc. . . . . 1,200 23,250
-------
117,387
-------
GAMING - 4.0%
Anchor Gaming*. . . . . . . . . . . . . 1,500 34,125
Casino Data Systems . . . . . . . . . . 1,400 35,000
-------
69,125
-------
HEALTH-CARE SERVICES - 1.1%
ARV Assisted Living, Inc.* . . . . . . . 1,700 19,975
-------
INDUSTRIAL/DIRECT MAIL DISTRIBUTOR - 1.3%
MSC Industrial Direct Co., Inc.* . . . . 850 23,375
-------
LEISURE - 1.5%
Regal Cinemas, Inc.* . . . . . . . . . . 900 26,775
-------
MANUFACTURING - APPAREL - 0.7%
St. John's Knits Inc. . . . . . . . . . 240 12,750
-------
MISCELLANEOUS SERVICES - 1.9%
Barefoot, Inc. . . . . . . . . . . . . . 2,000 21,000
Reinsurance Group America . . . . . . . 340 12,452
-------
33,452
-------
See notes to financial statements.
1
<PAGE>
THE PASADENA SMALL & MID-CAP FUND
INVESTMENT IN SECURITIES AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
Shares Value
------ -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS - 1.5%
Elan Corporation PLC ADS* . . . . . . . 550 $26,744
-------
RESTAURANTS - 1.1%
Rock Bottom Restaurants, Inc.* . . . . . 1,400 18,200
-------
RETAIL - APPAREL & ACCESSORY STORES - 3.2%
Claire's Stores, Inc. . . . . . . . . . . 1,200 21,150
Kohl's Corporation * . . . . . . . . . . 650 34,125
-------
55,275
-------
RETAIL - CATALOG - 1.1%
Viking Office Products, Inc.* . . . . . . 400 18,600
-------
RETAIL - GENERAL MERCHANDISE - 2.1%
Dollar General Corporation . . . . . . . 1,800 37,350
-------
RETAIL - HOME FURNITURE, FURNISHINGS &
EQUIPMENT STORES - 5.0%
Bed Bath & Beyond, Inc.* . . . . . . . . 700 27,169
Leslie's Poolmart* . . . . . . . . . . . 1,600 22,400
Williams-Sonoma, Inc.* . . . . . . . . . 2,000 37,000
-------
86,569
-------
RETAIL - SPECIALTY - 5.9%
The Gymboree Corporation* . . . . . . . , 1,200 24,750
Petco Animal Supplies, Inc.* . . . . . . 1,000 29,250
Trend-Lines, Inc.* . . . . . . . . . . . 4,800 48,000
-------
102,000
-------
TELECOMMUNICATIONS EQUIPMENT - 3.9%
Ascend Communications* . . . . . . . . . 400 32,450
Spectrian Corp.* . . . . . . . . . . . . 1,500 33,375
-------
65,825
-------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Warrants Value
-------- ----------
<S> <C> <C>
TELECOMMUNICATIONS SERVICES - 2.7%
APAC TeleServices, Inc.* . . . . . . . . 550 $ 18,356
MRV Communications, Inc.* . . . . . . . 1,100 27,913
----------
46,269
----------
VETERINARIAN PRODUCTS - 0.8%
IDEXX Laboratories, Inc.* . . . . . . . 300 14,100
----------
TOTAL COMMON STOCKS - 89.7%
(COST $1,469,710) . . . . . . . . . . 1,562,227
----------
WARRANTS
Electronic & Electrical Equipment -
1.7%
Intel Corporation . . . . . . . . . . . 1,100 29,425
----------
TOTAL WARRANTS - 1.7%
(COST $32,725) . . . . . . . . . . . . 29,425
----------
TOTAL INVESTMENT IN SECURITIES - 91.4%
(COST $1,502,435) . . . . . . . . . . . $1,591,652
----------
----------
</TABLE>
- -------
* Non-income producing securities.
See notes to financial statements.
2
- --------------------------------------------------------------------------------
<PAGE>
THE PASADENA SMALL & MID-CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
December 31, 1995
ASSETS:
Investment in securities, at value (Cost $1,502,435)
See accompanying schedule . . . . . . . . . . . . . . $1,591,652
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 156,246
Dividends and interest receivable . . . . . . . . . . . 1,814
----------
Total assets . . . . . . . . . . . . . . . . . . . 1,749,712
----------
LIABILITIES;
Payable for investments purchased . . . . . . . . . . . 7,422
----------
Total liabilities . . . . . . . . . . . . . . . . . 7,422
----------
NET ASSETS AT DECEMBER 31, 1995 . . . . . . . . . . . . . $1,742,290
----------
----------
NET ASSETS CONSIST OF:
Capital paid-in . . . . . . . . . . . . . . . . . . . . . $1,630,404
Accumulated undistributed income:
Net investment income . . . . . . . . . . . . . . . . . 553
Net realized gain on investments . . . . . . . . . . . 22,116
Net unrealized appreciation in value of investments . . . 89,217
----------
$1,742,290
----------
----------
PER SHARES VALUES:
CLASS A:
Shares of beneficial interest, no par value, issued and
outstanding (unlimited shares authorized) . . . . . . . 116,912
----------
----------
Net asset value and redemption price per share . . . . . . $ 14.90
----------
----------
Maximum offering price [NAV per share DIVIDED BY (1 -
maximum sales load)] . . . . . . . . . . . . . . . . . $ 15.77
----------
----------
CLASS B AND CLASS C:
Shares of beneficial interest, no par value, issued
and outstanding (unlimited shares authorized) . . . . . $ 0
----------
----------
Net asset value and redemption price . . . . . . . . . . . $ 0
----------
----------
</TABLE>
See notes to financial statements.
3
- --------------------------------------------------------------------------------
<PAGE>
THE PASADENA SMALL & MID-CAP FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 1,338
Interest . . . . . . . . . . . . . . . . . . . . . . . 7,508
-------
Total investment income . . . . . . . . . . . . . . . 8,846
-------
EXPENSES:
Administration fees . . . . . . . . . . . . . . . . . . 6,137
Investment management fees . . . . . . . . . . . . . . 5,845
Service fees . . . . . . . . . . . . . . . . . . . . . 1,461
-------
Total expenses before waiver by Manager . . . . . . . 13,443
-------
Manager's expense waiver . . . . . . . . . . . . . . (13,443)
-------
Total net expenses . . . . . . . . . . . . . . . . . 0
-------
Net investment income . . . . . . . . . . . . . . . . 8,846
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments . . . . . . . . . . . 21,677
Net increase in unrealized appreciation . . . . . . . 91,038
--------
Net gain on investments. . . . . . . . . . . . . . . $112,715
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $121,561
--------
--------
</TABLE>
See notes to financial statements.
