<PAGE>
Rule 497(e)
File Nos. 33-1922; 811-4506
<TABLE>
<S> <C> <C>
[LOGO] THE PASADENA GROUP THE PASADENA
OF MUTUAL FUNDS GROWTH
TAKE TIME TO GROW -REGISTERED TRADEMARK- FUND
THE PASADENA THE PASADENA THE PASADENA
NIFTY FIFTY BALANCED RETURN GLOBAL GROWTH
FUND FUND FUND
THE PASADENA THE PASADENA
SMALL & MID-CAP GROWTH VALUE 25
FUND FUND
</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.
THE PASADENA GLOBAL GROWTH FUND seeks to achieve long-term growth of capital
by investing in a globally diversified portfolio of equity securities, which may
be traded in securities markets in foreign countries and the United States.
THE PASADENA SMALL & MID-CAP GROWTH FUND seeks to achieve long-term growth
of capital by investing primarily in a diversified portfolio of equity
securities of companies with market capitalizations below $1.5 billion.
THE PASADENA VALUE 25 FUND seeks to achieve substantial dividend income and
long-term growth of capital by investing in equity securities which the Manager
believes offer the best potential for current dividend yield and long-term
capital appreciation.
Roger Engemann Management Co., Inc. is the investment manager for the Funds.
Each Fund is a separate series of the Pasadena Investment Trust (the "Trust"),
and each offers three classes of shares (Class A, Class B and Class C shares).
See "Synopsis --Purchase and Redemption of Shares" below. The minimum initial
investment for each Fund is $1,000 per account ($250 for individual retirement
and minor's custodial accounts and for initial purchases under a Systematic
Purchase Plan). Minimum subsequent investments are $50. See "Purchase of
Shares."
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing. Please read it and retain it
for future reference. Additional information about the Funds and the Trust is
included in the Trust's Statement of Additional Information regarding the Funds
dated March 31, 1997, as it may be amended from time to time. The Statement of
Additional Information, which is incorporated by reference into this Prospectus,
has been filed with the Securities and Exchange Commission and is available
without charge upon request to the Trust at 600 North Rosemead Boulevard,
Pasadena, California 91107-2133 (telephone: (818) 351-9686 or (800) 648-8050).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS MARCH 31, 1997
<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 six separate
series of the Pasadena Investment Trust (the "Trust"), a Massachusetts business
trust, organized as a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The series (each, a "Fund," and collectively, the "Funds") described in
this 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 Pasadena Global Growth Fund (the "Global Growth Fund")
- The Pasadena Small & Mid-Cap Growth Fund (the "Small & Mid-Cap Growth
Fund")
- The Pasadena Value 25 Fund (the "Value 25 Fund")
THE MANAGER. Roger Engemann Management Co., Inc. (the "Manager") provides
investment advice to the Funds and manages the Funds' investments for an annual
management fee, which is computed and prorated daily. The Manager also performs,
and/or assumes the expenses for, the Funds' administrative and most shareholder
services, for which it receives an annual administration fee based on the
average daily net assets of each Fund. The Funds will not incur any other
expenses in connection with its normal operations other than (i) a fee paid by
each class of shares to dealers and others, including the Manager and its
affiliates, for servicing shareholder accounts equal to 0.25% per annum of the
aggregate average daily net assets of each Fund attributable to the class, and
(ii) an ongoing distribution fee payable by Class B shares and Class C shares at
an annual rate of 0.75% of each Fund's average daily net assets attributable to
each such class. See "Expense and Fee Tables" and "Management."
PURCHASE AND REDEMPTION OF SHARES. The Funds offer their shares
continuously and redeem their shares upon a shareholder's request. Each Fund
offers three classes of shares (each, a "Class"). Shares may be purchased
through authorized investment dealers at the public offering price next
determined after the Funds' sub-transfer agent, Boston Financial Data Services,
Inc. (the "Sub-Transfer Agent"), the Fund, or another authorized agent or
subagent of the Fund, receives a purchase order. The public offering price of
the Class A shares is the net asset value per share plus a maximum sales charge
of 5.50% of the offering price, reduced on purchases of $50,000 or more. The
public offering price of the Class B shares and Class C shares is their net
asset value per share. The Class B shares are subject to a contingent deferred
sales charge (sometimes referred to as the "CDSC") of up to 5% of the offering
price imposed on most redemptions made within four years of purchase and the
Class C shares of the Global Growth, Small & Mid-Cap Growth and Value 25 Funds
are subject to a CDSC of 1% of the offering price imposed on most redemptions
made within the first year of purchase. For more information about the different
purchase arrangements, see "Alternative Purchases Arrangements." For more
information about the various expenses borne by each Class, see "Comparison of
Classes" and "Expense and Fee Tables."
2
<PAGE>
The minimum initial investment is $1,000 per account ($250 for individual
retirement and minor's custodial accounts and for initial purchases under a
Systematic Purchase Plan). Minimum subsequent investments are $50. See "Purchase
of Shares." Shares are redeemed at their net asset value per share next
determined after the Sub-Transfer Agent, the Fund, or another authorized agent
or subagent of the Fund, receives a redemption request in proper form (less the
CDSC, if any, with respect to the Class B and Class C shares). See "Redemption
of Shares."
RISKS. Every investment carries some market risk. In addition to the risks
described under "Risk Considerations," an investment in a Fund is subject to the
inherent risk that market prices or interest rates will not agree with the
Manager's estimation of fundamental security values or market trends. The Funds
are designed to be long-term investments. Therefore, because each Fund's net
asset value per share will fluctuate with daily changes in the market prices of
its portfolio securities (as well as with changes in foreign currency exchange
rates for securities not traded in United States dollars), an investment in a
Fund may not be suitable for investors with specific short-term investment
return needs. Each Fund also may invest part of its assets in securities with
special risks, such as foreign securities (which may be denominated in foreign
currencies), and each Fund (except the Global Growth Fund) may invest part of
its assets in securities representing special situations. The Value 25 Fund's
emphasis on stocks of established, high dividend paying companies, as well as
its possible exposure to fixed-income securities, could limit the Fund's
potential for capital appreciation. Sharply rising interest rates could also
decrease the value of stocks purchased by the Value 25 Fund, further restraining
total return. See "Investment Objective and Policies" and "Risk Considerations."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, and are not insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Shares of the Funds involve investment risk, including possible loss of
principal.
EXPENSE AND FEE TABLES
Expenses are one of several factors to consider when investing in a Fund.
The purpose of the following table is to provide an understanding of the various
costs and expenses that shareholders of each Class will bear directly or
indirectly. Because Rule 12b-1 distribution charges are accounted for on a
Class-level basis (and not on an individual shareholder-level basis), individual
long-term investors in the Class B shares and Class C shares of a Fund may over
time pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc. ("NASD"), even
though all shareholders of those Classes in the aggregate will not. This is
recognized and permitted by the NASD (see "Management").
3
<PAGE>
GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales "Load" Imposed on Purchases (as percentage of offering price)... 5.50% None None
Maximum Sales "Load" 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*:
(After Fee and Expense Waivers)
Management Fees............................................................... 0.65% 0.65% 0.65%
12b-1 Fees.................................................................... None 0.75% 0.75%
Other Expenses
Administration Fees......................................................... 0.70%
Services Fees............................................................... 0.25%
---
Total Other Expenses........................................................ 0.95% 0.95% 0.95%
--- --- ---
Total Fund Operating Expenses................................................. 1.60% 2.35% 2.35%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
Footnotes on page 8
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...................... 103 103 73
5 years...................... 137 126 126
10 years...................... 234 233 ** 269
</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 73 73
5 years...................... 137 126 126
10 years...................... 234 233 ** 269
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at
beginning of seventh year following the date of purchase.
4
<PAGE>
BALANCED RETURN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales "Load" Imposed on Purchases (as percentage of offering price)... 5.50% None None
Maximum Sales "Load" 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*:
(After Fee and Expense Waivers)
Management Fees............................................................... 0.90% 0.89% 0.89%
12b-1 Fees.................................................................... None 0.75% 0.75%
Other Expenses
Administration Fees......................................................... 0.86%
Services Fees............................................................... 0.25%
---
Total Other Expenses........................................................ 1.11% 1.11% 1.11%
--- --- ---
Total Fund Operating Expenses................................................. 2.01% 2.75% 2.75%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
Footnotes on page 8
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....................... $ 74 $ 78 $ 28
3 years...................... 114 115 85
5 years...................... 157 145 145
10 years...................... 276 274 ** 308
</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....................... $ 74 $ 28 $ 28
3 years...................... 114 85 85
5 years...................... 157 145 145
10 years...................... 276 274 ** 308
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at
beginning of seventh year following the date of purchase.
5
<PAGE>
NIFTY FIFTY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales "Load" Imposed on Purchases (as percentage of offering price)... 5.50% None None
Maximum Sales "Load" 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*:
(After Fee and Expense Waivers)
Management Fees............................................................... 0.74% 0.74% 0.74%
12b-1 Fees.................................................................... None 0.75% 0.75%
Other Expenses
Administration Fees........................................................... 0.75%
Services Fees................................................................. 0.25%
---
Total Other Expenses.......................................................... 1.00% 1.00% 1.00%
--- --- ---
Total Fund Operating Expenses................................................... 1.74% 2.49% 2.49%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
Footnotes on page 8
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....................... $ 72 $ 75 $ 25
3 years...................... 107 108 78
5 years...................... 144 133 133
10 years...................... 249 247 ** 283
</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....................... $ 72 $ 25 $ 25
3 years...................... 107 78 78
5 years...................... 144 133 133
10 years...................... 209 247 ** 283
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at
beginning of seventh year following the date of purchase.
6
<PAGE>
GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales "Load" Imposed on Purchases (as percentage of offering price)... 5.50% None None
Maximum Sales "Load" Imposed on Reinvestment of Distributions................. None None None
Maximum Deferred Sales Charge................................................. None 5.00% 1.00%
Redemption Fees+.............................................................. None None None
Exchange Fees................................................................. None None None
ANNUAL FUND OPERATING EXPENSES*:
(After Fee and Expense Waivers)
Management Fees............................................................... 1.10% 1.10% 1.10%
12b-1 Fees.................................................................... None 0.75% 0.75%
Other Expenses
Administration Fees........................................................... 0.60%
Services Fees................................................................. 0.25%
---
Total Other Expenses.......................................................... 0.85% 0.85% 0.85%
--- --- ---
Total Fund Operating Expenses................................................... 1.95% 2.70% 2.70%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
Footnotes on page 8
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of a Fund over different time periods,
assuming a $1,000 investment, a 5% annual return, and redemption
at the end of each time period:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
1 year....................... $ 74 $ 77 $ 27
3 years...................... 113 114 84
5 years...................... 154 143 143
10 years..................... 270 269 ** 303
</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....................... $ 74 $ 27 $ 27
3 years...................... 113 84 84
5 years...................... 154 143 143
10 years..................... 270 269 ** 303
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at
beginning of seventh year following the date of purchase.
7
<PAGE>
SMALL & MID-CAP GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales "Load" Imposed on Purchases (as percentage of offering price)... 5.50% None None
Maximum Sales "Load" Imposed on Reinvestment of Distributions................. None None None
Maximum Deferred Sales Charge................................................. None 5.00% 1.00%
Redemption Fees+.............................................................. None None None
Exchange Fees................................................................. None None None
ANNUAL FUND OPERATING EXPENSES*:
(After Fee and Expense Waivers)
Management Fees............................................................... 1.00% 1.00% 1.00%
12b-1 Fees.................................................................... None 0.75% 0.75%
Other Expenses
Administration Fees......................................................... 0.60%
Services Fees............................................................... 0.25%
---
Total Other Expenses........................................................ 0.85% 0.85% 0.85%
--- --- ---
Total Fund Operating Expenses................................................... 1.85% 2.60% 2.60%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
Footnotes on page 8
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of Small and Mid-Cap 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....................... $ 73 $ 76 $ 26
3 years...................... 110 111 81
5 years...................... 149 138 138
10 years...................... 260 258** 293
</TABLE>
An investor would bear the following transaction and operating
expenses on the same $1,000 investment, assuming no redemption at
the end of each time period:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
1 year....................... $ 73 $ 26 $ 26
3 years...................... 110 81 81
5 years...................... 149 138 138
10 years...................... 260 258** 293
</TABLE>
- ------------------------
** Ten-year figure assumes conversion of Class B shares to Class A shares at
beginning of seventh year following the date of purchase.
8
<PAGE>
VALUE 25 FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales "Load" Imposed on Purchases (as percentage of offering price)... 5.50% None None
Maximum Sales "Load" Imposed on Reinvestment of Distributions................. None None None
Maximum Deferred Sales Charge................................................. None 5.00% 1.00%
Redemption Fees+.............................................................. None None None
Exchange Fees................................................................. None None None
ANNUAL FUND OPERATING EXPENSES*:
(After Fee and Expense Waivers)
Management Fees............................................................... 0.90% 0.90% 0.90%
12b-1 Fees.................................................................... None 0.75% 0.75%
Other Expenses
Administration Fees......................................................... 0.60%
Services Fees............................................................... 0.25%
---
Total Other Expenses........................................................ 0.85% 0.85% 0.85%
--- --- ---
Total Fund Operating Expenses................................................... 1.75% 2.50% 2.50%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
+ A $10.00 fee may be charged for redemptions made by bank wire (see p. 39).
* Operating expense information for the Funds have been restated to reflect
current fees and the current fee schedule for the Class B and Class C shares
under the Distribution Plan for each such Class. Expenses for the Global
Growth Fund, the Small & Mid-Cap Growth Fund, and the Value 25 Fund are
estimated based on the assumption that each Fund's total assets do not exceed
$50 million. See "Management."
EXAMPLES
An investor would bear the following transaction and operating
expenses in each Class of a Fund over different time periods,
assuming a $1,000 investment, a 5% annual return, and redemption
at the end of each time period:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
1 year........................ $ 72 $ 75 $ 25
3 years....................... 107 108 78
</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........................ $ 72 $ 25 $ 25
3 years....................... 107 78 78
</TABLE>
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
IN ADDITION, FEDERAL REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL
RETURN, BUT THE ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "PURCHASE OF SHARES"
AND "MANAGEMENT."
9
<PAGE>
(This page has been left blank intentionally.)
10
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables contain information for one Class A, Class B, and Class
C share of beneficial interest outstanding for each of the Fund for the periods
indicated. The following information for all Funds has been audited by Coopers &
Lybrand L.L.P. for the periods from inception through December 31, 1996. For the
Global Growth Fund and the Small & Mid-Cap Growth Fund, the information for the
period January 1, 1997 through February 28, 1997 is unaudited. The accountants'
unqualified report for each of the periods ended December 31 (except for the
years ended 1987, 1988, 1989, 1990, and 1991 for the Growth Fund, the initial
period ended December 31, 1987 and the years ended 1988, 1989, 1990, and 1991
for the Balanced Return Fund, and the initial period ended December 31, 1990,
and the year ended 1991 for the Nifty Fifty Fund) appears in the Funds' Annual
Report for the year December 31, 1996. The financial highlights should be read
in conjunction with the financial statements contained in the Funds' Annual
Report for the year ended December 31, 1996 which is incorporated by reference
in the Statement of Additional Information. The remaining data has also been
audited, but is not covered by the accountants' current report.