4
- --------------------------------------------------------------------------------
<PAGE>
THE PASADENA SMALL & MID-CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE INCEPTION
YEAR (OCTOBER 10, 1994)
ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income . . . . . . . . . . . . . . . $ 8,846 $ 650
Net realized gain on investments . . . . . . . . . 21,677 21,900
Net increase (decrease)in unrealized
appreciation in value of investments . . . . . . 91,038 (1,821)
---------- ---------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . 121,561 20,729
---------- ---------
Dividends and Distributions to Shareholders:
Net investment income . . . . . . . . . . . . . . . (8,943) --
Net realized gains on investments . . . . . . . . . (21,461) --
---------- ---------
Decrease in net assets resulting from dividends
and distributions to shareholders . . . . . . . . (30,404) --
---------- ---------
Capital Share Transactions:
Proceeds from shares sold (104,837 shares) . . . . . 1,500,000 100,000
Proceeds from shares issued in reinvestment of
dividends and distributions (2,075 shares) . . . . 30,404 --
---------- ---------
Net increase in net assets resulting from
capital share transactions . . . . . . . . . . . . 1,530,404 100,000
---------- ---------
Total increase in net assets . . . . . . . . . . . . . 1.621.561 120,729
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . 120,729 --
---------- ---------
End of period . . . . . . . . . . . . . . . . . . . . . $1,742,290 $ 120,729
---------- ---------
---------- ---------
</TABLE>
See notes to financial statements.
5
- --------------------------------------------------------------------------------
<PAGE>
THE PASADENA SMALL & MID-CAP FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE INCEPTION
YEAR (OCTOBER 10, 1994)
ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . . . $ 12.07 $ 10.00
---------- ----------
GAIN FROM INVESTMENT OPERATIONS:
Net investment income(1)(2) . . . . . . . . . . . . . .22 .07
Net realized and unrealized gain on investments . . . 2.87 2.00
---------- ----------
Total gain from investment operations . . . . . . . 3.09 2.07
---------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income . . . . . . . . (.08) --
Distributions from capital gains . . . . . . . . . . (.18) --
---------- ----------
Total distributions . . . . . . . . . . . . . . . . (.26) --
---------- ----------
Net asset value, end of period . . . . . . . . . . . . $ 14.90 $ 12.07
---------- ----------
---------- ----------
TOTAL RETURN(2)(3) . . . . . . . . . . . . . . . . . . 25.68% 20.70%
---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period . . . . . . . . . . . . . . $1.742,290 $ 120,729
Ratio of expenses to average net assets(2) . . . . . . 0.0% 0.0%(4)
Ratio of net investment income (loss) to average
net assets(2) . . . . . . . . . . . . . . . . . . 1.5% 2.6%(4)
Portfolio turnover rate . . . . . . . . . . . . . . . 121.4% 157.9%
</TABLE>
The table above provides condensed information concerning income and
capital changes for one Class A share of The Pasadena Small & Mid-Cap Fund.
Such information is based on the Fund's audited financial statements for the
periods indicated.
(1) This information was prepared using the average number of shares
outstanding.
(2) These amounts reflect the impact of a waiver of Manager fees of $13,443
and $585 for the periods ended December 31, 1995, and December 31, 1994,
respectively, and the Manager's reimbursement for income taxes of $6,654
during 1994. Had the waivers and reimbursement not been made, net investment
income (loss) per share, total return (not annualized for the period ended
December 31, 1994) and the ratios of expenses and net investment income
(loss) to average net assets (annualized for the period ended December 31,
1994) would have been ($.11), 23.40%, 2.3% and (0.8%), respectively, and
($.01), 15.10%, 22.1% (2.3% if only normal and recurring expenses are taken
into account) and (0.4%), respectively, for the periods ended December 31,
1995 and December 31, 1994, respectively.
(3) Total return measures the change in the value of an investment during the
period indicated and does not include the impact of paying any sales charge.
Total return for the period ended December 31, 1994, has not been annualized.
(4) Annualized.
See notes to financial statements.
6
- --------------------------------------------------------------------------------
<PAGE>
THE PASADENA SMALL & MID-CAP FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES: The Pasadena Small and Mid-Cap Fund (the
"Fund") is a series of the Pasadena Investment Trust (the "Trust"), a
Massachusetts business trust registered under the Investment Company Act of
1940 as a diversified, open-end management investment company. The Fund
offers three Classes of shares (Class A, Class B and Class C). Class A shares
are subject to a maximum front-end sales charge of 5.5% of the offering
price. Class B and Class C shares are offered at their net asset value. Class
B shares redeemed during the first four years of ownership may be subject to
a maximum contingent deferred sales charge of 5%. At the beginning of the
seventh year after purchase, Class B shares automatically convert into Class
A shares based upon the relative net asset values of the two Classes, without
any imposition of any sales charges. To date, only Class A shares have been
issued. The significant accounting policies of the Fund are as follows:
A. SECURITIES VALUATION. Securities traded on a principal securities exchange
(foreign or domestic) or on Nasdaq are stated at the last sales price
determined as of 4:15 p.m. Eastern Time on the day of valuation;
securities for which no sales were reported on that date are stated at the
last sales price on the business day the security was last traded.
Securities traded only in the over-the-counter market and not on Nasdaq
are valued at the current or last quoted bid price. If no bid price is
quoted that day, the security is valued by such method as the Trust's Board
of Trustees shall determine in good faith reflects the security's fair
value.
B. INCOME AND EXPENSE ALLOCATION. All items of income and expense not directly
related to a specific Class of shares are allocated among the Classes
based upon the relative value of the outstanding shares of each Class.
C. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required for
1995.
The aggregate cost of securities for federal income tax purposes is the
same as it is for financial reporting purposes.
D. OTHER. The Fund follows industry practice and recognizes security
transactions on the trade date. Realized gains and losses on sales of
investments are determined on the identified cost basis. Dividend income
less foreign taxes withheld, if any, is recognized on the ex-dividend
date. Interest income is recorded on an accrual basis. Distributions to
shareholders are recorded on the ex-dividends date.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES: Under an investment
management agreement with the Fund, Roger Engemann Management Co., Inc. (the
"Manager") furnishes advice and recommendations with respect to the Fund's
securities portfolio, supervises the Fund's investments, provides all
required Fund accounting and pricing, and provides the Trust's Board of
Trustees with periodic and special reports on investment securities, economic
conditions and other pertinent subjects.
The Manager also performs various administrative and shareholder services to
the Fund under an administration agreement. All normal operating expenses of
the Fund except for fees and expenses associated with investment management
services, the continuing service fees and applicable distribution fees are
paid by the Manager pursuant to the administration agreement. For the
services provided and expenses assumed under the management and administration
agreements, the Manager receives separate fees computed and prorated on a
daily basis, which fees on a combined basis range from an annualized 2.05% of
the Fund's average daily net assets up to $30 million, reduced for various
average daily net assets levels thereafter, to a combined annualized fee of
1.00% of the Fund's average daily net assets when its average daily net
assets exceed $500 million. Each of the Fund's three Classes of shares of
beneficial interest are subject to continuing service fees of an annualized
.25% of each Class' average daily net asset value for services to shareholder
accounts. In addition, Class B and Class C shares are subject to an annualized
.75% distribution fee of each Class' average daily net asset value to
reimburse the Fund's distributor, Pasadena Fund Services, Inc. (the
"Distributor") for its distribution costs with respect to those Classes.