11
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA GROWTH FUND
--------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------- --------------------------- ----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
-------- ------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
year......................... $ 19.28 $ 18.99 $ 18.99 $ 15.40 $ 15.28 $ 15.28 $ 16.00 $ 15.89 $15.89
-------- ------- ------- ------- ------- ------- -------- ------- -------
Gain (Loss) from Investment
Operations:
Net investment loss(1)...... (.14)(2) (.31)(2) (.31)(2) (.06) (.20) (.20) (.03) (.14) (.14)
Net realized and unrealized
gain (loss) on
investments............... 4.47 4.39 4.39 4.24 4.21 4.21 (.57) (.47) (.47)
-------- ------- ------- ------- ------- ------- -------- ------- -------
Total gain (loss) from
investment operations..... 4.33 4.08 4.08 4.18 4.01 4.01 (.60) (.61) (.61)
-------- ------- ------- ------- ------- ------- -------- ------- -------
Less Distributions:
Capital gains............... (1.67) (1.67) (1.67) (.30) (.30) (.30) -- -- --
-------- ------- ------- ------- ------- ------- -------- ------- -------
Total distributions......... (1.67) (1.67) (1.67) (.30) (.30) (.30) -- -- --
-------- ------- ------- ------- ------- ------- -------- ------- -------
Net asset value, end of
year......................... $ 21.94 $ 21.40 $ 21.40 $ 19.28 $ 18.99 $ 18.99 $ 15.40 $ 15.28 $15.28
-------- ------- ------- ------- ------- ------- -------- ------- -------
-------- ------- ------- ------- ------- ------- -------- ------- -------
Total Return(3)............... 22.49%(2) 21.52%(2) 21.52%(2) 27.16% 26.26% 26.26% (3.75)% (3.84)% (3.84)%
Ratios/Supplemental Data:
Net assets, end of year (in
thousands)................ $426,785 $49,444 $27,239 $415,416 $34,786 $20,497 $391,831 $11,349 $6,136
Ratio of expenses to average
net assets................ 1.6%(2) 2.3%(2) 2.3%(2) 1.6% 2.4% 2.4% 1.6% 2.3% 2.3%
Ratio of net investment loss
to average net assets..... (.06)%(2) (1.5)%(2) (1.5)%(2) (0.3)% (1.1)% (1.1)% (0.2)% (1.0)% (1.0)%
Portfolio turnover rate..... 70.1% 70.1% 70.1% 65.9% 65.9% 65.9% 53.8% 53.8% 53.8%
Average commission rate paid
per share(4).............. $ 0.0578 $0.0578 $0.0578 N/A N/A N/A N/A N/A N/A
</TABLE>
- ------------------------------
The table above provides condensed information concerning income and capital
changes for one share of The Pasadena Growth Fund. Such information is based on
the Fund's audited financial statements for the years presented.
(1) This information was prepared using the average number of shares outstanding
during each year.
(2) These amounts reflect the impact of a waiver of administration fees of
$30,000. Absent the waiver, net investment loss per share, total return and
the ratios of expenses and net investment loss to average net assets for
Class A, Class B and Class C shares would have been (.14), (.31) and (.31),
respectively, 22.49%, 21.52% and 21.52%, respectively, 1.6%, 2.4% and 2.4%,
respectively, and (0.7)%, (1.5)% and (1.5)%, respectively.
(3) Total return measures the change in the value of an investment during each
of the years indicated. It does not include the impact of paying any
applicable front-end or contingent deferred sales charge.
(4) This disclosure, effective for the first time in 1996, has not been applied
retroactively.
12
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA GROWTH FUND
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
year......................... $ 17.00 $ 16.80 $ 10.04 $ 10.53 $ 8.41 $ 6.19 $ 6.99
-------- -------- -------- ------- ------- ------- -------
Gain (Loss) from Investment
Operations:
Net investment loss(1)...... (.02) (.05) (.08) (.09) (.04) -- (.06)
Net realized and unrealized
gain (loss) on
investments............... (.98) .43 6.89 (.39) 3.19 2.22 (.74)
-------- -------- -------- ------- ------- ------- -------
Total gain (loss) from
investment operations..... (1.00) .38 6.81 (.48) 3.15 2.22 (.80)
-------- -------- -------- ------- ------- ------- -------
Less Distributions:
Capital gains............... -- (.18) (.05) (.01) (1.03) -- --
-------- -------- -------- ------- ------- ------- -------
Total distributions......... -- (.18) (.05) (.01) (1.03) -- --
-------- -------- -------- ------- ------- ------- -------
Net asset value, end of
year......................... $ 16.00 $ 17.00 $ 16.80 $ 10.04 $ 10.53 $ 8.41 $ 6.19
-------- -------- -------- ------- ------- ------- -------
-------- -------- -------- ------- ------- ------- -------
Total Return(3)............... (5.87)% 2.24% 67.83% (4.55)% 37.75% 35.78% (11.45)%
Ratios/Supplemental Data:
Net assets, end of year (in
thousands)................ $532,208 $625,624 $323,484 $80,639 $36,722 $18,049 $10,923
Ratio of expenses to average
net assets................ 1.6% 1.6% 1.8% 2.2% 1.8% 1.8% 2.0%
Ratio of net investment loss
to average net assets..... -- (0.3)% (0.6)% (0.9)% (0.5)% -- (0.9)%
Portfolio turnover rate..... 22.9% 24.5% 23.5% 32.0% 93.8% 99.3% 114.5%
Average commission rate paid
per share(4).............. N/A N/A N/A N/A N/A N/A N/A
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA NIFTY FIFTY FUND
----------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995
------------------------------------ ----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
--------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of year................... $ 22.18 $ 21.85 $ 21.85 $ 17.30 $17.17 $17.17
--------- -------- ------- -------- ------- -------
Gain (Loss) from Investment
Operations:
Net investment loss(1)...... (.12)(2) (.30)(2) (.30)(2) (.05) (.21) (.21)
Net realized and unrealized
gain (loss) on
investments............... 6.00 5.89 5.89 4.93 4.89 4.89
--------- -------- ------- -------- ------- -------
Total gain (loss) from
investment operations........ 5.88 5.59 5.59 4.88 4.68 4.68
--------- -------- ------- -------- ------- -------
Less Distributions:
Capital gains............... (1.56) (1.56) (1.56) -- -- --
--------- -------- ------- -------- ------- -------
Total distributions......... (1.56) (1.56) (1.56) -- -- --
--------- -------- ------- -------- ------- -------
Net asset value, end of
year......................... $ 26.50 $ 25.88 $ 25.88 $ 22.18 $21.85 $21.85
--------- -------- ------- -------- ------- -------
--------- -------- ------- -------- ------- -------
Total Return(3)............... 26.53%(2) 25.60%(2) 25.60%(2) 28.21% 27.26% 27.26%
Ratios/Supplemental Data:
Net assets, end of year (in
thousands)................ $ 145,469 $ 47,143 $26,092 $122,322 $27,462 $15,105
Ratio of expenses to average
net assets................ 1.7%(2) 2.5%(2) 2.5%(2) 1.9% 2.6% 2.6%
Ratio of net investment loss
to average net assets..... (0.4)%(2) (1.2)%(2) (1.2)%(2) (0.3)% (1.0)% (1.0)%
Portfolio turnover rate..... 41.9% 41.9% 41.9% 26.5% 26.5% 26.5%
Average commission rate paid
per share(4).............. $ 0.0585 $ 0.0585 $0.0585 N/A N/A N/A
</TABLE>
- ------------------------------
The table above provides condensed information concerning income and capital
changes for one share of The Pasadena Nifty Fifty Fund. Such information is
based on the Fund's audited financial statements for the years presented.
(1) This information was prepared using the average number of shares outstanding
during each year.
(2) These amounts reflect the impact of a waiver of administration fees of
$70,000. Absent the waiver, net investment loss per share, total return and
the ratios of expenses and net investment loss to average net assets for
Class A, Class B and Class C shares would have been (.13), (.31) and (.31),
respectively, 26.48%, 25.55% and 25.55, respectively, 1.8%, 2.5% and 2.5%,
respectively, and (0.5)%, (1.3)% and (1.3)%, respectively.
(3) Total return measures the change in the value of an investment during each
of the years indicated. It does not include the impact of paying any
applicable front-end or contingent deferred sales charge.
(4) This disclosure, effective for the first time in 1996, has not been applied
retroactively.
14
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA NIFTY FIFTY FUND
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------- INCEPTION
(DECEMBER 17,
1994 1990) TO
-------------------------------- DECEMBER 31,
CLASS A CLASS B CLASS C 1993 1992 1991 1990
-------- -------- -------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of year................... $ 17.12 $17.02 $17.02 $ 17.21 $ 16.60 $ 9.97 $10.00
-------- -------- -------- ------- ------- ------- ------
Gain (Loss) from Investment
Operations:
Net investment loss(1)...... (.03) (.14) (.15) (.06) (.05) (.01) --
Net realized and unrealized
gain (loss) on
investments............... .21 .29 .30 (.03) .66 6.74 (.03)
-------- -------- -------- ------- ------- ------- ------
Total gain (loss) from
investment operations........ .18 .15 .15 (0.9) .61 6.73 (.03)
-------- -------- -------- ------- ------- ------- ------
Less Distributions:
Capital gains............... -- -- -- -- -- (.10) --
-------- -------- -------- ------- ------- ------- ------
Total distributions......... -- -- -- -- -- (.10) --
-------- -------- -------- ------- ------- ------- ------
Net asset value, end of
year......................... $ 17.30 $17.17 $17.17 $ 17.12 $ 17.21 $ 16.60 $9.97
-------- -------- -------- ------- ------- ------- ------
-------- -------- -------- ------- ------- ------- ------
Total Return(3)............... 1.05% 0.88% 0.88% (0.52)% 3.67% 67.64% (.37)%
Ratios/Supplemental Data:
Net assets, end of year (in
thousands)................ $100,596 $6,722 $4,283 $134,284 $195,067 $64,156 $ 528
Ratio of expenses to average
net assets................ 1.9% 2.6% 2.6% 1.8% 1.9% 1.9% 1.2%
Ratio of net investment loss
to average net assets..... (0.2)% (0.9)% (0.9)% -- (0.3)% (0.1)% 0.4%
Portfolio turnover rate..... 23.2% 23.2% 23.2% 2.2% 12.9% 27.6% 0.9%
Average commission rate paid
per share(4).............. N/A N/A N/A N/A N/A N/A N/A
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA BALANCED RETURN FUND
---------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------ --------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
-------- -------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of year................... $ 25.39 $ 25.26 $ 25.28 $ 20.54 $20.49 $20.48 $ 21.97 $21.89 $21.89
-------- -------- -------- ------- ------- ------- ------- ------- -------
Gain (Loss) from Investment
Operations:
Net investment income(1).... .29(2) .09(2) .09(2) .27 .08 .07 .39 .26 .25
Net realized and unrealized
gain (loss) on
investments............... 4.23 4.16 4.16 5.31 5.29 5.30 (1.36) (1.32) (1.31)
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total gain (loss) from
investment operations..... 4.52 4.25 4.25 5.58 5.37 5.37 (.97) (1.06) (1.06)
-------- -------- -------- ------- ------- ------- ------- ------- -------
Less Dividends and
Distributions:
Net investment income....... (.30) (.13) (.12) (.29) (.16) (.13) (.46) (.34) (.35)
Capital gains............... (1.53) (1.53) (1.53) (.44) (.44) (.44) -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions............. (1.83) (1.66) (1.65) (.73) (.60) (.57) (.46) (.34) (.35)
-------- -------- -------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year......................... $ 28.08 $ 27.85 $ 27.88 $ 25.39 $25.26 $25.28 $ 20.54 $20.49 $20.48
-------- -------- -------- ------- ------- ------- ------- ------- -------
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total Return(3)............... 17.78%(2) 16.82%(2) 16.79%(2) 27.18% 26.20% 26.23% (4.43)% (4.85)% (4.85)%
Ratios/Supplemental Data:
Net assets, end of year (in
thousands)................ $ 51,947 $ 4,609 $ 4,183 $52,028 $2,721 $2,809 $53,047 $1,223 $1,449
Ratio of expenses to average
net assets................ 2.0%(2) 2.7%(2) 2.7%(2) 2.1% 2.9% 2.9% 2.1% 2.9% 2.9%
Ratio of net investment
income to average net
assets.................... 1.1%(2) 0.3%(2) 0.3%(2) 1.2% 0.3% 0.3% 1.8% 1.3% 1.3%
Portfolio turnover rate..... 35.1%(2) 35.1%(2) 35.1%(2) 51.1% 51.1% 51.1% 28.2% 28.2% 28.2%
Average commission rate paid
per share(4).............. $ 0.0597 $ 0.0597 $ 0.0597 N/A N/A N/A N/A N/A N/A
</TABLE>
- ------------------------------
The table above provides condensed information concerning income and capital
changes for one share of The Pasadena Balanced Return Fund. Such information is
based on the Fund's audited financial statements for the years presented.
(1) This information was prepared using the average number of shares outstanding
during each year.
(2) These amounts reflect the impact of a waiver of administration fees of
$55,000. Absent the waiver, net investment income per share, total return
and the ratios of expenses and investment loss to average net assets for
Class A, Class B and Class C shares would have been .27, .06 and .06,
respectively, 17.66%, 16.74% and 16.71%, respectively, 2.1%, 2.8% and 2.8%,
respectively, and 1.0%, 0.2% and 0.2%, respectively.
(3) Total return measures the change in the value of an investment during each
of the years indicated. It does not include the impact of paying any
applicable front-end or contingent deferred sales charge.
(4) This disclosure, effective for the first time in 1996, has not been applied
retroactively.