The Manager has elected to waive all of the applicable above fees until such
time that the Fund begins selling its shares to the public.
Roger Engemann & Associates, Inc., a wholly-owned subsidiary of Pasadena
Capital Corporation, owns 93.5% of the Manager's capital stock. The
Distributor is also an affiliate of Pasadena Capital Corporation. Roger
Engemann, the controlling shareholder of Pasadena Capital Corporation, is the
Chairman of the Board and President of the Trust. As of December 31, 1995,
the sole shareholders of the Fund were Pasadena Capital Corporation and the
Pasadena Capital Corporation Employee Stock Ownership Plan.
On February 26, 1996, the Fund's largest shareholder, Pasadena Capital
Corporation, redeemed shares with a value of $1,142,000.
3. INVESTMENT TRANSACTIONS: For the year ended December 31, 1995, purchases
and sales of securities, other than short-term securities, aggregated
$1,947,210 and $548,416.
At December 31, 1995, net unrealized appreciation for federal income taxes
purposes was $89,217 of which $158,509 related to appreciated securities and
$69,292 related to depreciated securities.
7
- --------------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Pasadena Investment Trust:
We have audited the accompanying statement of assets and liabilities of The
Pasadena Small & Mid-Cap Fund (the "Fund"), which Fund is a series of the
Pasadena Investment Trust, including the schedule of investment in securities
as of December 31, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets and the financial
highlights for the year then ended and for the period October 10, 1994
(inception) through December 31, 1994. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We belive that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Pasadena Small & Mid-Cap Fund, as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets, and the
financial highlights for the year then ended and for the period October 10,
1994 (inception) through December 31, 1994, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 16, 1996, except as to
the information presented in paragraph 5
of Note 2 for which the date is February 26, 1996
8
<PAGE>
Exhibit No. 18
Multiple Class Plan of Pasadena Investment Trust
<PAGE>
MULTIPLE CLASS PLAN JANUARY 3, 1994
OF
PASADENA INVESTMENT TRUST
SECTION 1. GENERAL. This Multiple Class Plan (the "Plan") adopted in
accordance with Rule 18f-3 promulgated under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), shall govern the terms and conditions
under which Pasadena Investment Trust (the "Trust") may issue separate classes
of shares representing interests in the Trust's series of portfolios (the
"Funds") listed on APPENDIX A. To the extent that a subject matter herein is
covered by the Trust's Agreement and Declaration of Trust or Bylaws, the
Agreement and Declaration of Trust and/or Bylaws will control in the event of
any inconsistencies with the descriptions herein.
SECTION 2. RIGHTS AND OBLIGATIONS. Except as set forth herein, all
classes of shares issued in respect of a Fund have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations, and terms and conditions. The only differences
among the various classes of shares relate solely to the following factors: (a)
each class may be subject to different class expenses as discussed under Section
4 of this Plan; (b) each class may bear different identifying designations; (c)
each class will have exclusive voting rights with respect to matters pertaining
to any distribution plans adopted pursuant to Rule 12b-1 under the Investment
Company Act (see Section 7 below); (d) each class may have different exchange
privileges; and (e) certain classes may provide for the conversion of such class
into another class.
SECTION 3. CLASSES OF SHARES AND DESIGNATION THEREOF. Each Fund may
offer any or all of the following classes of shares:
(a) CLASS A SHARES. "Class A Shares" will be sold at net asset
value plus a front-end sales load. The sales load will be subject to
reductions or elimination for larger purchases, under a quantity
discount, under a right of accumulation, or under a letter of intent.
The front-end sales load will be subject to certain other deductions
permitted by Section 22(d) of the Investment Company Act.
Class A Shares also will be subject to a service fee in an
amount, computed and prorated on a daily basis, equal to 0.25% per
annum of the Class A Shares' average daily net assets, payable to
broker-dealers and other service providers, including Roger Engemann
Management Co., Inc. (the "Manager") for shareholder accounts not
serviced by other service providers, pursuant to services agreements.
<PAGE>
(b) CLASS B SHARES. "Class B Shares" will be sold to investors
at net asset value without the imposition of a front-end sales load.
However, an investor's proceeds from a redemption of Class B Shares
made within four (4) years after their purchase (the "CDSC Period")
generally will be subject to a Contingent Deferred Sales Charge
("CDSC") payable to Pasadena Fund Services, Inc. (the "Distributor").
The CDSC Period and CDSC schedule are set forth in APPENDIX B hereto.
No CDSC will be imposed on (1) redemptions of Class B Shares that
occur more than five years after the end of the calendar month in
which such shares were purchased; (2) shares derived from reinvestment
of dividends and distributions attributable to Class B Shares; or (3)
amounts representing an increase in the value of the shareholder's
account resulting from capital appreciation above the amount paid for
shares purchased during the CDSC Period. As a result, in effect, the
amount of the CDSC applicable to Class B Shares will be assessed on an
amount equal to the lesser of the then current market value or the
original cost of the Class B Shares being redeemed. In determining
whether a CDSC is applicable, it will be assumed that a redemption is
made, first, of Class B Shares representing capital appreciation;
second, of Class B Shares representing reinvestment of dividends and
capital gain distributions; and finally third, of Class B Shares held
by the shareholder for the longest period of time. The CDSC may be
waived under the circumstances listed on APPENDIX C attached hereto.
Class B Shares also will be subject to a Rule 12b-1 distribution
fee and service fee at a combined annual rate of up to 1% of the daily
net assets attributable to the Class B Shares. Of this amount, up to
0.75% of the average daily net assets attributable to the Class B
Shares is payable to the Distributor as a Rule 12b-1 distribution fee,
and 0.25% of the average daily net assets attributable to the Class B
Shares is payable as a service fee to service providers pursuant to
service agreements between the Trust and such service providers.
(c) CLASS C SHARES. "Class C Shares" will be sold to investors
at net asset value without the imposition of a front-end sales load or
CDSC. Class C Shares will be subject to a Rule 12b-1 distribution fee
and service fee at a combined annual rate of up to 1% of the daily net
assets attributable to the Class C Shares. Of this amount, up to
0.75% of the average daily net assets attributable to the Class C
Shares is payable to the Distributor as a Rule 12b-1 distribution fee,
and 0.25% of the average daily net assets attributable to the Class C
Shares is payable as a service fee to service providers pursuant to
service agreements between the Trust and such service providers.
2
<PAGE>
SECTION 4. ALLOCATION OF EXPENSES.
(a) CLASS EXPENSES. Each class of shares shall be subject to
different class expenses consisting of (1) Rule 12b-1 plan
distribution and service fees, if applicable to a particular class,
and (2) incremental expenses which the Board of Trustees, including a
majority of Trustees who are not "interested persons" of the Trust as
defined in Section 2(a)19 of the Investment Company Act (the
"Independent Trustees") determine should be allocated or charged on a
class basis, which expenses shall be limited to any litigation
expenses relating solely to the class (collectively, the "Class
Expenses").
(b) OTHER EXPENSES. Except for the Class Expenses discussed
above (which will be allocated to the appropriate class), all other
expenses incurred by each Fund (such as the management and
administrative fees) will be allocated to each class of shares on the
basis of the relative net assets of each class of shares.
(c) WAIVERS AND REIMBURSEMENTS OF EXPENSES. The Manager may
choose to reimburse or waive Class Expenses on certain classes on a
voluntary, temporary basis. The amount of Class Expenses waived or
reimbursed by the Manager may vary from class to class. The Manager
(or any entity related thereto that charges a fee for a Class Expense)
may waive or reimburse its fee for Class Expenses of a class of a
Fund in whole or in part only if the revised fee more accurately
reflects the relative costs of providing to each class the service for
which the Class Expense is charged. In addition, the Manager may
waive or reimburse Trust expenses and/or Fund expenses (with or
without a waiver of Class Expenses) but only if the same proportionate
amount of Trust expenses and/or Fund expenses are waived or reimbursed
for each class. Thus, any Trust expenses that are waived or
reimbursed would be credited to each Fund of the Trust according to
the relative net assets of the Funds, and in turn credited to each
class of each Fund based on the relative net assets of the classes.
Similarly, any Fund expenses that are waived or reimbursed would be
credited to each class of that Fund according to the relative net
assets of the classes.
(d) ALLOCATION WORKSHEET. Attached as APPENDIX D is an
explanation of the effect of the implementation of the multiple class
arrangements described in this Plan on the Funds' financial
statements.
SECTION 5. ALLOCATION OF INCOME. The Funds will allocate income and
realized and unrealized capital gains and losses based on the relative net
assets of each class of shares.
3
<PAGE>
SECTION 6. EXCHANGE PRIVILEGES. Shares of a specific class of one
Fund may only be exchanged for shares of that same class of any other Fund
advised by the Manager that offer an exchange privilege, subject to such
conditions as may be imposed from time to time and as disclosed on APPENDIX E.
SECTION 7. CONVERSIONS. All Class B Shares of the Funds shall
convert automatically to Class A Shares on the first business day of the month
next following the sixth anniversary of their issuance. For purposes of
calculating the holding period required for such conversion, Class B Shares
shall be deemed to have been issued on (1) the date on which the issuance of
such Class B Shares occurred or (2) for Class B Shares obtained through an
exchange, or a series of exchanges, the date on which the issuance of the
original Class B Shares occurred. For purposes of conversion to Class A Shares,
shares purchased through the reinvestment of dividends and other distributions
will be considered held in a separate sub-account. Each time any Class B Shares
in a shareholder's account convert to Class A Shares, a proportionate number of
the Class B Shares in the sub-account also will convert to Class A Shares.
Class B Shares will convert to Class A Shares on the basis of the relative net
asset value of the two classes, without the imposition of any sales load, fee,
or other charge. After conversion, the converted shares will be subject to the
usual Class A Share service fee.
If a Fund adopts and implements a Rule 12b-1 Plan for its Class A
Shares (or, if presented to shareholders, implements any amendment to a Rule
12b-1 Plan previously adopted, or any amendment to a services agreement with
respect to its Class A Shares), the existing Class B Shares of the Fund will
stop converting into Class A Shares unless the Class B shareholders, voting
separately as a class, approve the proposal. Should the Class B Shareholders
fail to approve such amendment or adoption, the Board of Trustees shall take
such action as is necessary to: (1) create a new class (the "New Class A
Shares") which shall be identical in all material respects to the Class A Shares
as they existed prior to the implementation of the amendment or adoption; and
(2) ensure that the existing Class B Shares will be exchanged or converted into
New Class A Shares no later than the date such Class B Shares previously were
scheduled to convert to Class A Shares. If deemed advisable by the Board of
Trustees to implement the foregoing, and at the sole discretion of the Board of
Trustees, such action may include the exchange of all Class B Shares for a new
class (the "New Class B Shares"), identical in all respects to the Class B
Shares except that the New Class B Shares will automatically convert into the
New Class A Shares. Such exchanges or conversions shall be effected in a manner
that the Board of Trustees reasonably believes will not be subject to federal
taxation.
SECTION 8. EFFECTIVE DATE OF PLAN. This Plan shall be included as an
exhibit to the Trust's Form N-1A Registration Statement pursuant to a
post-effective amendment thereto. This Plan shall take effect upon the
effectiveness of such post-effective amendment. A majority of the Trustees of
the Trust,
4
<PAGE>
including a majority of the Independent Trustees, have previously approved the
multiple class arrangements and expense allocations described in this Plan as
being in the best interests of each class of shares of each Fund and each Fund,
individually, and the Trust as a whole.
SECTION 9. AMENDMENT. This Plan may not be amended to change
materially the provisions of this Plan unless such amendment is approved by a
majority of the Trustees of the Trust, including a majority of the Independent
Trustees, that such amendment is in the best interests of each class of each
Fund and each Fund, individually, and the Trust as a whole.
5
<PAGE>
APPENDIX A
TO MULTIPLE CLASS PLAN
OF
PASADENA INVESTMENT TRUST
The Pasadena Growth Fund
Class A Shares
Class B Shares
Class C Shares
The Pasadena Nifty Fifty Fund
Class A Shares
Class B Shares
Class C Shares
The Pasadena Balanced Return Fund
Class A Shares
Class B Shares
Class C Shares
The Pasadena Global Growth Fund
Class A Shares
Class B Shares (not presently offered)
Class C Shares (not presently offered)
The Pasadena Small & Mid-Cap Fund
Class A Shares
Class B Shares (not presently offered)
Class C Shares (not presently offered)
6
<PAGE>
APPENDIX B
TO MULTIPLE CLASS PLAN
OF
PASADENA INVESTMENT TRUST
CDSC SCHEDULE AND CDSC PERIOD
Class B Shares may be redeemed on any business day at the net asset
value per share next determined following receipt of the redemption order, less
the applicable contingent deferred sales charge shown in the tables below.