16
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA BALANCED RETURN FUND
-----------------------------------------------------------------------
INCEPTION
FOR THE YEAR ENDED DECEMBER 31, (JUNE 8,
------------------------------------------------------------ 1987) TO
DECEMBER
1993 1992 1991 1990 1989 1988 31, 1987
-------- -------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of year................... $ 21.76 $ 20.95 $ 15.30 $ 15.91 $ 12.51 $ 11.50 $10.00
-------- -------- -------- ------- ------- ------- --------
Gain (Loss) from Investment
Operations:
Net investment income(1).... .32 .25 .24 .16 .18 .13 .16
Net realized and unrealized
gain (loss) on
investments............... .21 .69 5.70 (.25) 3.94 1.38 1.34
-------- -------- -------- ------- ------- ------- --------
Total gain (loss) from
investment operations..... .53 .94 5.94 (.09) 4.12 1.51 1.50
-------- -------- -------- ------- ------- ------- --------
Less Dividends and
Distributions:
Net investment income....... (.32) (.13) (.16) (.19) (.19) (.41) --
Capital gains............... -- -- (.13) (.33) (.53) (.09) --
-------- -------- -------- ------- ------- ------- --------
Total dividends and
distributions............. (.32) (.13) (.29) (.52) (.72) (.50) --
-------- -------- -------- ------- ------- ------- --------
Net asset value, end of
year......................... $ 21.97 $ 21.76 $ 20.95 $ 15.30 $ 15.91 $ 12.51 $11.50
-------- -------- -------- ------- ------- ------- --------
-------- -------- -------- ------- ------- ------- --------
Total Return(3)............... 2.44% 4.49% 38.89% (.39)% 32.98% 13.42% 15.00%
Ratios/Supplemental Data:
Net assets, end of year (in
thousands)................ $ 84,591 $ 75,143 $ 16,020 $ 5,001 $ 3,747 $ 1,924 $ 742
Ratio of expenses to average
net assets................ 2.1% 2.3% 2.5% 2.5% 2.1% 2.0% --
Ratio of net investment
income to average net
assets.................... 1.5% 1.2% 1.3% 1.0% 1.5% 1.7% 5.3%
Portfolio turnover rate..... 4.8% 6.3% 4.9% 35.8% 24.3% 30.6% 13.1%
Average commission rate paid
per share(4).............. N/A N/A N/A N/A N/A N/A N/A
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA GLOBAL GROWTH FUND
--------------------------------------------------------------------------------------------------------------
INCEPTION
FOR THE YEAR ENDED DECEMBER 31, (NOVEMBER 1,
FOR THE TWO MONTHS ENDED ---------------------------------------------------------------- 1993) TO
FEBRUARY 28, 1997 DECEMBER 31,
(UNAUDITED) 1996 1995 1994 1993
-------------------------- ----------------------------------- ---------- ---------- --------------
CLASS A CLASS B CLASS C CLASS A CLASS B(5) CLASS C(5) CLASS A CLASS A CLASS A
-------- ------- ------- --------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of
period.......... $ 19.06 $ 19.04 $ 19.03 $17.27 $17.44 $17.88 $14.06 $11.18 $10.00
-------- ------- ------- --------- ---------- ---------- ---------- ---------- ------
Gain from Investment
Operations:
Net investment
income
(loss)(1)....... (.05) (.08) (.07) .03(2) (.08) (.04) .24(2) .10(2) .01(2)
Net realized and
unrealized gain
on
investments..... .95 .95 .95 3.55 1.82 1.34 3.11 2.78 1.17
-------- ------- ------- --------- ---------- ---------- ---------- ---------- ------
Total gain from
investment
operations .90 .87 .88 3.58 1.74 1.30 3.35 2.88 1.18
-------- ------- ------- --------- ---------- ---------- ---------- ---------- ------
Less Dividends and
Distributions:
Net investment
income.......... -- -- -- .04 -- (.01) -- -- --
Capital gains..... -- -- -- (1.75) (.14) (.14) (.14) -- --
-------- ------- ------- --------- ---------- ---------- ---------- ---------- ------
Total dividends
and
distributions... -- -- -- (1.79) (.14) (.15) (.14) -- --
-------- ------- ------- --------- ---------- ---------- ---------- ---------- ------
Net asset value, end
of period.......... 19.96 19.91 19.91 19.06 19.04 19.03 $17.27 $14.06 $11.18
-------- ------- ------- --------- ---------- ---------- ---------- ---------- ------
-------- ------- ------- --------- ---------- ---------- ---------- ---------- ------
Total Return(3)..... 4.72% 4.57% 4.62% 21.77%(2) 9.98% 7.28% 23.84%(2) 25.76%(2) 11.80%(2)
Ratios/Supplemental
Data:
Net assets, end of
period (in
thousands)...... $ 8,455 $ 1,542 $ 305 $7,654 $ 874 $ 106 $3,203 $ 141 $ 112
Ratio of expenses
to average net
assets.......... 2.0% 2.0% 2.0% 0.8%(2) 2.7%(4) 2.7%(4) 0.0%(2) 0.0%(2) 0.0%(2),(4)
Ratio of net
investment
income (loss) to
average net
assets.......... (1.6)% (2.3)% (2.3)% 0.1%(2) (1.9)%(4) (1.6)%(4) 1.4%(2) 0.8%(2) 0.8%(2),(4)
Portfolio turnover
rate............ 268.1% 268.1% 268.1% 220.3% 220.3% 220.3% 29.0% 479.3% 215.8%
Average commission
rate paid per
share(6)........ $ 0.0381 $0.0381 $0.0381 $0.0301 $0.0301 $0.0301 N/A N/A N/A
</TABLE>
- ------------------------------
The table above provides condensed information concerning income and capital
changes for one share of The Pasadena Global Growth Fund. Such information is
based on the Fund's audited financial statements for the years presented.
(1) This information was prepared using the average number of shares
outstanding during each period.
(2) These amounts reflect the impact of a waiver of Manager fees of
$62,438, $42,545, $2,784 and $410 for the periods ended December 31,
1996, 1995, 1994 and 1993, respectively, and the Manager's
reimbursement for income taxes of $13,109 during 1994. Absent the
waivers and reimbursement, net investment income (loss) per share,
total return (not annualized for the period ended December 31, 1993)
and the ratios of expenses and net investment income (loss) to average
net assets (annualized for the period ended December 31, 1993) would
have been ($.21), 21.71%, 2.0% and (1.2%), respectively, ($.15),
22.88%, 2.3% and (0.9%), respectively, ($.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, 1996, 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 ended December 31, 1996 for
Class B and Class C shares and from inception (November 1, 1993)
through December 31, 1993 has not been annualized.
(4) Annualized.
(5) The beginning net asset value per share of Class B and Class C shares
equals the net asset value per share of the Class A shares as of the
first day Class B and Class C shares were sold, September 18, 1996 and
October 21, 1996, respectively.
(6) This disclosure, effective for the first time in 1996, has not been
applied retroactively.
18
<PAGE>
<TABLE>
<CAPTION>
THE PASADENA SMALL & MID-CAP GROWTH FUND(7)
------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, INCEPTION
----------------------------------------------- (OCTOBER
FOR THE TWO MONTHS ENDED 10, 1994)
FEBRUARY 28, 1997 1996 TO DECEMBER
(UNAUDITED) ---------------------------------- 1995 31, 1994
-------------------------------- CLASS CLASS -------- -----------
CLASS A CLASS B CLASS C CLASS A B(5) C(5) CLASS A CLASS A
-------- -------- -------- -------- -------- -------- -------- -----------
Per Share Operating
Performance:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 18.39 $ 18.35 $ 18.35 $ 14.90 $ 16.44 $ 17.99 $ 12.07 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -----------
Gain from Investment
Operations:
Net investment income
(loss)(1)............ (.05) (.07) (.06) (.12)(2) (.32) (.29) .22(2) .07(2)
Net realized and
unrealized gain
(loss) on
investments.......... (.25) (.26) (.27) 7.45 2.43 .85 2.87 2.00
-------- -------- -------- -------- -------- -------- -------- -----------
Total gain (loss) from
investment operations... (.30) (.33) (.33) 7.33 2.11 .56 3.09 2.07
-------- -------- -------- -------- -------- -------- -------- -----------
Less Dividends and
Distributions:
Net investment
income............... -- -- -- (.28) -- -- (.08) --
Capital gains.......... -- -- -- (3.56) (.20) (.20) (.18) --
-------- -------- -------- -------- -------- -------- -------- -----------
Total dividends and
distributions........... -- -- -- (3.84) (.20) (.20) (.26) --
-------- -------- -------- -------- -------- -------- -------- -----------
Net asset value, end of
period.................. $ 18.09 $ 18.02 $ 18.02 $ 18.39 $ 18.35 $ 18.35 $ 14.90 $ 12.07
-------- -------- -------- -------- -------- -------- -------- -----------
-------- -------- -------- -------- -------- -------- -------- -----------
Total Return(3).......... (1.63)% (1.80)% (1.80)% 52.37%(2) 12.84% 3.12% 25.68%(2) 20.70%(2)
Ratios/Supplemental Data:
Net assets, end of
period (in
thousands)........... $ 9,712 $ 3,515 $ 816 $ 7,859 $ 1,480 $ 54 $ 1,742 $ 121
Ratio of expenses to
average net assets... 1.9% 2.6% 2.6% 1.1%(2) 2.6%(4) 2.6%(4) 0.0%(2) 0.0%(2),(4)
Ratio of net investment
income (loss) to
average net assets... (1.4)% (2.2)% (2.1)% (0.7)%(2) (2.2)%(4) (2.2)%(4) 1.5%(2) 2.6%(2),(4)
Portfolio turnover
rate................. 90.5% 90.5% 90.5% 297.1% 297.1% 297.1% 121.4% 157.9%
Average commission rate
paid per share(6).... $ 0.0551 $ 0.0551 $ 0.0551 $ 0.0547 $0.0547 $0.0547 N/A N/A
</TABLE>
- ------------------------------
The table above provides condensed information concerning income and capital
changes for one share of The Pasadena Small & Mid-Cap Growth Fund. Such
information is based on the Fund's audited financial statements for the years
presented.
(1) This information was prepared using the average number of shares
outstanding during each period.
(2) These amounts reflect the impact of a waiver of Manager fees of
$18,499, $13,443, and $585 for the periods ended December 31, 1996,
1995 and 1994, respectively, and the Manager's reimbursement for
income taxes of $6,654 during 1994. Absent the waivers and
reimbursement, 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
($0.25), 51.35%, 1.9% and (1.4%), respectively, ($.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, 1996, 1995 and 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
applicable front-end or contingent deferred sales charge. Total return
for the periods ended December 31, 1996 (Class B and Class C shares
only) and December 31, 1995 have not been annualized.
(4) Annualized.
(5) The beginning net asset value per share of Class B and Class C shares
equals the net asset value per share of the Class A shares as of the
first day Class B and Class C shares were sold, September 18, 1996 and
October 8, 1996, respectively.
(6) This disclosure, effective for the first time in 1996, has not been
applied retroactively.
(7) Prior to September 1, 1996, this fund was called The Pasadena Small &
Mid-Cap Fund.
19
<PAGE>
COMPARISON OF CLASSES. The following table compares certain aspects
relating to the purchase of shares of the three Classes:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Sales Charges.................. Initial sales charge at CDSC of 5% to 3% applies to No initial sales charge;
time of investment of up to any shares redeemed within CDSC of 1% applies to any
5.50%, depending on amount the first four years shares of each of the
of investment. following their purchase; Global Growth, Small &
no CDSC after four years. Mid-Cap Growth and Value 25
On investments of $1 Funds redeemed within the
million or more, no initial first year.
sales charge.
12b-1 Distribution Fee......... None. 0.75% each year for the 0.75% each year. No
first six years. At the conversion to Class A
beginning of the seventh shares.
year, Class B shares
convert automatically to
Class A shares (with no
sales charge).
Service Fee.................... 0.25% each year. 0.25% each year. 0.25% each year.
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND STRATEGIES
The investment objective of each of the Growth Fund, the Nifty Fifty Fund,
the Global Growth Fund and the Small & Mid-Cap Growth Fund is long-term growth
of capital. The investment objective of the Balanced Return Fund is to maximize
a total investment return consistent with reasonable risk. The investment
objective of the Value 25 Fund is to provide substantial dividend income and
long-term growth of capital.
The investment objective for each Fund is "fundamental," meaning that it
will not be changed without the approval of a majority of that Fund's voting
securities, as defined in the 1940 Act. There is, of course, no assurance that
any of the Funds will achieve its investment objective, although each Fund 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 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
20
<PAGE>
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. 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 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. The Fund's investments may also include a limited
extent preferred stocks, warrants, and convertible debt obligations, if deemed
appropriate by the Manager in meeting the Fund's objective.
THE BALANCED RETURN FUND. The Balanced Return Fund seeks to achieve its
investment 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 securities,
the 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 the
other Funds, 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
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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.
THE GLOBAL GROWTH FUND. The Global Growth Fund seeks to achieve its
investment objective through investments in a diversified portfolio of
marketable securities of issuers which are organized or domiciled in the United
States and in foreign countries. Dividend or interest income will be incidental
to any investment decision.
In seeking growth of capital, the Global Growth Fund follows a global
investment strategy of investing primarily in the equity securities of U.S. and
foreign companies which may be traded in securities markets located throughout
the world. This global investment approach seeks to take advantage of the
growing investment opportunities created by a global economy that has become
more highly integrated in economic, industrial and financial terms, resulting in
an increase in growth stocks from developed and developing countries worldwide.
For these purposes, the Global Growth Fund defines an emerging or developing
country as having an economy and market that are or would be considered by the
World Bank or the United Nations to be emerging or developing.
The Global Growth Fund will under normal market conditions invest at least
65% of its total assets in securities of companies located in at least three
different countries, one of which typically will be the United States, although
it may at times invest up to 100% of its total assets in securities principally
traded in securities markets outside the United States. In unusual market
circumstances when the Manager believes that foreign investing may involve undue
risks, up to 100% of the Global Growth Fund's total assets may be invested
temporarily in securities of issuers organized or domiciled in the United
States. The Global Growth Fund also may invest a portion of its assets in cash
or money market instruments (up to 100% of its total assets) for temporary
defensive purposes. Securities of foreign issuers may be owned by the Global
Growth Fund through the purchase of Depositary Receipts (e.g., American,
European, Global, Continental, etc.), which are traded in the United States
securities markets or foreign markets and denominated in U.S. dollars or foreign
currencies. The Global Growth Fund may invest up to 100% of its total assets in
Depositary Receipts.
The Global Growth Fund is not required to maintain any particular geographic
or currency mix of its investments, and there is no limitation or requirement on
the percentage of its assets which may be invested in securities of companies
domiciled in any one country. Historically, the Global Growth Fund has invested
a substantial percentage of its assets in companies organized or domiciled in
the United States. The Global Growth Fund is intended to provide investors with
the opportunity to invest in a portfolio of equity securities of companies
located and/or doing business throughout the world.
The Global Growth Fund intends to primarily invest in securities of
companies located in developed countries, but reserves the right to invest in
emerging or developing countries, without limitation. Emerging or developing
countries may have relatively unstable governments, economies based on only a
few industries, and less developed securities exchanges or markets which trade a
small number of securities. Although prices on these exchanges tend to be
volatile, in the past they have offered greater potential for gain, as well as
loss, than exchanges in developed countries. It is possible that certain Global
Growth Fund investments could be subject to foreign expropriation or exchange
control restrictions. See "Risk Considerations."
In analyzing companies for investment, the Manager generally will look for
one or more of the following characteristics: above-average earnings growth
potential; predictable and sustainable earnings growth; high profitability;
strength of management; overall financial strength; significant competitive
advantages; dominant market share; and where possible, limited regulation -- all
in relation to the prevailing prices of the securities of such companies. When
appropriate, the Global Growth Fund may invest in new issues that the Manager
believes offer good long-term investment prospects or an opportunity for
immediate price appreciation.