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
as a Percentage of
Redemption During Amount Redeemed
----------------- --------------------------------
<S> <C>
1st Year Following Purchase 5.0%
2nd Year Following Purchase 4.0%
3rd Year Following Purchase 3.0%
4th Year Following Purchase 3.0%
5th Year Following Purchase
and Thereafter None
</TABLE>
7
<PAGE>
APPENDIX C
TO MULTIPLE CLASS PLAN
OF
PASADENA INVESTMENT TRUST
CDSC WAIVERS
CLASS B SHARES: The Funds have the ability to waive or reduce the CDSC
in some or all of the following circumstances:
(1) following the death or disability, as defined in Section 72(m)(7)
of the Internal Revenue Code of 1986, as amended, of a shareholder if redemption
is made within one year of death or disability of the shareholder;
(2) in connection with certain mandatory distributions from an
Individual Retirement Account, or other qualified retirement plan, to a
shareholder who has attained the age of 701/2;
(3) in connection with certain redemptions of Class B Shares made
pursuant to a shareholder's participation in any systematic withdrawal plan
adopted by a Fund; and
(4) in connection with redemptions of Class B Shares by tax-exempt
employee benefit plans resulting from the enactment of any law or the
promulgation by the U.S. Internal Revenue Service or the U.S. Department of
Labor of any regulation pursuant to which continuation of the investment of such
shares would be improper.
If the Funds waive or reduce the CDSC, such waiver or reduction will
be uniformly applied to all offerees in the class specified. Also, in waiving
or reducing the CDSC, the Funds will comply with the requirements of Rule 22d-1
under the Investment Company Act.
In addition, the Distributor may provide a pro rata refund out of its
own assets of any CDSC paid in connection with redemptions of Class B Shares,
the proceeds of which are reinvested in Class B Shares of the same Fund within
365 days after such redemption.
8
<PAGE>
APPENDIX D
TO MULTIPLE CLASS PLAN
OF
PASADENA INVESTMENT TRUST
MULTIPLE CLASS ACCOUNTING
OVERVIEW
The Trust has adopted a multiple class share structure for the Funds.
The Funds will offer up to three separate classes of shares. Class A shares
will be offered with a front-end sales load ("FESL"). Class B shares will be
offered without a FESL, but will be subject to a contingent deferred sales
charge ("CDSC"), and are subject to a Distribution Fee computed and prorated on
a daily basis equal to the annual rate of 0.75% of average daily net assets.
Class C shares will be offered without a FESL, will not be subject to a
contingent deferred sales charge ("CDSC"), but are subject to a Distribution Fee
computed and prorated on a daily basis equal to the annual rate of 0.75% of
average daily net assets.
NET ASSET VALUE AND DIVIDEND/DISTRIBUTION DETERMINATIONS
As a result of differences in fees charged to each class of shares,
separate net asset value ("NAV") calculations must be performed and separate
dividend/distribution declarations must be made for each class of shares.
The procedures for calculating NAV and dividend distributions depend
upon the dividend/distribution policy of each Fund. Presently, it is the Funds'
policy to declare dividends from net investment income and distributions from
net realized long-term and/or short-term capital gains on at least an annual
basis.
INCOME AND EXPENSES
In maintaining the records for the Funds, the income, expense, gain
and loss accounts must be allocated to each class of shares within each Fund.
On a daily basis, net investment income and realized and unrealized gains and
losses will be allocated to each class based upon the relative percentage of net
assets at the beginning of the day in each class, after such assets are adjusted
for the prior business day's capital share transactions.
On a daily basis, the allocation of expenses to each class of shares
will depend upon the nature of each expenditure. Expenditures fall into two
categories:
1. Fund Expenses - expenses attributable to all classes of shares
that are allocated based upon the adjusted net assets of each
class (Management Fee; Administration Fee; and Service Fee).
9
<PAGE>
2. Class Expenses - expenses attributable to a specific class of
shares (Distribution Fee).
Prior to determining each day's NAV or dividends/distributions, the
following expense items will be calculated as indicated:
MANAGEMENT, ADMINISTRATION, AND SERVICE FEES
The current day's accrual will be calculated using the beginning of
the day's net assets of each class of shares.
DISTRIBUTION FEE
The current day's accrual will be calculated using the beginning of
the day's net assets attributable to Class B and C shares.
In designing accounting procedures and controls relating to the
allocation of income and expenses and the calculation of NAV and
dividends/distributions for each class of shares, the following objectives must
be met:
1. Determining that direct expenses attributable to each class of
shares are properly allocated to each class of shares and
recorded in the Fund's accounting records.
2. Determining that income and other expenses and realized and
unrealized gains and losses are allocated properly to each class
of shares based upon the relative percentage of net assets by
class.
3. Determining that undistributed net investment income and
undistributed net realized gains and daily NAV calculations for
each class of shares are properly calculated.
To satisfy these objectives, the attached Multiple Class Pricing
Worksheet must be completed for each Fund employing more than one class of
shares.
NAV AND DIVIDENDS/DISTRIBUTIONS
Dividends from net investment income will be determined as follows:
- Dividends will be determined pursuant to authority of the Fund's
Trustees, before the deduction of class expenses, for all classes
of shares combined.
- From this amount, an amount equal to the per share amount of
class expenses accrued during the period to which the dividend
relates is subtracted.
10
<PAGE>
- The result is the rate per share payable to each class.
Distributions from net realized capital gains will be determined by
dividing the total amount of gains to be distributed as declared pursuant to
authority of the Trustees by the total number of shares outstanding on the
record date.
NAV by class will be determined by dividing the ending total net
assets by class by the number of shares outstanding in each class. Amounts will
be arrived at by completing the Multiple Class Pricing Worksheet.
11
<PAGE>
MULTIPLE CLASS PRICING WORKSHEET
Fund: Date:
---------------------------- ------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Composite Class A Class B Class C
- --------------------------------------------------------------------------------
1. Prior Day NAV per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET ALLOCATION
- --------------------------------------------------------------------------------
2. Total Net Assets at Beg. of Day
- --------------------------------------------------------------------------------
3. Net Share Activity
- --------------------------------------------------------------------------------
4. Adjusted Total Net Assets
- --------------------------------------------------------------------------------
5. % of Total Net Assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCOME AND EXPENSES
- --------------------------------------------------------------------------------
6. Dividend Income
- --------------------------------------------------------------------------------
7. Interest Income
- --------------------------------------------------------------------------------
8. Total Gross Income
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. Management Fee
- --------------------------------------------------------------------------------
10. Administration Fee
- --------------------------------------------------------------------------------
11. Service Fee
- --------------------------------------------------------------------------------
12. Extraordinary Expenses
- --------------------------------------------------------------------------------
13. Total Fund Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14. Distribution Fee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15. Total Expenses
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16. Net Investment Income
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17. Dividend Rate
- --------------------------------------------------------------------------------
18. Gross Dividend
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Composite Class A Class B Class C
- --------------------------------------------------------------------------------
CAPITAL
- --------------------------------------------------------------------------------
19. Change in Undistributed Net
- --------------------------------------------------------------------------------
20. Income
- --------------------------------------------------------------------------------
21. Current Day Share Activity
- --------------------------------------------------------------------------------
22. Daily Realized Gain/Loss
- --------------------------------------------------------------------------------
23. Distributions from Net
Capital Gains
- --------------------------------------------------------------------------------
24. Change in Unrealized
Gain/Loss
- --------------------------------------------------------------------------------
25. Daily Change in Net Assets
- --------------------------------------------------------------------------------
26. Prior Day's Net Assets
- --------------------------------------------------------------------------------
27. Current Day's Net Assets
- --------------------------------------------------------------------------------
28. Current Day's Shares O/S
- --------------------------------------------------------------------------------
29. NAV per Share
- --------------------------------------------------------------------------------
30. Maximum Sales Load
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prepared by: Reviewed by:
--------------------- -----------------------
13
<PAGE>
MULTIPLE CLASS PRICING WORKSHEET
EXPLANATION
Line # Explanation
- ------ -----------
1. NAV per share from prior day's worksheet.
2. Net Assets at the beginning of the day per line 26 of prior day's
worksheet.
3. Prior day's net capital share activity, in dollars, as reported in the
current day by the Fund's transfer agent.
4. Adjusted total net assets for the current day. Equal to line 2 plus
line 3.
5. The percentage of net assets each class of shares represents. Equal
to line 4 for each class divided by composite net assets.
6-7. Daily investment income from the Fund's accounting records allocated
based on the percentage in line 5.
8. Total daily gross income (Sum of lines 6 and 7).
9-11. Daily Management, Administration and Service fees calculated in
accordance with relevant agreements. Calculated as appropriate daily
rate multiplied by composite net assets at the beginning of the
current day (line 2) and allocated based on the percentage in line 5.
12. Any extraordinary and non-recurring expenses.
13. Daily Total Fund Expenses. Equal to lines 9 through 12.
14. Daily Distribution Fee amount calculated as applicable percentage of
total net assets for each class (line 2).
15. Total of all daily expenses. Equal to line 13 plus line 14.
16. Total daily net investment income. Equal to line 8 minus line 15.
17. Dividend rate per share as declared by the Board of Trustees.
18. Gross dividend, if any. Calculated by multiplying line 17 by line 27.
19. Daily change in undistributed net income. Equal to line 16 less line
18. (Will be same as line 16 except on dividend record days.)
20. Net dollar amount of capital share transactions for each class of
shares (from line 3).
14
<PAGE>
Line # Explanation
- ------ -----------
21. Daily amount of net capital gain/loss realized in the sale of
investments allocated based on the percentage in line 5.
22. Distribution of net realized capital gains as declared by the Board of
Trustees.
23. Daily change in appreciation/depreciation based on the current day's
market value of investments allocated to each class based on the
percentage of net assets (line 5).
24. Daily change in net assets. Equal to the sum of lines 19 through 23.
25. Closing net assets per prior day's worksheet.
26. Current day's total net assets. Equal to line 24 plus line 25.
27. Total number of shares outstanding at the close of the current day as
reported by the Fund's transfer agent.
28. Current day's NAV per share. Equal to line 26 divided by line 27.
29. Maximum allowable sales load for each class of shares per the Funds'
prospectus.
30. Current day's Maximum Offering Price per share. Equal to line 28
divided by (100% less line 29).
15
<PAGE>
FINANCIAL REPORTING
The shareholder reports of each Fund will disclose the respective
expenses and performance data applicable to each class of Shares as outlined
below.
STATEMENT OF ASSETS AND LIABILITIES
- - Assets and liabilities and the composition of net assets on a combined
basis.
- - Net Asset Value per share and Maximum Offering Price per share (where
applicable) as follows for each offered class:
Net Asset Value per share ($______DIVIDED BY______ Shares of
beneficial interest) $x.xx
Maximum Offering Price per share ($x.xx DIVIDED BY .xxx) $x.xx
STATEMENT OF OPERATIONS
- - Standard reporting format with explicit disclosure of class specific
expenses.
STATEMENT OF CHANGES IN NET ASSETS
- - Standard reporting format on a combined basis with the addition of explicit
disclosure of dividends and distributions paid to each class and
transactions in Fund shares (both dollars and shares) for each class either
therein or in a separate footnote.
SELECTED PER SHARE DATA AND RATIOS
- - For each required reporting period per share data and ratios will be shown
for each class, except for portfolio turnover which will be calculated on a
Fund level.
NOTES TO FINANCIAL STATEMENTS
- - Include a note on methodology for allocating income, expenses and realized
and unrealized gains and losses.
- - Include a note on transactions in Fund shares (both dollars and shares) for
each class for two years if not included in statement of changes in net
assets.
- - Include in the note describing the distribution agreements disclosure on
any class 12b-1 fee arrangements.
16
<PAGE>
APPENDIX E
TO MULTIPLE CLASS PLAN
OF
PASADENA INVESTMENT TRUST
EXCHANGE PRIVILEGE
Shareholders of the Funds discussed herein may participate in an
exchange privilege as described below.
Shares of a specific class of any Fund may be exchanged for shares
that same class of any other Fund.
An exchange is permitted only in the following circumstances:
(1) if the Funds offer more than one class of shares, the exchange
must be between the same class of shares (E.G., Class A and Class B shares of a
multiple class Fund cannot be exchanged for each other);
(2) exchanges will be on the basis of the shares' relative net asset
values (with no sales charge, exchange fee or CDSC);
(3) the dollar amount of the exchange must be at least equal to the
minimum investment applicable to the shares of the Fund acquired through such
exchange; and
(4) the shares of the Fund acquired through exchange must be
qualified for sale in the state in which the shareholder resides.