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The Global Growth Fund is permitted to invest on a worldwide basis in
companies and other organizations of any size, regardless of country of
organization or place of principal business activity.
At times the Manager may judge that conditions in the international
securities markets make pursuing the Global Growth Fund's basic investment
strategy inconsistent with the best interests of the Global Growth Fund's
shareholders. At such times the Manager may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the value of the Global
Growth Fund's assets. In implementing these "defensive" strategies, the Global
Growth Fund may invest solely in equity securities traded primarily in U.S.
markets, or in domestic or foreign debt securities, preferred stocks, cash or
money market instruments, or in other securities the Manager considers to be
consistent with such defensive strategies. It is impossible to predict when, or
for how long, the Global Growth Fund will use these alternative strategies. In
addition, during its start-up phase, when the Manager is assembling the Global
Growth Fund's core portfolio, the Fund may have a larger than usual cash
position.
The Global Growth Fund is designed for long-term investors who can accept
international investment risk. The Global Growth Fund's share price will reflect
the price movements of the different securities markets in which it is invested
as well as the currencies in which its investments are denominated. The strength
or weakness of the U.S. dollar against foreign currencies also may account for
part of the Global Growth Fund's investment performance. As with any long-term
investment, the value of the Global Growth Fund's shares when sold may be higher
or lower than when they were purchased. Because of the Global Growth Fund's
global investment policies and the investment considerations discussed above,
investment in shares of the Global Growth Fund should not be considered a
complete investment program.
THE SMALL & MID-CAP GROWTH FUND. The Small & Mid-Cap Growth Fund seeks to
achieve its objective by investing primarily in equity securities of those small
to mid-capitalized companies that the Manager believes may be the leading
companies of tomorrow. The Small & Mid-Cap Growth Fund will select its portfolio
investments primarily from among U.S. and foreign companies and will emphasize
companies with market capitalizations below $1.5 billion; under normal market
conditions, the Fund will invest at least 65% of its total assets in equity
securities of companies that are in that market capitalization range at the time
of purchase. Depending upon market conditions, the remaining portion of the
Fund's investment portfolio (up to 35% of its total assets) will be invested in
a similar manner or in the equity securities of companies that, at the time of
investment, have a larger market capitalization. The Small & Mid-Cap Growth Fund
may continue to hold its investment in a company whose capitalization
subsequently increases to $1.5 billion or more if the company continues to
satisfy the Fund's other investment policies. When appropriate, the Small &
Mid-Cap Growth Fund may invest in new issues that the Manager believes offer
good long-term investment prospects or an opportunity for immediate price
appreciation.
The Small & Mid-Cap Growth Fund emphasizes the purchase of equity securities
of companies with rapidly growing earnings per share. The Fund also invests in
companies that, although not growing rapidly, are undervalued by other criteria
compared to the Manager's opinion of their fundamental net worth.
The Small & Mid-Cap Growth Fund may invest in the securities of companies
listed on any exchange or traded in the over-the-counter market, and is expected
to invest principally in common stocks. In addition to common stocks, the Fund's
investments may also include other types of securities with equity
characteristics such as preferred stocks, warrants, options on stocks and stock
indices, and convertible debt obligations that, in the Manager's opinion, offer
the possibility of capital appreciation over the course of approximately two or
more years because of the timing of such investments. In addition to the
interest received from such debt instruments, if interest rates fall these
instruments are likely to increase in value. Conversely, if interest rates rise
a decrease in value can be expected. The Small & Mid-Cap Growth Fund does not,
however, anticipate investing a significant portion of its total assets in such
instruments. Dividend and interest income received from portfolio securities is
largely incidental.
Except for temporary defensive and liquidity purposes and its investments in
convertible debt securities described above, the Small & Mid-Cap Growth Fund
will not under normal market conditions invest in debt securities. While the
Fund primarily
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emphasizes investments in U.S. companies, it can invest up to 50% of its total
assets in securities of foreign companies (directly or through Depositary
Receipts) which meet the same criteria applicable to domestic investments.
During its start-up phase, when the Manager is assembling the Small & Mid-Cap
Growth Fund's core portfolio, the Fund may have a larger than usual cash
position.
Because prices of common stocks and other securities fluctuate, the value of
an investment in the Small & Mid-Cap Growth Fund will vary, based upon the Small
& Mid-Cap Growth Fund's investment performance. The volatility of the Small &
Mid-Cap Growth Fund's investment portfolio is likely to be greater than that of
the Standard & Poor's 500 Stock Index. For this and other reasons described
below in "Investment Policies" and "Risk Considerations," the net asset value
per share of the Small & Mid-Cap Growth Fund may fluctuate substantially, and
the Small & Mid-Cap Growth Fund may not be appropriate for short-term investors.
From time to time, depending on the Manager's analysis of market and other
considerations, all or part of the assets of the Small & Mid-Cap Growth Fund may
be held in cash and short-term money market instruments, including obligations
of the U.S. Government, high quality commercial paper, certificates of deposit,
bankers' acceptances, bank interest-bearing demand accounts, and repurchase
agreements secured by U.S. Government or agency securities. All such investments
will be made for temporary defensive purposes to protect against the erosion of
capital and pending investment in other securities. In any repurchase
transaction in which the Small & Mid-Cap Growth Fund engages, the Small &
Mid-Cap Growth Fund's position during the entire term of the repurchase
agreement will be fully collateralized.
THE VALUE 25 FUND. The Value 25 Fund seeks to achieve its investment
objective through investments in securities which its Manager believes offer the
best potential for current dividend yield and long-term growth of capital.
Under normal conditions at least 80% of the Value 25 Fund's total assets
will be invested in common stocks of approximately twenty-five companies
demonstrating high dividend yield and quality earnings. The average market
capitalization of the stocks included will generally be in excess of $1 billion.
In selecting the twenty-five stocks that the Manager believes offer the best
investment promise, the Manager generally will look for one or more of the
following characteristics: established operating history; adequate dividend
coverage; and sound balance sheet and other financial characteristics.
It is expected that the remaining portion of the Value 25 Fund's investment
portfolio will be invested in similar stocks or in common stocks with the
potential for capital appreciation, but the Manager may invest those assets in
other equity securities that the Manager believes have favorable prospects. The
Value 25 Fund may also purchase foreign securities, convertible stocks and
bonds, and warrants when considered consistent with the Value 25 Fund's
investment objective.
At times the Manager may judge that conditions in the securities markets
make pursuing the Value 25 Fund's basic investment strategy inconsistent with
the best interests of the Value 25 Fund's shareholders. At such times the
Manager may temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Value 25 Fund's assets. In implementing these
"defensive" strategies, the Value 25 Fund may invest solely in domestic debt
securities, preferred stocks, cash or money market instruments, or in other
securities the Manager considers to be consistent with such defensive
strategies. It is impossible to predict when, or for how long, the Value 25 Fund
will use these alternative strategies. In addition, during its start-up phase,
when the Manager is assembling the Value 25 Fund's core portfolio, the Value 25
Fund may have a larger than usual cash position.
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Other Investment Practices
A Fund may also engage to a limited extent in the following investment
practices, each of which involves certain special risks.
FOREIGN SECURITIES. The Growth Fund, the Balanced Return Fund and the Nifty
Fifty Fund may occasionally purchase foreign securities, the Value 25 Fund may
invest up to 25% of its assets, the Small & Mid-Cap Growth Fund may invest up to
50% of its assets, and the Global Growth Fund may invest up to 100% of its
assets in 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.
OPTIONS. Each of the Global Growth Fund and the Small & Mid-Cap Growth Fund
may buy and sell put and call options for hedging purposes, and may also seek to
increase its return by writing covered put and call options on securities it
owns or in which it may invest. A Fund receives a premium from writing a put or
call option, which increases such Fund's return if the option expires
unexercised or is closed out at a net profit. When a Fund writes a call option,
it gives up the opportunity to profit from any increase in the price of the
underlying security above the exercise price of the option and the premium
received; when it writes a put option, a Fund takes the risk that it will be
required to purchase the underlying security from the option holder at a price
above the current market price of the security and the premium received. A Fund
may terminate an option that it has written prior to its expiration by entering
into a closing purchase transaction in which it purchases an option having the
same terms as the option written. The aggregate value of the securities
underlying options may not exceed 25% of a Fund's assets. Each Fund's use of
these strategies also may be limited by applicable law.
OPTIONS ON SECURITIES INDICES AND PUT AND CALL WARRANTS. Each of the Global
Growth Fund and the Small & Mid-Cap Growth Fund, and to a limited extent, the
Value 25 Fund may buy and sell options on domestic and foreign securities
indices for hedging purposes. A securities index represents a numerical measure
of the changes in value of the securities comprising the index. An option on a
securities index gives the holder the right, in return for the premium paid for
the option, to buy (in the case of a call option) or sell (in the case of a put
option) units of a particular index at an agreed price during the term of the
option. The holder of the option does not receive the right to take or make
delivery of the actual securities making up the index, but has the right instead
to receive a cash settlement amount based on the change, if any, in the value of
the index during the term of the option.
Depending on the change in the value of the underlying index during the term
of the option, the holder may either exercise the option at a profit or permit
the option to expire worthless. For example, if a Fund were to sell a call
option on an index and the value of the index were to increase during the term
of the option, the holder of the index would likely exercise the option and
receive a cash payment from such Fund. If, on the other hand, the value of the
index were to decrease, the option would likely expire worthless, and such Fund
would realize a profit in the amount of the premium received by it when it sold
the option (less any transaction costs). Each Fund will only purchase or sell
options on a securities index to the extent that it holds securities in its
portfolio whose price changes, in the Manager's judgment, should correlate
closely with changes in the index. No Fund will purchase or sell options on
securities indices if as a result the sum of the premiums paid and premiums
received by a Fund on outstanding options would exceed 5% of such Fund's total
assets.
Each of the Global Growth Fund, Small & Mid-Cap Growth Fund and Value 25
Fund may also purchase put and call warrants issued by banks and other financial
institutions, whose values are based on the values from time to time of one or
more foreign securities indices. Each Fund's use of such warrants would be
similar to its use of options on securities indices.
SECURITIES LOANS AND FORWARD COMMITMENTS. Each Fund may lend portfolio
securities amounting to not more than 25% of its total assets to broker-dealers,
so long as they are fully collateralized at all times. This may involve some
risk to a Fund because the other party might default on its obligation, which
would cause such Fund to be delayed or prevented from recovering the
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collateral. Each Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk of loss if the
value of the securities declines before the settlement date.
SPECIAL SITUATIONS. Each Fund (except the Global Growth Fund) may invest in
special situations which the Manager believes present opportunities for capital
growth. A special situation arises when, in the opinion of the Manager, the
securities of a particular company will, within a reasonable period of time, be
accorded market recognition at an appreciated value solely by reason of a
development particularly or uniquely applicable to that company and regardless
of general business conditions or movements of the market as a whole.
Developments creating special situations might include, among others, the
following: liquidations, reorganizations, recapitalizations, mergers or tender
offers; material litigation or resolution thereof; technological breakthroughs;
and new management or management policies.
RISK CONSIDERATIONS
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.
DIVERSIFICATION
The Nifty Fifty Fund and the Value 25 Fund are each a diversified mutual
fund. However, because each such Fund's portfolio may contain securities of a
limited number of companies, each Fund may be more sensitive to changes in the
market value of a single issuer or industry in its portfolio and therefore may
present a greater risk than is usually associated with a more widely diversified
mutual fund.
FOREIGN SECURITIES
Because foreign securities are normally denominated and traded in foreign
currencies, the value of the assets of a Fund may be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations. There may be less information publicly available about a foreign
company than about a U.S. company, and the information that is available may not
be of the same quality. Foreign companies are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States. The securities of some foreign companies are less
liquid and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in payment or delivery of securities or in
the recovery of a Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, limitations on the removal
of securities or other assets, confiscatory taxation, political, social or
financial instability, and diplomatic developments which could affect the value
of a Fund's investments in certain foreign countries. Legal remedies available
to investors in certain foreign countries may be more limited than those
available with respect to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit a Fund's ability to
invest in securities of certain issuers located in those foreign countries, and
special tax considerations apply to foreign securities, including withholding of
foreign taxes on dividends and interest paid with respect to a Fund's portfolio
investments in such countries. These risks may be enhanced for investments in
emerging or developing countries.
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund (except the Growth Fund, the Nifty Fifty Fund and the Balanced
Return Fund) may engage in various foreign currency exchange transactions to
protect itself against adverse changes in exchange rates. These Funds may engage
in foreign currency exchange transactions both in connection with the purchase
and sale of portfolio securities ("transaction hedging"), and to protect itself
against changes in the value of specific portfolio positions ("position
hedging"). However, because of the long-term nature of each Fund's investments,
it is not likely that a Fund regularly will engage in these types of
transactions. Accordingly, any such transactions may be limited and there can be
no assurance that even if utilized, they will be successful.
Transaction hedging is designed to protect against a change in foreign
currency exchange rates between the date on which a Fund contracts to purchase
or sell a security and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign currency. Each Fund
may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency.
If conditions warrant, each of the Global Growth Fund, the Small & Mid-Cap
Growth Fund and the Value 25 Fund may also enter into contracts to purchase or
sell foreign currencies at a future date ("forward contracts") and purchase and
sell foreign currency futures contracts as a hedge against changes in foreign
currency exchange rates between the trade and settlement dates on particular
transactions and not for speculation. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or rates
that may be higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have margin
requirements. For transaction hedging purposes each Fund may also purchase or
sell exchange-listed and over-the-counter put and call options on foreign
currency futures contracts and on foreign currencies.
Position hedging is intended to protect against a decline relative to the
U.S. dollar in the value of the currencies in which a Fund's portfolio
securities are denominated or quoted (or against an increase in the value of the
currencies in which the securities a Fund intends to buy are denominated, when
such Fund holds cash or short-term investments). For position hedging purposes,
each Fund may purchase or sell foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency futures contracts and
on foreign currencies on exchanges or in over-the-counter markets. In connection
with position hedging, each Fund may also purchase or sell foreign currency on a
spot basis.
A Fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency, and may at times not
involve currencies in which its portfolio securities are then denominated. The
Manager will engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for a Fund. Cross
hedging transactions by a Fund involve the risk of imperfect correlation between
changes in the values of the currencies to which such transactions relate and
changes in the value of the currency or other asset or liability which is the
subject of the hedge.
Hedging transactions involve costs and may result in losses. Each Fund will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Manager, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. There is no
assurance that appropriate foreign currency exchange transactions will be
available with respect to all currencies in which such Fund's investments may be
denominated. Each Fund's ability to engage in hedging transactions also may be
limited by tax considerations, and such Fund's hedging transactions may affect
the character or amount of such Fund's distributions.