EXCHANGE PRIVILEGES MAY BE MODIFIED OR SUSPENDED BY THE FUNDS UPON
SIXTY (60) DAYS' PRIOR NOTICE TO SHAREHOLDERS.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> THE PASADENA GROWTH FUND - CLASS A SHARES
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 321,475
<INVESTMENTS-AT-VALUE> 462,663
<RECEIVABLES> 1,025
<ASSETS-OTHER> 8,335
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 472,023
<PAYABLE-FOR-SECURITIES> 42
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,282
<TOTAL-LIABILITIES> 1,324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 329,199
<SHARES-COMMON-STOCK> 21,543,651
<SHARES-COMMON-PRIOR> 25,449,550
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 312
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 141,188
<NET-ASSETS> 470,699
<DIVIDEND-INCOME> 4,945
<INTEREST-INCOME> 352
<OTHER-INCOME> 0
<EXPENSES-NET> 6,705
<NET-INVESTMENT-INCOME> (1,408)
<REALIZED-GAINS-CURRENT> 32,414
<APPREC-INCREASE-CURRENT> 68,363
<NET-CHANGE-FROM-OPS> 99,369
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 6,381
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,467,085
<NUMBER-OF-SHARES-REDEEMED> 5,667,027
<SHARES-REINVESTED> 294,043
<NET-CHANGE-IN-ASSETS> 23,568
<ACCUMULATED-NII-PRIOR> (819)
<ACCUMULATED-GAINS-PRIOR> 7,098
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,705
<AVERAGE-NET-ASSETS> 414,417,456
<PER-SHARE-NAV-BEGIN> 15.40
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 4.24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.28
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> THE PASADENA GROWTH FUND - CLASS B SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 321,475
<INVESTMENTS-AT-VALUE> 462,663
<RECEIVABLES> 1,025
<ASSETS-OTHER> 8,335
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 472,023
<PAYABLE-FOR-SECURITIES> 42
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,282
<TOTAL-LIABILITIES> 1,324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 329,199
<SHARES-COMMON-STOCK> 1,831,582
<SHARES-COMMON-PRIOR> 742,689
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 312
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 141,188
<NET-ASSETS> 470,699
<DIVIDEND-INCOME> 291
<INTEREST-INCOME> 22
<OTHER-INCOME> 0
<EXPENSES-NET> 580
<NET-INVESTMENT-INCOME> (267)
<REALIZED-GAINS-CURRENT> 1,824
<APPREC-INCREASE-CURRENT> 3,544
<NET-CHANGE-FROM-OPS> 5,101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 536
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,162,388
<NUMBER-OF-SHARES-REDEEMED> 100,124
<SHARES-REINVESTED> 26,629
<NET-CHANGE-IN-ASSETS> 23,435
<ACCUMULATED-NII-PRIOR> (819)
<ACCUMULATED-GAINS-PRIOR> 7,098
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 335
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 580
<AVERAGE-NET-ASSETS> 24,431,851
<PER-SHARE-NAV-BEGIN> 15.28
<PER-SHARE-NII> (.20)
<PER-SHARE-GAIN-APPREC> 4.21
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.99
<EXPENSE-RATIO> 2.4
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> THE PASADENA GROWTH FUND - CLASS C SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 321,475
<INVESTMENTS-AT-VALUE> 462,663
<RECEIVABLES> 1,025
<ASSETS-OTHER> 8,335
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 472,023
<PAYABLE-FOR-SECURITIES> 42
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,282
<TOTAL-LIABILITIES> 1,324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 329,199
<SHARES-COMMON-STOCK> 1,079,233
<SHARES-COMMON-PRIOR> 401,518
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 312
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 141,188
<NET-ASSETS> 470,699
<DIVIDEND-INCOME> 169
<INTEREST-INCOME> 12
<OTHER-INCOME> 0
<EXPENSES-NET> 339
<NET-INVESTMENT-INCOME> (158)
<REALIZED-GAINS-CURRENT> 1,059
<APPREC-INCREASE-CURRENT> 2,069
<NET-CHANGE-FROM-OPS> 2,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 315
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 822,270
<NUMBER-OF-SHARES-REDEEMED> 159,752
<SHARES-REINVESTED> 822,270
<NET-CHANGE-IN-ASSETS> 14,362
<ACCUMULATED-NII-PRIOR> (819)
<ACCUMULATED-GAINS-PRIOR> 7,098
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 339
<AVERAGE-NET-ASSETS> 14,259,865
<PER-SHARE-NAV-BEGIN> 15.28
<PER-SHARE-NII> (.20)
<PER-SHARE-GAIN-APPREC> 4.21
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.99
<EXPENSE-RATIO> 2.4
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> THE PASADENA BALANCED RETURN FUND - CLASS A SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 41,887
<INVESTMENTS-AT-VALUE> 56,422
<RECEIVABLES> 369
<ASSETS-OTHER> 961
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,752
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 194
<TOTAL-LIABILITIES> 194
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,083
<SHARES-COMMON-STOCK> 2,049,008
<SHARES-COMMON-PRIOR> 2,582,343
<ACCUMULATED-NII-CURRENT> 8
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (68)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535
<NET-ASSETS> 57,588
<DIVIDEND-INCOME> 578
<INTEREST-INCOME> 1,136
<OTHER-INCOME> 0
<EXPENSES-NET> 1,106
<NET-INVESTMENT-INCOME> 608
<REALIZED-GAINS-CURRENT> 2,872
<APPREC-INCREASE-CURRENT> 9,125
<NET-CHANGE-FROM-OPS> 12,605
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 582
<DISTRIBUTIONS-OF-GAINS> 878
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 97,239
<NUMBER-OF-SHARES-REDEEMED> 683,092
<SHARES-REINVESTED> 52,218
<NET-CHANGE-IN-ASSETS> (1,020)
<ACCUMULATED-NII-PRIOR> 1,203
<ACCUMULATED-GAINS-PRIOR> (143)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 975
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,106
<AVERAGE-NET-ASSETS> 53,300,253
<PER-SHARE-NAV-BEGIN> 20.54
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> 5.31
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.39
<EXPENSE-RATIO> 2.1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> THE PASADENA BALANCED RETURN FUND - CLASS B SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 41,887
<INVESTMENTS-AT-VALUE> 56,422
<RECEIVABLES> 369
<ASSETS-OTHER> 961
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,752
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 194
<TOTAL-LIABILITIES> 194
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,083
<SHARES-COMMON-STOCK> 107,705
<SHARES-COMMON-PRIOR> 59,643
<ACCUMULATED-NII-CURRENT> 8
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (68)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535
<NET-ASSETS> 57,588
<DIVIDEND-INCOME> 21
<INTEREST-INCOME> 39
<OTHER-INCOME> 0
<EXPENSES-NET> 54
<NET-INVESTMENT-INCOME> 6
<REALIZED-GAINS-CURRENT> 89
<APPREC-INCREASE-CURRENT> 317
<NET-CHANGE-FROM-OPS> 412
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16
<DISTRIBUTIONS-OF-GAINS> 46
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,560
<NUMBER-OF-SHARES-REDEEMED> 18,575
<SHARES-REINVESTED> 2,076
<NET-CHANGE-IN-ASSETS> 1,499
<ACCUMULATED-NII-PRIOR> 1,203
<ACCUMULATED-GAINS-PRIOR> (143)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 54
<AVERAGE-NET-ASSETS> 1,902,332
<PER-SHARE-NAV-BEGIN> 20.49
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 5.29
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.26
<EXPENSE-RATIO> 2.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> THE PASADENA BALANCED RETURN FUND - CLASS C SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 41,887
<INVESTMENTS-AT-VALUE> 56,422
<RECEIVABLES> 369
<ASSETS-OTHER> 961
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,752
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 194
<TOTAL-LIABILITIES> 194
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,083
<SHARES-COMMON-STOCK> 111,094
<SHARES-COMMON-PRIOR> 70,739
<ACCUMULATED-NII-CURRENT> 8
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (68)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535
<NET-ASSETS> 57,588
<DIVIDEND-INCOME> 25
<INTEREST-INCOME> 47
<OTHER-INCOME> 0
<EXPENSES-NET> 65
<NET-INVESTMENT-INCOME> 7
<REALIZED-GAINS-CURRENT> 122
<APPREC-INCREASE-CURRENT> 369
<NET-CHANGE-FROM-OPS> 498
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14
<DISTRIBUTIONS-OF-GAINS> 47
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 115,325
<NUMBER-OF-SHARES-REDEEMED> 77,133
<SHARES-REINVESTED> 2,164
<NET-CHANGE-IN-ASSETS> 1,360
<ACCUMULATED-NII-PRIOR> 1,203
<ACCUMULATED-GAINS-PRIOR> (143)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 65
<AVERAGE-NET-ASSETS> 2,249,290
<PER-SHARE-NAV-BEGIN> 20.48
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 5.30
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.28
<EXPENSE-RATIO> 2.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> THE PASADENA NIFTY FIFTY FUND - CLASS A SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 110,120
<INVESTMENTS-AT-VALUE> 159,622
<RECEIVABLES> 341
<ASSETS-OTHER> 5,390
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 165,353
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 464
<TOTAL-LIABILITIES> 464
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,082
<SHARES-COMMON-STOCK> 5,515,336
<SHARES-COMMON-PRIOR> 5,814,689
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,502
<NET-ASSETS> 164,899
<DIVIDEND-INCOME> 1,519
<INTEREST-INCOME> 331
<OTHER-INCOME> 0
<EXPENSES-NET> 2,166
<NET-INVESTMENT-INCOME> (316)
<REALIZED-GAINS-CURRENT> 261
<APPREC-INCREASE-CURRENT> 28,422
<NET-CHANGE-FROM-OPS> 28,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 906,614
<NUMBER-OF-SHARES-REDEEMED> 1,205,947
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,726
<ACCUMULATED-NII-PRIOR> (241)
<ACCUMULATED-GAINS-PRIOR> 4,360
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,875
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,166
<AVERAGE-NET-ASSETS> 115,884,309
<PER-SHARE-NAV-BEGIN> 17.30
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 4.93
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.18
<EXPENSE-RATIO> 1.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> THE PASADENA NIFY FIFTY FUND - CLASS B SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 110,120
<INVESTMENTS-AT-VALUE> 159,622
<RECEIVABLES> 341
<ASSETS-OTHER> 5,390
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 165,353
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 464
<TOTAL-LIABILITIES> 464
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,082
<SHARES-COMMON-STOCK> 1,256,781
<SHARES-COMMON-PRIOR> 391,425
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,502
<NET-ASSETS> 164,899
<DIVIDEND-INCOME> 232
<INTEREST-INCOME> 50
<OTHER-INCOME> 0
<EXPENSES-NET> 468
<NET-INVESTMENT-INCOME> (186)
<REALIZED-GAINS-CURRENT> (172)
<APPREC-INCREASE-CURRENT> 4,149
<NET-CHANGE-FROM-OPS> 3,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 945,409
<NUMBER-OF-SHARES-REDEEMED> 80,053
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 20,741
<ACCUMULATED-NII-PRIOR> (241)
<ACCUMULATED-GAINS-PRIOR> 4,360
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 288
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 468
<AVERAGE-NET-ASSETS> 17,873,306
<PER-SHARE-NAV-BEGIN> 17.17
<PER-SHARE-NII> (.21)
<PER-SHARE-GAIN-APPREC> 4.89
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.85
<EXPENSE-RATIO> 2.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> THE PASADENA NIFTY FIFTY FUND - CLASS C SHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 110,120
<INVESTMENTS-AT-VALUE> 159,622
<RECEIVABLES> 341
<ASSETS-OTHER> 5,390
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 165,353
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 464
<TOTAL-LIABILITIES> 464
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,082
<SHARES-COMMON-STOCK> 691,303
<SHARES-COMMON-PRIOR> 249,384
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,502
<NET-ASSETS> 164,899
<DIVIDEND-INCOME> 137
<INTEREST-INCOME> 30
<OTHER-INCOME> 0
<EXPENSES-NET> 278
<NET-INVESTMENT-INCOME> (111)
<REALIZED-GAINS-CURRENT> (90)
<APPREC-INCREASE-CURRENT> 2,484
<NET-CHANGE-FROM-OPS> 2,283
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,821
<ACCUMULATED-NII-PRIOR> (241)
<ACCUMULATED-GAINS-PRIOR> 4,360
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<GROSS-EXPENSE> 278
<AVERAGE-NET-ASSETS> 10,611,389
<PER-SHARE-NAV-BEGIN> 17.17
<PER-SHARE-NII> (.21)
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> THE PASADENA GLOBAL GROWTH FUND
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<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<INVESTMENTS-AT-COST> 2,498,317
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<TOTAL-LIABILITIES> 29,866
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<SHARES-COMMON-PRIOR> 10,000
<ACCUMULATED-NII-CURRENT> 1,389
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<ACCUMULATED-NET-GAINS> (3,927)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 3,203,426
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<NET-INVESTMENT-INCOME> 26,281
<REALIZED-GAINS-CURRENT> (40,382)
<APPREC-INCREASE-CURRENT> 326,966
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<DISTRIBUTIONS-OF-INCOME> 26,019
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 173,997
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1,512
<NET-CHANGE-IN-ASSETS> 3,062,865
<ACCUMULATED-NII-PRIOR> 989
<ACCUMULATED-GAINS-PRIOR> 26,003
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,849,767
<PER-SHARE-NAV-BEGIN> 14.06
<PER-SHARE-NII> 24
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> THE PASADENA SMALL AND MID CAP FUND
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 1,502,435
<INVESTMENTS-AT-VALUE> 1,591,652
<RECEIVABLES> 1,814
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<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 7,422
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<TOTAL-LIABILITIES> 7,422
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,630,404
<SHARES-COMMON-STOCK> 116,912
<SHARES-COMMON-PRIOR> 10,000
<ACCUMULATED-NII-CURRENT> 553
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,116
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 89,217
<NET-ASSETS> 1,742,290
<DIVIDEND-INCOME> 1,338
<INTEREST-INCOME> 7,508
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 8,846
<REALIZED-GAINS-CURRENT> 21,677
<APPREC-INCREASE-CURRENT> 91,038
<NET-CHANGE-FROM-OPS> 121,561
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<DISTRIBUTIONS-OF-INCOME> 8,943
<DISTRIBUTIONS-OF-GAINS> 21,461
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 104,837
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2,075
<NET-CHANGE-IN-ASSETS> 1,621,561
<ACCUMULATED-NII-PRIOR> 650
<ACCUMULATED-GAINS-PRIOR> 21,900
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<GROSS-ADVISORY-FEES> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 584,493
<PER-SHARE-NAV-BEGIN> 12.07
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> 2.87
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> .18
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</TABLE>