A more detailed explanation of foreign investments and foreign currency
exchange transactions, and the risks and special tax considerations associated
with them, is included in the Statement of Additional Information.
DERIVATIVES
The Funds (except the Growth Fund, the Nifty Fifty Fund and the Balanced
Return Fund) may use derivatives to complement their basic investment strategy.
These derivatives include foreign currency exchange instruments, and options on
securities
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indices. These instruments and their rates are described in this Prospectus.
These derivatives do not exhibit extreme sensitivity to interest rates and are
commonly used by investment professionals. No Fund will invest more than 5% of
its total assets in these securities.
SPECIAL SITUATIONS
A Funds' investment in special situations often involves much greater risk
than is inherent in ordinary investment securities due to the often unusual
circumstances surrounding each special situation.
SMALL CAP AND UNSEASONED COMPANIES
A Funds' investment in small cap or unseasoned companies carries more risk
than investments in larger or more established companies. Reliance by small cap
or unseasoned companies on limited product lines, management, markets, financial
resources and other factors may make them more susceptible to market or economic
setbacks or downturns. Also, the securities of small cap or unseasoned companies
may trade less frequently and in limited volume, and only in the over-the-
counter market or a regional securities exchange. As a result, the stock prices
of small cap or unseasoned companies may be particularly volatile.
INVESTMENT POLICIES
In addition to the investment criteria described above, the Funds will
follow the investment policies set forth below which, unless otherwise indicated
as an operating policy, are fundamental policies that may not be changed without
prior shareholder approval as defined in the 1940 Act. References below to
certain percentages of a Fund's total assets mean the total assets at the time
the percentage is determined.
(a) DIVERSIFICATION OF INVESTMENTS.
With respect to at least 75% of each Fund's total assets, a Fund will not
invest more than 5% of its total assets in the securities of any one issuer,
other than obligations either issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. This limitation does not apply with respect to
the remaining 25% of a Fund's total assets (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 or of any one class
of securities of any one issuer. This limitation does not apply with respect to
the remaining 25% of a Fund's assets (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 same issuer will be included for
purposes of this limitation).
(d) FOREIGN SECURITIES.
Each of the Growth Fund, the Balanced Return Fund and the Nifty Fifty Fund
may investment up to 15% of its assets (subject to the aggregate limitations
referred to below with respect to the Nifty Fifty Fund and the Balanced Return
Fund), the Value 25 Fund may invest up to 25% of its assets, the Small & Mid-Cap
Growth Fund may invest up to 50% of its assets, and the Global Growth Fund may
invest up to 100% of assets in 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.
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(e) SPECIAL SITUATIONS.
As a matter of operating policy investments by the Small & Mid-Cap Growth
Fund and the Value 25 Fund in special situations may not exceed 35% of each
Fund's total assets and investments by the Growth Fund, the Balanced Return Fund
and the Nifty Fifty Fund in special situations may not exceed 30% of each Fund's
total assets; such investments by the Balanced Return Fund and the Nifty Fifty
Fund are subject to the aggregate limitations referred to below.
(f) UNSEASONED COMPANIES.
As a matter of operating policy, the Funds may invest to a limited extent in
securities of unseasoned companies and new issues. The Manager regards a company
as unseasoned when, for example, it is relatively new to or not yet well
established in its primary line of business. Such companies generally are
smaller and younger than companies whose shares are traded on the major stock
exchanges. Accordingly, their shares are often traded over-the-counter and their
share prices may be more volatile than those of larger, exchange-listed
companies. In order to avoid undue risks, a Fund will not invest more than 5% of
its total assets in securities of any one company with a record of fewer than
three years' continuous operation (including that of predecessors). Investments
by the Nifty Fifty Fund and the Balanced Return Fund in the securities of
unseasoned companies 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 a Fund have a readily determined market value which will
generally move in correlation with the market price of the underlying equity
security, warrants nevertheless become worthless if they are not sold or
exercised prior to their designated expiration date.
(h) TEMPORARY DEFENSIVE INVESTMENTS.
From time to time, depending on the Manager's analysis of market and other
considerations, all or part of the assets of a Fund may be held in cash and
short-term money market instruments, including obligations of the U.S.
Government, high quality commercial paper, certificates of deposit, bankers'
acceptances, bank interest-bearing demand accounts, and repurchase agreements
secured by U.S. Government securities. All such investments will be made for
temporary defensive purposes to protect against the erosion of capital and
pending investment in other securities. Under a repurchase agreement, a Fund
acquires a U.S. Government security from a financial institution that
simultaneously agrees to repurchase the same security at a specified time and
price. The repurchase price reflects an agreed-upon rate of return not
determined by the coupon rate on the underlying security. Under the 1940 Act,
repurchase agreements are considered to be loans by a Fund. In any repurchase
transaction in which a Fund engages, such Fund's position during the entire term
of the repurchase agreement will be fully collateralized. If the seller defaults
on its obligation to repurchase the underlying security, a Fund may experience
delay or difficulty in exercising its rights to realize upon the security, may
incur a loss if the value of the security declines and may incur disposition
costs in liquidating the security.
(i) INVESTMENT IN OTHER INVESTMENT COMPANIES.
As a matter of operating policy, each Fund may invest in securities issued
by other investment companies, including, in the case of the Global Growth,
Small & Mid-Cap Growth and Value 25 Funds, investment companies which
principally invest in securities of foreign issuers, within the limits contained
in the 1940 Act. Pursuant to such limits, a Fund currently may not invest in
such securities if, at the time of purchase, (i) more than 5% of the Fund's
total assets are invested in any one investment company, (ii) more than 3% of
the total voting stock of any one investment company is owned by the Fund, and
(iii) more than 10% of the Fund's total assets are in the aggregate invested in
such investment companies.
29
<PAGE>
(j) OTHER INVESTMENT RESTRICTIONS.
The investments by the Balanced Return Fund and the Nifty Fifty Fund in
securities of foreign companies, special situation 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, 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 (5% for
the Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund) for
temporary or emergency purposes only. These additional restrictions are
described in the Statement of Additional Information under "Investment Objective
and Policies."
Each Fund has reserved the right, if approved by the Board of Trustees, to
convert in the future to a "feeder" fund which would invest all of its assets in
a "master" fund having substantially the same investment objective, policies and
restrictions as currently exist for the respective Fund. Prior notice of any
such action would be given to all shareholders if and when such a proposal is
approved, although no such action has been proposed as of the date of this
Prospectus.
PORTFOLIO TURNOVER
Each Fund may purchase and sell securities without regard to the length of
time the security is to be held or has been held, subject to a limit in the
Internal Revenue Code of 1986, as amended (the "Code") on the amount of income
that may be realized on the sale of assets held for less than 3 months. This
factor, together with the adjustment of the investment portfolio whenever deemed
advisable, may, from time to time, result in a relatively high rate of portfolio
turnover. (The portfolio turnover rate is computed by dividing the lesser of
total purchases or proceeds of sales effected during the period, excluding
short-term securities, by the monthly average of the value of portfolio
securities during that period.) The annual portfolio turnover rate for the
Global Growth Fund is expected to be 20%-100%. The annual portfolio turnover
rate for the Small & Mid-Cap Growth Fund is not expected to exceed 150%. The
annual portfolio turnover rate for the Value 25 Fund is not expected to exceed
200%. However, from time to time, the annual portfolio turnover rate for each
Fund may be higher than these projections. High portfolio activity increases a
Fund's transaction costs, including brokerage commissions. See "Financial
Highlights" above.
30
<PAGE>
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund offers investors three Classes of shares which bear sales and
distribution charges in different forms and amounts:
CLASS A SHARES. An investor who purchases Class A shares pays an up-front
sales charge at the time of purchase of up to 5.50% of the public offering price
per share. Certain purchases of Class A shares may also qualify for reduced
sales charges, and purchases of $1 million or more are made at net asset value
with no sales charge. Class A shares are not subject to any charges when they
are redeemed, nor are they subject to a 12b-1 distribution fee. Accordingly,
Class A shares pay correspondingly higher dividends per share, to the extent any
dividends are paid, than Class B shares or Class C shares. However, because
initial sales charges are deducted at the time of purchase, investors purchasing
Class A shares would not have all of their funds invested initially and,
therefore, would initially own fewer shares. See "Purchase of Shares -- Initial
Sales Charge Alternative -- Class A Shares."
CLASS B SHARES. Class B shares are sold without an initial sales charge,
but are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within four years of purchase. Class B shares are subject to a 12b-1
distribution fee at the annual rate of 0.75% of the average net assets
attributable to the Class B shares. Class B shares will automatically convert
into Class A shares, based on relative net asset values, at the beginning of the
seventh year after purchase. Class B shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion into Class A shares which do not pay a 12b-1
distribution fee) will have a higher expense ratio and pay lower dividends than
Class A shares due to the Class B 12b-1 distribution fee. Pasadena Fund
Services, Inc. (the "Distributor") will pay out of its own resources to the
selling dealer a commission equal to 4.25% of the amount of the purchase. See
"Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares."
CLASS C SHARES. Class C shares are sold without an initial sales charge but
are subject to a CDSC of 1% if redeemed within one year of purchase (CDSC
applicable to the Global Growth, Small & Mid-Cap Growth and Value 25 Funds
only). Class C 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 C shares. Class C
shares have no conversion feature, and therefore purchasers of Class C shares
should expect to pay the 12b-1 distribution fee for as long as the shares are
owned. The distribution fee paid by Class C shares will cause them to have a
higher expense ratio and to pay lower dividends, to the extent any dividends are
paid, than Class A shares. The Distributor will pay out of its own resources to
the selling dealer a commission equal to 1% of the amount of the purchase. See
"Purchase of Shares -- Pay-As-You-Go Alternative -- Class C Shares."
WHICH PURCHASE ARRANGEMENT IS BETTER FOR YOU? The decision as to which
Class of shares provides a more suitable investment for a particular investor
depends on a number of factors, including the amount and intended length of the
investment, whether the investor wishes to receive distributions in cash or to
reinvest them in additional shares of a Fund, and other circumstances. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for at least seven 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.
Selling dealers and sales personnel may receive different compensation depending
on which Class of shares they sell.
31
<PAGE>
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 Boston Financial Data Services, Inc. (the
"Sub-Transfer Agent"), the Fund, or another authorized agent or subagent of the
Fund. The public offering price is effective for orders received by the
Sub-Transfer Agent, the Fund, or another authorized agent or subagent of the
Fund, prior to the time of the next determination of the applicable Fund's net
asset value. Orders received after the time of the next determination of the
applicable Fund's net asset value will be entered at the next calculated public
offering price. When purchasing shares of a Fund, you must specify whether you
wish to purchase Class A, Class B or Class C shares. An unspecified purchase
order will be considered an order for Class A shares.
The public offering price per share is equal to the net asset value per
share, plus a sales charge in the case of Class A Shares as described below.
Reduced sales charges apply to quantity purchases of Class A shares made at one
time by (i) an individual, (ii) members of a family (I.E., an individual, spouse
and children or grandchildren under age 21), or (iii) a trustee or fiduciary of
a single trust estate or a single fiduciary account. (See also "Rights of
Accumulation" below.) For Class B shares and Class C shares, the public offering
price is equal to the net asset value per share with no initial sales charge.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the net asset value per share plus a sales
charge depending upon the amount purchased, as described in the following table.
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
-------------------
PUBLIC NET DEALER COMMISSION
AMOUNT OF PURCHASE OFFERING AMOUNT AS PERCENTAGE OF
AT THE PUBLIC OFFERING PRICE PRICE INVESTED THE PUBLIC OFFERING PRICE
-------------------------- -------- -------- -------------------------
<S> <C> <C> <C>
Less than $50,000...................................... 5.50% 5.82% 5.00%
$50,000 but less than $100,000......................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000........................ 3.75% 3.90% 3.25%
$250,000 but less than $500,000........................ 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000...................... 2.00% 2.04% 1.75%
$1,000,000 or more..................................... None None 1.00%*
</TABLE>
- ------------------------------
* Paid by the Manager from its own resources, as described below under "Purchase
at Net Asset Value -- Class A Shares."
RIGHTS OF ACCUMULATION -- CLASS A SHARES
The reduced sales charges applicable to purchases of Class A shares apply on
a cumulative basis over any period of time. Thus, the value of all Class A
shares of all of the Funds in The Pasadena Group of Mutual Funds owned by an
investor (including the investor's own account, Individual Retirement Account
("IRA"), spousal or other account), taken at the current net asset value, can be
combined with a current purchase of Class A shares of any of the Funds to
determine the rate of sales charge applicable to the current purchase. In order
to receive the cumulative quantity reduction, the existing Class A shares of all
of the Funds held by an investor must be called to the attention of the
Distributor at the time of the current purchase. Rights of accumulation are not
available for purchases of Class B shares or Class C shares.
LETTER OF INTENT -- CLASS A SHARES
An investor may qualify for an immediate reduced sales charge on a purchase
of Class A shares of any of the Funds by completing the Letter of Intent section
of the Investment Application (the "Letter of Intent"), in which the investor
states an
32
<PAGE>
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. Letters of Intent are not
available for purchases of Class B shares or Class C shares.
PURCHASE AT NET ASSET VALUE -- CLASS A SHARES
Class A shares may be purchased at net asset value by officers, trustees,
directors and full-time employees of the Trust, the Manager, the Distributor and
affiliates of such companies, by their family members, by direct investment
advisory clients of the Manager's affiliate Roger Engemann & Associates, Inc.
("REA") and their family members, and by such other persons who are determined
by the Trust's Board of Trustees to have acquired such shares under special
circumstances not involving any sales expense to the Fund or the Distributor.
Class A shares may also be purchased at net asset value by registered
broker-dealers and their affiliates, by their registered personnel and employees
and by their immediate family members, in accordance with the internal policies
and procedures of the broker-dealer. Class A shares may also be acquired at net
asset value by unit trusts, insurance companies or other separate accounts
including accounts at broker-dealers or advisers who provide additional
consulting or asset allocation services for the benefit of their clients and
funds organized and offered outside of the United States, and by broker-dealers
who charge their brokerage clients an asset-based fee in lieu of brokerage
commissions, and which acquire and hold such shares of the Funds as part of a
program or separate offering being made by them.
Class A shares may be purchased at net asset value with no sales charge by
investors who are existing Class A shareholders of any of the 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 Funds. An investor must indicate
eligibility for this privilege at the time of the investment. The Manager or the
Distributor may, in its discretion, waive the minimum initial investment
requirements for certain of these investors.
Class A shares may be purchased by any single purchaser at net asset value
with no sales charge in amounts of $1 million or more in one or more of the
Funds, and may also be purchased at net asset value by employee benefit plans
qualified under Section 401(a) of the Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to minimum requirements with
respect to number of employees or amount of purchase, which may be established
from time to time by the Distributor. Currently, the Distributor has not
established any such minimum requirements. Employee benefit plans not qualified
under Section 401(a) of the Code may be afforded the same privilege if they meet
the above requirements as well as the uniform criteria for qualified groups, if
any, established by the Distributor from time to time to enable the Distributor
to realize economies of scale in its sales efforts and sales-related expenses.
Class A shares may also be purchased at net asset value by trust companies
and other financial institutions, bank trust departments and fee-based financial
planners and investment advisors for funds or accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. Such purchases are also subject
to minimum requirements with respect to amount of purchase which may be
established by the Distributor from time to time. Currently, the Distributor has
not established any such minimum requirements. Such institutions may charge
their clients transaction or other fees connected with the purchase of Fund
shares.
33
<PAGE>
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' assets represented by such investments. In addition, the
Manager currently pays to Merrill, Lynch, Pierce, Fenner & Smith Incorporated
("ML"), out of the Manager's own resources, for additional shareholder services
and shareholder account maintenance, a continuing quarterly fee of up to .15%
per annum of the aggregate net asset value of the Class A shares of any Fund
held by customers of ML for more than four years.
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
GENERAL. Investors choosing the deferred sales charge alternative may
purchase Class B shares of any Fund at net asset value per share without the
imposition of a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund and the investor will
realize the effect of having the full amount of the investor's purchase payment
available for investment by the Fund.
Proceeds from the CDSC assessed on shares redeemed within four years from
the date of purchase will be paid to the Distributor and used in whole or in
part by the Distributor to defray its expenses in providing distribution-related
services to the Funds in connection with the sale of its Class B shares, such as
the payments of an up-front commission by the Distributor to selected dealers
and agents for selling Class B shares. The combination of the CDSC and the Class
B distribution fee facilitates the ability of the Funds to sell the Class B
shares without a sales charge being deducted at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed within
four years of purchase will be subject to a CDSC at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the original cost of the shares
being redeemed or their net asset value at the time of redemption. Accordingly,
no sales charge will be imposed on increases in net asset value above the
initial purchase price. In addition, no sales charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares (the "CDSC Period"), as described below:
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
----------------------------------------------------------------- -----------------
<S> <C>
First............................................................ 5%
Second........................................................... 4%
Third............................................................ 3%
Fourth........................................................... 3%
Fifth and Thereafter............................................. None
</TABLE>
In determining whether a CDSC is applicable to a redemption of Class B
shares, the calculation will be determined in the manner that results in the
lowest rate being charged. Therefore, it will be assumed that the redemption is
first of any Class B shares representing capital appreciation, second of Class B
shares acquired pursuant to reinvestment of dividends or distributions, and
third of Class B shares held for the longest period of time.
34
<PAGE>
To illustrate, assume an investor purchased 100 shares at $10 per share (at
a cost of $1,000) and during the second year after purchase, the net asset value
per share is $12 and, during such time, the investor has acquired 10 additional
shares through reinvestment of dividends. If the investor then makes his first
redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the
CDSC because they were acquired through reinvestment of dividends. With respect
to the remaining 40 shares, the charge is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption will be charged at a rate of 4% (the
applicable rate in the second year after purchase), for a total CDSC payable of
$16, which will be deducted from the redemption proceeds.
CLASS B CONVERSION FEATURE. Class B shares include all shares purchased
pursuant to the deferred sales charge alternative which have been outstanding
for less than the period ending on the first business day of the month next
following the sixth anniversary of their purchase (the "Class B Holding
Period"). At the end of the Class B Holding Period, Class B shares will
automatically convert to Class A shares and will no longer be subject to the
Class B distribution fee or a CDSC. Such conversion will be on the basis of the
relative net asset values of the two Classes, without the imposition of any
sales charge, fee or other expense. The purpose of the conversion feature is to
eliminate the distribution fee paid by the holders of Class B shares that have
been outstanding for a period of time sufficient for the Distributor to have
been compensated for having incurred the initial distribution expenses related
to those Class B shares.
For purposes of conversion to Class A shares, Class B shares purchased
through the reinvestment of dividends and distributions paid in respect of Class
B shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares.
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 (provided such shares are held for more
than one year). 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
with a CDSC imposed only on shares of the Global Growth Fund, Small & Mid-Cap
Growth Fund, and Value 25 Fund redeemed within the first year so that the
investor will receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The continuing 12b-1 distribution fee, which the
Distributor intends to reallow to the selling dealer in addition to an up-front
commission paid by the Distributor from its own resources, enables the Fund to
sell Class C shares without either an initial sales charge or CDSC that extends
beyond one year. 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.
WAIVERS OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on
redemptions of shares (i) following the death or disability (as defined in
Section 72(m)(7) of the Code) of a shareholder if redemption is made within one
year of death or disability, (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2, (iii) made under a Systematic
Withdrawal Plan (as described below), with some limitations, (iv) followed by a
reinvestment in such shares effected within 60 days of the redemption (this
allows investors who redeemed or otherwise had second thoughts about having
redeemed their Class B or Class C shares to reinvest the proceeds in such shares
plus the amount of any CDSC previously paid), and (v) by tax-exempt employee
benefit plans resulting from the enactment of any law or the promulgation by the
Internal Revenue Service (the "IRS") or the Department of Labor of any
regulation pursuant to which continuation of the investment in such shares would
be improper, subject to the Funds' right to require an opinion of counsel to the
effect that the continuation of such an investment would be improper. Upon any
reinvestment made in accordance with clause (iv) above, which is a one-time
privilege, the amount reinvested will be subject to the same CDSC to
35
<PAGE>
which such amount was subject prior to the redemption, and the CDSC Period with
respect to the amount will continue to run from the original investment date,
but will be extended by the number of days between the redemption and the
reinvestment dates.
PURCHASE PROCEDURE
The principal underwriter and distributor for the shares of the Funds is
Pasadena Fund Services, Inc., 600 North Rosemead Boulevard, Pasadena, California
91107-2133 (the "Distributor"). Generally, shares may be purchased only through
investment dealers that have selling agreements with the Distributor. It is the
responsibility of such investment dealers to transmit orders so they will be
received by the Distributor (in care of the Sub-Transfer Agent) on a timely
basis. Orders placed with dealers prior to that day's determination of the
applicable Fund's offering price must be received by the Distributor (c/o the
Sub-Transfer Agent) prior to its close of business on the same day.
Investment applications, accompanied by a check, in U.S. dollars, payable to
"The Pasadena Group of Mutual Funds," should be sent by the investment dealer to
the Distributor in care of the Sub-Transfer Agent, P.O. Box 8505, Boston,
Massachusetts 02266-8505. No subscriptions will be accepted without payment.
Third party checks will only be accepted if they are payable to an existing
shareholder of the Fund who is an individual and if they are endorsed over to
the Pasadena Group of Mutual Funds. When purchases are made by check or periodic
automatic investment, redemption proceeds will not be forwarded to the
shareholder until the investment being redeemed has been in the account for at
least 15 calendar days or, if sooner, the time the investment has been cleared.
For direct purchases by an investment dealer for its client, payment for the
shares purchased must be received by the dealer. Full and fractional shares will
be issued for the amount of the purchase. Purchase orders must specify which
class of each fund is being purchased, or they will be deemed orders for the
purchase of Class A shares.
The minimum initial investment for each Fund is $1,000 per account ($250 for
individual retirement accounts and custodial accounts for minors under the
Uniform Transfers to Minors Act and for the initial purchase under a Systematic
Purchase Plan). Minimum additional investments are $50. The Manager or
Distributor may, in its discretion, reduce or waive the minimum investment
requirements.
The Funds and the Distributor each reserve the right in its sole discretion
to reject any purchase order in whole or in part, and may suspend the offering
of each Fund's shares at any time. For investors wishing to purchase shares by
wire, please call the Funds or your investment dealer for information on the
procedures to be followed.
SHAREHOLDERS' OPEN ACCOUNTS
When an investor purchases shares in a Fund, the appropriate Fund opens a
Shareholder's Open Account for that investor or for the investment dealer
holding the Fund's shares for the investor. Any additional shares purchased are
likewise credited to the Shareholder's Open Account.
The Funds maintain a continuous permanent record of each Shareholder's Open
Account and send a written statement of every transaction in the account,
including information concerning the status of the account. These statements
provide an annual record of investments in shares of each Fund, which are held
for the shareholder in uncertificated form by the appropriate Fund's transfer
agent. No share certificates are issued.
SYSTEMATIC PURCHASE PLAN
Under the Funds' Systematic Purchase Plan, a shareholder may arrange to make
additional purchases (minimum $50) of Fund shares automatically on a monthly
basis by electronic funds transfer from the shareholder's checking account if
the bank which maintains the account is a member of the Automated Clearing
House, or by preauthorized checks drawn on the shareholder's bank account. A
shareholder may, of course, terminate the program at any time. Investors may
obtain more information concerning this program, including the application form,
from their investment dealer or the Funds.
36
<PAGE>
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 ("IRA") available from the Funds or through other established
retirement plans. An IRA using a trust account maintained by Pasadena National
Trust Company, an affiliate of the Manager, is available with no separate fees.
PURCHASING SHARES:
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
By mail: See "Purchase Procedures" for initial minimum $50 minimum for subsequent purchases.
requirements.Complete account application in Complete the form at the bottom of a recent
its entirety, sign and return with your check account statement, make your check payable to
made payable to The Pasadena Group of Mutual The Pasadena Group of Mutual Funds, write
Funds to the address listed on the account your account number on the check and mail in
application. the envelope provided with your account
statement.
By wire: Not currently available. Instruct your bank to wire funds to:
State Street Bank and Trust
Boston, MA
ABA #011000028
DDA #99046526
Also reference:
-- Name of Pasadena Fund
specifying Class A, B, or C
shares
-- Fund account number
By contacting your investment Visit any investment dealer who is registered Mail directly to your investment dealer's
dealer: in the state where the purchase is made and address printed on your account statement, or
who has a sales agreement with Pasadena Fund to the Sub-Transfer Agent at P.O. Box 8505,
Services, Inc. Boston, MA 02266-8505
</TABLE>
EXCHANGE PRIVILEGE
Shares of a specific Class of one Fund may only be exchanged for shares of
that same Class of another of the Funds. Such exchanges will be on the basis of
the shares' relative net asset values (with no sales charge, exchange fee or
CDSC at the time of the exchange.) Shares of a Fund may not be exchanged for
shares of another Fund unless the amount exchanged satisfies the other Fund's
minimum investment requirement. Exchange instructions may be given to the Funds
in writing in care of the Sub-Transfer Agent, P.O. Box 8505, Boston,
Massachusetts 02266-8505, or to the Pasadena Group Service Center by telephone
at (800) 648-8050. Exchanges, which involve the redemption of shares of a Fund
and the purchase of shares of another Fund, may only be made in states where
shares of such Funds are qualified for sale, and investors should note that an
exchange may result in recognition of a gain or loss for income tax purposes.
Exchange privileges may be modified or suspended by the Funds upon 60-days'
prior notice to shareholders.
For purposes of computing both (i) the time remaining before Class B shares
of a Fund ("New Class B shares") acquired through an exchange for Class B shares
of another Fund ("Original Class B shares") convert to Class A shares of the
"new" Fund and (ii) the CDSC, if any, payable upon disposition of the New Class
B shares, the holding period of the Original Class B shares is
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added to the holding period of the New Class B shares. For purposes of computing
the CDSC, if any, payable upon the disposition of Class C shares of a Fund ("New
Class C Shares") acquired through an exchange for Class C shares of another Fund
("Original Class C Shares"), the holding period of the Original Class C shares
is added to the holding period of the New Class C Shares. For example, if shares
of the Original Fund are purchased in Year One and are exchanged into shares of
the New Fund in Year Three, the holding period of the New Fund shares is
computed from Year One.
TELEPHONE EXCHANGE PRIVILEGE. Shareholders will be deemed to have elected
the telephone exchange privilege unless they indicate to the contrary by marking
the appropriate section of the investment application. By electing the telephone
exchange privilege, investors authorize the Funds to act upon instructions by
telephone to exchange shares from the Fund account for which such service has
been authorized. (See "Telephone Redemption Privilege" below for information
regarding the use of telephone authorizations.)
GENERAL
Class A shares of the Funds may, on a one-time only basis by any
shareholder, be repurchased at the then current net asset value with no sales
charge up to the amount of any redemption of such shares by the shareholder
within the prior 60-day period. Shares of the Funds may also be sold in foreign
jurisdictions through financial institutions and intermediaries at their current
net asset value plus a sales charge or commission which is different from those
described in this Prospectus. Telephone orders from dealers and requests for
information from dealers or shareholders will be recorded for the protection of
the Funds.
The Distributor, at its expense, will from time to time also provide
additional compensation to dealers who sell shares of any of the 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
Funds and/or other dealer-sponsored special events. In some instances, this
compensation will be made available only to dealers whose representatives have
sold or are expected to sell significant amounts of such shares. Dealers may not
use sales of any of the Funds' shares to qualify for this compensation to the
extent such may be prohibited by the laws or regulations of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. ("NASD"). Compensation may include payment for travel expenses, including
lodging at luxury resorts, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
REDEMPTION OF SHARES
GENERAL
The Funds will redeem all or any portion of a shareholder's account when
requested, proceeds will be held subject to prior collection by the Funds'
custodian of the purchase price of the shares being redeemed. When purchases are
made by check or periodic automatic investment, redemption proceeds will not be
forwarded to the shareholder until the investment has been in the account for at
least 15 calendar days, or, if sooner the time the investment has been cleared.
Except for any CDSC which may be applicable to redemptions of Class B or Class C
shares, there is no redemption charge and the redemption price will be the net
asset value per share next determined after receipt in proper form of the
redemption request by the Sub-Transfer Agent, the Fund, or another authorized
agent or subagent of the Fund. See "Determination of Net Asset Value."
Shareholders may redeem shares by sending a signed request for redemption to
their investment dealer or to the Funds c/o Boston Financial Data Services,
Inc., P.O. Box 8505, Boston, Massachusetts 02266-8505. If an investor owns more
than one Class of shares in a fund, the redemption request must specify which
Class is being redeemed. Absent such specification, the shareholder's shares
will be redeemed in the following order: first, Class C shares; second, Class A
shares; and third, Class B shares.
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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 and Class C shares).
Because of the expense of maintaining small accounts, a Fund, at its option,
may redeem accounts with a market value of $800 or less as a result of
redemptions, after a prior written notice of at least 60 days to provide the
shareholder an opportunity to purchase sufficient shares to bring the account up
to a value of at least $1,000 ($200 and $250, respectively, for accounts
requiring an initial minimum investment of $250).
WIRE TRANSFERS
A wire transfer procedure is available for redemptions made directly through
the Funds, which permits the proceeds of a redemption of the Fund's shares to be
wired to a designated bank account on the second business day following the
redemption. A shareholder desiring to redeem shares by this procedure must
provide the Sub-Transfer Agent with a written authorization, including specific
bank account information, which instructs the Sub-Transfer Agent to honor wire
redemption requests. A fee of $10 may be deducted from the proceeds of each
redemption to cover the costs of the wire transfer. This privilege may be
modified or terminated at any time by the Funds or the Sub-Transfer Agent upon
notice to shareholders.
TELEPHONE REDEMPTION PRIVILEGE
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 Funds or the Sub-Transfer Agent to act
upon instructions by telephone, which are reasonably believed to be genuine, to
redeem shares from the Fund account for which such service has been authorized
and, in the case of wire redemptions, to transfer the proceeds to the bank or
other account designated in the prior authorization. Shareholders agree that the
Funds and/or the Sub-Transfer Agent will be liable for any loss, expense or cost
suffered or incurred by shareholders arising out of any telephone redemption or
exchange request, including any fraudulent or unauthorized requests, only if
reasonable procedures are not followed. In an effort to confirm that telephone
requests are genuine, the Funds 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.
Purchases of additional Class A shares concurrently with periodic
withdrawals from the shareholder's account may be disadvantageous because of
sales charges applied when purchases of Class A shares are made. Purchases of
additional shares of any Class concurrently with withdrawals from the
shareholder's account may also be disadvantageous because some or all of any
loss on redemption of any Class may be disallowed under certain "wash sale"
rules for federal income tax purposes. While a
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Systematic Withdrawal Plan is in effect, each additional purchase of the
applicable Fund's shares must be equal to at least three times the scheduled
annual withdrawals or $5,000, whichever is less. Shareholders should recognize
that, to the extent withdrawals exceed purchases plus any dividends and
distributions reinvested, the value of their account will be reduced and
ultimately may be exhausted. Each withdrawal may result in gain or loss which
generally must be recognized for federal or state income tax purposes.
To initiate a Systematic Withdrawal Plan, a shareholder should complete the
authorization form which may be obtained from the Funds or the shareholder's
investment dealer. The Funds and the Sub-Transfer Agent each reserve the right
to modify or terminate this privilege at any time upon notice to the
shareholder, and the Plan will terminate automatically if the value of the
shareholder's shares in the applicable Fund is reduced below $800, or upon such
Fund's receipt of notification of the death or incapacity of the shareholder.
REDEEMING SHARES:
<TABLE>
<CAPTION>
METHOD PROCEDURE
<S> <C>
By writing to The Pasadena Group of Send a letter of instruction specifying the name of the Fund, the number of shares or
Mutual Funds, c/o the Sub-Transfer dollar amount to be sold, the Class of shares to be sold, your name and account number.
Agent, P.O. Box 8505, Boston, For redemptions over $50,000, and for certain redemptions of $50,000 or less (trusts,
Massachusetts 02266-8505: 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.
By contacting your investment dealer: If you redeem shares through your investment dealer, you may be charged for this service.
Shares held for you in your investment dealer's street name must be redeemed through the
dealer.
By telephone-contact one of our Mutual If you have previously authorized telephone privileges on your account application, you
Fund Representatives at (800) 648-8050: may redeem up to $50,000 per account over the telephone, provided the check is made
payable to the shareholder(s) of record and is sent to the address of record (the address
must have been in effect for at least 30 days prior to the redemption). Certain accounts
cannot be processed over the telephone (trusts, corporations, partnerships and retirement
plans) since additional documentation may be required.
By wire: Any redemption request that has been received in proper order, may be wired to the
shareholder(s) bank provided the information has been previously placed in the computer,
or if accompanied by a signature guaranteed letter requesting that funds be wired. A fee
of $10 may be deducted from the proceeds of each redemption to cover the costs of the wire
transfer.
</TABLE>
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MANAGEMENT
The Board of Trustees of the Trust oversees the business and affairs of the
Funds and exercises all powers normally associated with running a business. The
Board has delegated the management and administration of the Funds' day-to-day
operations to the Trust's officers and the Manager.
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The Manager is Roger Engemann Management Co., Inc., a California corporation
whose office is located at 600 North Rosemead Boulevard, Pasadena, California
91107-2101. The Manager's telephone numbers are (818) 351-9686 and (800)
882-2855 (toll-free).
Roger Engemann & Associates, Inc. ("REA"), which is a wholly owned
subsidiary of Pasadena Capital Corporation, owns 93.5% of the Manager's capital
stock. Roger Engemann, controlling shareholder of Pasadena Capital Corporation,
is the Chairman of the Board and President of REA, the Manager and the Trust.
REA has been engaged in the investment management business since 1969, and
provides investment counseling services to retirement plans, colleges,
corporations, trusts and individuals. The portfolio managers, research analysts
and supporting staff are substantially the same for both the Manager and REA.
Combined assets under management by the Manager and REA as of December 31, 1996,
were approximately $5.1 billion.
Roger Engemann, James E. Mair and John S. Tilson are primarily responsible
for the day-to-day management of the Funds. Mr. Engemann has been president of
the Manager since its organization in 1985, and has been president of REA since
its inception. Messrs. Mair and Tilson are both Executive Vice Presidents and
Managing Directors of Portfolio Management of the Manager, and both have been
with the Manager since 1985 and with REA since 1983. Messrs. Engemann and Mair
have been Chartered Financial Analysts ("CFAs") since 1972, and Mr. Tilson has
been a CFA since 1974.
The Manager serves under an investment management agreement (the "Management
Agreement") with the Trust on behalf of the Funds. Under the Management
Agreement, the Manager furnishes investment advice and investment management
services with respect to each Fund's portfolio of securities and investments,
provides personnel, office space, facilities and equipment as may be needed by
the Funds in their day-to-day operations, and provides the officers of the
Trust. The Manager also provides the Funds with fund accounting, including
assistance and personnel necessary to price the portfolio securities of each
Fund, calculates each Fund's net asset value, and maintains the books and
records of each Fund's investment portfolio as required by applicable law. The
Manager also performs, under an administration agreement (the "Administration
Agreement"), administrative and shareholder servicing for the Funds and pays for
all other normal operating expenses of each Fund, except for the fees and
expenses associated with investment management and the service fees paid by the
Funds to dealers and others.
The Manager may consider a number of factors in determining which brokers or
dealers to use for the Funds' portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors may include,
but are not limited to, the reasonableness of commissions, the quality of
services and executions, sales of the Funds' shares, and the availability of
research which the Manager and its affiliates may lawfully and appropriately use
in their investment advisory capacity.
MANAGEMENT AND ADMINISTRATION FEES AND EXPENSES
For the services provided under the Management Agreement, the Manager
receives a management fee from each Fund (paid monthly) computed and prorated on
a daily basis. For the Growth Fund, the Balanced Return Fund, and the Nifty
Fifty Fund, the management fee is equal to the annual rate of 1.00% of the
Fund's average daily net assets up to $30 million, plus 0.80% of the Fund's
average daily net assets over $30 million up to $100 million, plus 0.60% of the
net assets over $100 million up to $500 million, plus 0.40% of net assets over
$500 million. For the Global Growth Fund, the management fee is equal to the
annual rate of 1.10% of the Fund's average daily net assets up to $50 million,
plus 1.00% of net assets over $50 million up to $500 million, plus 0.90% of net
assets over $500 million. For the Small & Mid-Cap Growth Fund, the management
fee is equal to the annual
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rate of 1.00% of the fund's average daily net assets up to $50 million, plus
0.90% of net assets over $50 million up to $500 million, plus 0.80% of net
assets over $500 million. For the Value 25 Fund, the management fee is equal to
the annual rate of 0.90% of the Fund's average daily net assets up to $50
million, plus 0.80% of net assets over $50 million up to $500 million, plus
0.70% of net assets over $500 million. For services provided under the
Administration Agreement, the Manager receives an administration fee from each
Fund. For the Growth Fund, the Balanced Return Fund, and the Nifty Fifty Fund,
the fee is equal to the annual rate of 1.05% 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. For the Global Growth Fund,
the Small and Mid-Cap Growth Fund, and the Value 25 Fund, the fee is equal to
the annual rate of 0.60% per annum of the Fund's average daily net assets up to
$50 million, plus 0.50% per annum of net assets over $50 million up to $500
million, plus 0.40% of net assets over $500 million. The Manager, however, has
contractually agreed to limit the expenses of the Growth Fund, the Balanced
Return Fund and the Nifty Fifty Fund to the lesser of the rates stated above for
such Funds or the rate schedule negotiated for the Global Growth Fund, Small &
Mid-Cap Growth Fund and Value 25 Fund.
The Manager, in its capacity as administrator of the Funds, bears the cost
for all normal operating expenses of each Fund (except for the fees and
expenses, including brokerage, associated with investment management services,
and the fees paid to dealers and others providing services to shareholder
accounts, and the distribution fees paid by Class B shares and Class C shares)
which are normally paid directly by other investment companies, such as
compensation of the Trust's trustees, cost of shareholder reports, insurance,
and all fees and expenses of each Fund's transfer agent and sub-transfer agent,
dividend disbursing agent, custodian, auditors, accountants, attorneys and other
parties performing services or operational functions for such Fund. As a result,
each Fund will not incur any expenses in connection with its normal operations
other than the fees and expenses described above. (See "Expense and Fee Tables"
beginning on page 3)
During the fiscal years ended December 31, 1995 and 1994, the Manager waived
and absorbed all management and administration fees otherwise payable by the
Global Growth Fund and the Small & Mid-Cap Fund to the Manager. Also, see the
Statement of Additional Information -- "Investment Management and Administrative
Services."
During the last quarter of 1996, the Manager waived certain administration
fees otherwise payable to it by the Growth Fund, the Nifty Fifty Fund and the
Balanced Return Fund to maintain total operating expenses for those Funds at the
lesser of the rates stated above for such Funds or the rate schedule negotiated
for the Global Growth Fund, the Small & Mid-Cap Growth Fund and the Value 25
Fund.
During the fiscal year ended December, 31, 1996, the management fees paid by
each of the Funds were as follows: .65% Growth Fund; .74% Nifty Fifty Fund; .90%
Balanced Return Fund; .44% Global Growth Fund; and .55% Small & Mid-Cap Growth
Fund. The administration fees paid to the Manager during that same period were
as follows: .70% Growth Fund; .78% Nifty Fifty Fund; .95% Balanced Return Fund;
.24% Global Growth Fund; and .33% Small & Mid-Cap Growth Fund.
DISTRIBUTION PLANS
Rule 12b-1 adopted by the Securities and Exchange Commission (the
"Commission") under the 1940 Act permits an investment company directly or
indirectly to pay expenses associated with the distribution of its shares
("distribution expenses") in accordance with a plan adopted by the investment
company's Board of Trustees and approved by its shareholders. Pursuant to that
Rule, the Trust's Board of Trustees and the initial shareholder of the Class B
shares and Class C shares of each Fund have approved, and each Fund has entered
into, a distribution plan (each a "Plan") with the Distributor for Class B
shares and Class C shares. Under the Plans, each Fund will pay distribution fees
to the Distributor at an annual rate of 0.75% of such Fund's aggregate average
daily net assets attributable to its Class B shares and Class C shares,
respectively, to reimburse the Distributor for its distribution costs with
respect to those Classes. There is no 12b-1 Plan or distribution fee for the
Class A shares.
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<PAGE>
Each Plan provides that the Distributor may use the distribution fees
received from the Class covered by the Plan to pay for the distribution expenses
of that Class, including, but not limited to (i) incentive compensation paid to
the directors, officers and employees of, agents for and consultants to, the
Distributor or any other broker-dealer or financial institution that engages in
the distribution of that Class; and (ii) compensation to broker-dealers,
financial institutions or other persons for providing distribution assistance
with respect to that Class. Distribution fees may also be used for (i) marketing
and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising for that Class; (ii) costs of printing and distributing
prospectuses, statements of additional information and reports of the Fund to
prospective investors in that Class; (iii) costs involved in preparing, printing
and distributing sales literature pertaining to the Fund and that Class; and
(iv) costs involved obtaining whatever information, analysis and reports with
respect to marketing and promotional activities that the Fund may, from time to
time, deem advisable with respect to the distribution of that Class.
Distribution fees are accrued daily and paid monthly, and are charged as
expenses of the Class B shares and Class C shares as accrued.
In adopting each Plan, the Board of Trustees determined that there was a
reasonable likelihood that such Plan would benefit the Fund and the shareholders
of the Class to which it relates. Information with respect to distribution
revenues and expenses is presented to the Board of Trustees quarterly for its
consideration in connection with its deliberations as to the continuance of the
Plans. In its review of the Plans, the Board of Trustees is asked to take into
consideration expenses incurred in connection with the distribution of each
Class of shares separately.
The Class B shares and Class C shares are not obligated under the Plans to
pay any distribution expense in excess of the distribution fee. Thus, if a Plan
were terminated or otherwise not continued, no amounts (other than current
amounts accrued but not yet paid) would be owed by the Class to the Distributor.
The distribution fee attributable to the Class B shares is designed to
permit an investor to purchase Class B shares through broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Distributor to recover its costs of paying an up-front commission to
broker-dealers in connection with the sale of the Class B shares. The
distribution fee 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 Rule 2830 of the NASD Conduct Rule, as such Rule may change from
time to time.
SERVICE FEES
The Funds also will pay dealers and others, including the Funds' Manager and
the Distributor, a continuing service fee equal to 0.25% per annum of the
average net asset value of the Funds' shares held by such persons in order to
compensate them for providing certain services to their clients, including
processing redemption transactions and providing account maintenance and certain
information and assistance with respect to the Funds, and responding to
shareholder inquiries.
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<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund intends to declare a dividend equal
to substantially all of its net investment income (including any net short-term
capital gains realized by the Fund and any net realized foreign currency gains
and losses, if any) and a distribution of substantially all net realized
long-term capital gains at least once each calendar year, typically in December,
except that the Value 25 Fund intends to declare dividends from investment
income on a quarterly basis, the Board, however, may declare dividends more or
less frequently. Dividends paid by a Fund, if any, with respect to Class A,
Class B and Class C shares will be calculated in the same manner at the same
time on the same day and will be in the same amount, except that the
distribution fees relating to Class B and Class C shares will be borne
exclusively by each such Class. The per share income dividends and
distributions, if any, on Class B shares and Class C shares will be lower than
the per share income dividends and distributions, if any, on Class A shares as a
result of the distribution fees applicable to the Class B and Class C shares but
not to the Class A shares.
Unless a shareholder has previously requested in writing that payment be
made in cash, dividends and capital gain distributions are reinvested in
additional shares of the applicable Fund at a purchase price equal to the net
asset value per share (without any sales charge) as of 4:15 p.m., Eastern Time,
on the dividend or distribution reinvestment date. Each shareholder's account is
subsequently credited with the purchased shares on the dividend or distribution
payment date. A shareholder may change his or her election at any time prior to
the record date for a particular dividend or distribution by written request.
Shareholders may not receive immediate confirmation of automatic dividend
and capital gain reinvestment transactions, but may instead receive confirmation
of such transactions in a periodic statement. Shareholders can also obtain
information on their accounts by calling the telephone number listed below under
"Shareholder Inquiries."
Any dividend or distribution paid by the Funds reduces the net asset value
per share by the per share amount of the dividend or distribution. Therefore, a
dividend or distribution paid shortly after a purchase of shares by an investor
would represent, in substance, a partial return of capital to the shareholder
(to the extent it is paid on the shares so purchased), even though it would be
subject to income taxes, as discussed below.
TAXES. Each Fund (with the exception of the Value 25 Fund which intends to
qualify and elect) has qualified and elected, and intends to continue to
qualify, to be treated as a regulated investment company under Subchapter M of
the Code. By satisfying certain requirements relating to the sources of the
Fund's income and the diversification of its assets and by distributing
substantially all of its net investment income and net realized capital gains
for each fiscal year, in addition to meeting other requirements imposed by the
Code, a Fund will not be subject to any federal income taxes to the extent its
earnings are distributed.
Dividends and capital gain distributions of a Fund, whether reinvested in
additional shares or received in cash, will be subject to current federal income
tax, except to tax-exempt shareholders which have not borrowed to purchase or
carry Fund shares. Dividends of net investment income and the excess of net
short-term capital gains over net long-term capital losses are taxable to
shareholders as ordinary income. Distributions of the excess of net long-term
capital gains over net short-term capital losses are treated as long-term
capital gains regardless of how long a shareholder has held shares of the Fund.
In the case of corporate shareholders, distributions from the Fund may
qualify for the corporate dividends-received deduction to the extent the Fund
designates the amount distributed as a qualifying dividend. Availability of the
dividends-received deduction is subject to certain holding period and
debt-financing limitations.
Under certain circumstances, depending on the percentage of a Fund's assets
invested in foreign securities, such Fund may be able to elect to pass-through
to its shareholders the pro-rata portion of income or other taxes paid by such
Fund to foreign governments during a year, which would then allow the
shareholders to deduct or claim a foreign tax credit for such amount.
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Distributions will be taxable in the year in which they are received except
for certain distributions received in January, which will be taxable as if
received the prior December. Shareholders will be informed annually of the
amount and nature of each Fund's distributions, the portion, if any, that
qualifies for the corporate dividends-received deduction, the portion, if any,
that should be treated as a return of capital, and the amount, if any, of income
tax withheld or foreign taxes eligible for "pass through" to shareholders.
Additional information about taxes is set forth in the Statement of
Additional Information. The foregoing discussion has been prepared by the
management of the Funds, and does not purport to be a complete description of
all tax implications of an investment in any Fund. Shareholders should consult
their own advisers concerning the application of federal, state and local tax
laws to their particular situations. Heller, Ehrman, White & McAuliffe, legal
counsel to the Fund, has expressed no opinion in respect thereof.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Funds is determined as of 4:15 p.m., Eastern
Time, on each day the New York Stock Exchange is open and during which a
purchase subscription or redemption request is received (or at such earlier time
as the Exchange may close). Net asset value per share is calculated by dividing
the total value of each Fund's investments and other assets, less all
liabilities, by the number of Fund shares outstanding. For this calculation,
each Fund's assets include accrued dividends (from their ex-dividend date) and
interest, and liabilities include accrued expenses.
In valuing a Fund's assets for calculating net asset value, portfolio
securities with readily available market quotations are valued at their market
value and other assets are valued in such manner as the Board of Trustees deems
appropriate to reflect their fair value. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at the then-current exchange rates
or at such other value as the Board of Trustees may determine in computing net
asset value. As a result, fluctuations in the value of such currencies in
relation to the U.S. dollar will affect the net asset value of Fund shares even
though there may be no change in the market value of such securities. See the
Statement of Additional Information under "Purchase, Redemption, and Pricing of
Fund Shares" for more detailed information on the valuation of the Fund's
assets.
The net asset values per share of the Class B shares and Class C shares of a
Fund are expected to be approximately the same; the net asset value per share of
the Class A shares of such Fund is expected, under normal circumstances, to be
higher due to the daily expense accruals of the distribution fees applicable to
the Class B shares and Class C shares but not to the Class A shares. However,
the per share net asset value of the three Classes of a Fund will tend to
converge on that Fund's ex-dividend date, and the per share dividends will
differ by approximately the amount of the expense accrual differential among the
Classes.
PERFORMANCE INFORMATION
From time to time, each Fund may publish its total return in advertisements
and communications to shareholders. Total return is computed separately for the
Class A, Class B and Class C shares of each Fund. Total return information will
include the total return for the subject Class of each Fund over the most recent
fiscal year and over the period from the inception of each Class. The Funds also
may advertise aggregate and average total return information over different
periods of time. Each Fund's total return will be expressed as a percentage and
will be calculated using a hypothetical $1,000 investment (including the maximum
initial sales charge for Class A shares) at the beginning of the specified
period and the net asset value of such investment at the end of the period,
assuming reinvestment of all distributions at net asset value and deduction of
any applicable CDSC on Class B and Class C shares. Each Fund also may publish a
cumulative return for each Class over a specified period based on the change in
net asset value over such period. ln addition, each Fund may publish a
distribution rate for each Class in prospective investor communications preceded
or accompanied by a copy of its current Prospectus. The current distribution
rate for each Class of the Funds will be calculated by dividing the maximum
offering price per share into the annualization of the total
45
<PAGE>
distributions made by each Class of the Funds during the stated period. In each
case, distribution rates and total return figures will reflect all recurring
charges against the Funds' income. In addition, each Fund may compare its
performance to various indices of investment performance published by third
parties.
Investors should note that the investment results of the Funds will
fluctuate over time, and any presentation of a Fund's performance for any prior
period should not be considered as a representation or prediction of what an
investor's total return may be in any future period. For further information,
including the formula and an example of the total return calculation, see the
Statement of Additional Information.
The Annual Report to Shareholders and subsequent Semiannual Report to
Shareholders, if applicable, contain additional performance information
respecting the Funds and their shares. A copy of each Report is available
without charge upon request to the Trust at the address or telephone number set
forth on the front page of this Prospectus.
DESCRIPTION OF THE TRUST
Each Fund is a series of the Trust, which was organized as a Massachusetts
business trust on May 28, 1986. The Trust's Agreement and Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest without par value, which may be issued
in any number of series (called funds). The assets and liabilities of each
series are separate and distinct from any other series. Currently, the Trust
issues redeemable shares in six series: The Pasadena Growth Fund, The Pasadena
Nifty Fifty Fund, The Pasadena Balanced Return Fund, The Pasadena Small &
Mid-Cap Growth Fund, The Pasadena Global Growth Fund, and The Pasadena Value 25
Fund. Each of the Funds is authorized to issue Class A, Class B and Class C
shares. The Board of Trustees from time to time may authorize additional series
or the termination of existing series of the Trust. Shares issued by a Fund have
no preemptive, conversion, or sinking rights.
Each of the Class A, Class B and Class C shares of a Fund represents an
interest in the assets of that Fund and has identical voting, dividend,
liquidation and other rights on the same terms and conditions, except that
expenses related to the distribution of each Class are borne separately by that
Class and each Class has exclusive voting rights with respect to provisions of
the Rule 12b-1 distribution plan which pertains to that Class (only Class B
shares and Class C shares are subject to such distribution plans).
Shareholders of each Fund, as a separate series of the Trust, vote
separately on matters affecting only that Fund (e.g., approval of the Management
Agreement); shareholders of all the Funds 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 Pasadena Group Service
Center at 600 North Rosemead Boulevard, Pasadena, California 91107-2133
(telephone toll free: (800) 648-8050).
46
<PAGE>
GENERAL INFORMATION
State Street Bank and Trust Company serves as Custodian of the Global Growth
Fund's assets.
The Union Bank of California serves as Custodian of the assets of the Growth
Fund, the Balanced Return Fund, the Nifty Fifty Fund, the Small & Mid-Cap Growth
Fund, and the Value 25 Fund.
Pasadena National Trust Company ("PNTC"), which is wholly-owned by Mr. Roger
Engemann, is the Transfer and Dividend Disbursing Agent for the Funds. PNTC has
entered into a Sub-Transfer Agency and Service Agreement with State Street Bank
and Trust Company, which will perform (through its affiliate, Boston Financial
Data Services, Inc.) on behalf of PNTC certain of the shareholder accounting,
recordkeeping and administrative functions required by the Funds.
Coopers & Lybrand L.L.P. serves as independent auditors for the Funds.
Reports containing financial statements, at least one of which will be audited,
will be sent to shareholders twice during each fiscal year of the Funds, which
ends on December 31. Only one copy of each report may be sent to shareholders at
the same address, and statements for accounts having the same address may be
consolidated in single mailings unless otherwise requested.
The validity of the shares offered by the Prospectus will be passed on by
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California
94104.
Shares of each Funds may be purchased by one or more investment funds
organized outside the jurisdiction of the United States, whose shares are
offered to investors who are not residents or citizens of the United States. The
percentage of each Fund's shares owned by such offshore fund will be disclosed
in this Prospectus and/or the Statement of Additional Information, as it may be
amended from time to time. To the extent the number of shares of a Fund owned by
any such offshore fund becomes a significant percentage of that Fund's
outstanding shares, a risk to such Fund may exist to the extent the Fund is
forced to liquidate portfolio securities quickly to meet any significant
redemption requests by the offshore fund. However, as of the date of this
Prospectus no such ownership exists, and even in the event a substantial
percentage of any Fund's outstanding shares subsequently are held by such an
offshore fund, the ability of the Fund to redeem its shares in kind (as
described in the Statement of Additional Information) should substantially
reduce any adverse effect on the Fund of any significant redemption of Fund
shares by the offshore fund.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and information
or representations not herein contained, if given or made, must not be relied
upon as having been authorized by a Fund. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
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.
47
<PAGE>
Special rules apply for certain entities. For example, for an account
established under the Uniform Transfers to Minors Act, the TIN of the minor
should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you have failed to report interest or dividend income on
your tax return and you have not been notified by the IRS that such withholding
should cease, you should strike clause (2) of the section entitled "Taxpayer
Identification Number Certification and Signature(s)." If you are an exempt
recipient, you should furnish your TIN and check the appropriate box in that
section. Exempt recipients include corporations, financial institutions,
registered securities and commodities dealers and others.
For further information regarding backup withholding, see Section 3406 of
the Code and consult your tax adviser.
48
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Synopsis.................................................... 2
Expense and Fee Tables...................................... 3
Financial Highlights........................................ 11
Investment Objectives and Policies.......................... 20
Alternative Purchase Arrangements........................... 31
Purchase of Shares.......................................... 32
Redemption of Shares........................................ 38
Management.................................................. 41
Dividends, Distributions and Taxes.......................... 44
Determination of Net Asset Value............................ 45
Performance Information..................................... 45
Description of the Trust.................................... 46
Shareholder Inquiries....................................... 46
General Information......................................... 47
Backup Withholding Instructions............................. 47
</TABLE>
<PAGE>
Rule 497(e)
File Nos. 33-1922; 811-4506
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-
THE PASADENA GLOBAL GROWTH FUND-SM-
THE PASADENA SMALL & MID-CAP GROWTH FUND-SM-
THE PASADENA VALUE 25 FUND-SM-
----------------------
<PAGE>
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 GROWTH FUND-SM-
THE PASADENA VALUE 25 FUND-SM-
600 North Rosemead Boulevard
Pasadena, California 91107-2133
(800) 648-8050 (Toll-Free)
(818) 351-9686
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1997
The Pasadena Investment Trust (the "Trust") is a diversified, open-end
management investment company offering redeemable shares of beneficial interest
in six separate series: The 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 Pasadena Global Growth Fund (the "Global
Growth Fund"), The Pasadena Small & Mid-Cap Growth Fund (the "Small & Mid-Cap
Growth Fund") and The Pasadena Value 25 Fund (the "Value 25 Fund") (collectively
referred to as the "Funds.")
This Statement of Additional Information is not a prospectus. It contains
information which supplements the Prospectus for the Funds dated March 31, 1997,
as it may be amended from time to time. This Statement of Additional
Information is to be read in conjunction with such Prospectus, which is
hereinafter referred to as the "Prospectus." Some of the information required
in this Statement of Additional Information has been included in the Prospectus.
A copy of the Prospectus may be obtained from the Trust, 600 North Rosemead
Boulevard, Pasadena, California 91107-2133.
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
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seeks to maximize a total investment return consistent with reasonable risk
through a balanced approach using moderate asset allocation by its Manager. The
Global Growth's investment objective is long-term growth of capital, which it
seeks to achieve through investments in a globally diversified portfolio of
securities. The Small & Mid-Cap Growth Fund's investment objective is long-term
capital appreciation, which it seeks to achieve through investments primarily in
equity securities of companies with market capitalizations below $1.5 billion.
The Value 25 Fund's investment objective is to achieve substantial dividend
income and long-term growth of capital by investing in securities which the
Manager believes offer the best potential for current dividend yield and
long-term capital appreciation.
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TABLE OF CONTENTS
Page
----
The Trust....................................................................B-3
Investment Objective and Policies............................................B-3
Management of the Trust.....................................................B-23
Investment Management and Administrative Services...........................B-27
Brokerage Allocation and Other Practices....................................B-32
Principal Underwriter.......................................................B-34
Class B and Class C Distribution Plans......................................B-35
Purchase, Redemption, and Pricing of Fund Shares............................B-37
Distributions and Tax Status................................................B-43
Performance Information.....................................................B-47
General.....................................................................B-53
Financial Statements........................................................B-56
Appendix A..................................................................B-57
THE TRUST
The Pasadena Investment Trust (the "Trust") is an open-end diversified
management investment company organized as a Massachusetts business trust. The
Trust issues shares of beneficial interest in six series each of which is
covered by this Statement of Additional Information. Each of the Funds has a
separate investment objective and policies, and maintains a separate investment
portfolio. Each of the Funds is authorized to issue three classes of shares
(Class A, Class B and Class C shares) (each a "Class"). As of January 1, 1994,
all of the previous outstanding classes of each of the Growth, Nifty Fifty and
Balanced Return Funds were redesignated as Class A shares without any other
changes.
INVESTMENT OBJECTIVE AND POLICIES
The following information concerning the investment objective and policies
of the Funds supplements the Prospectus. The information contained in the
Prospectus relating to each Fund's Investment Objective and Policies is
incorporated herein by reference.
FOREIGN SECURITIES
Each Fund may invest (directly and/or through Depositary Receipts) in
securities principally traded in markets outside the United States. Foreign
investments can be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and the
information available may not be of the same quality. Foreign companies also
may not be subject to accounting, auditing
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<PAGE>
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, a Fund (except the Growth Fund, the Nifty
Fifty Fund and the Balanced Return Fund) may purchase and sell forward currency
exchange contracts. These are agreements to purchase or sell specified
currencies at specified dates and prices. A Fund will only purchase and sell
forward currency exchange contracts in amounts which the Manager deems
appropriate to hedge existing or anticipated portfolio positions and will not
use such forward contracts for speculative purposes. Foreign securities, like
other assets of a Fund, will be held by such Fund's custodian or by an
authorized subcustodian. While none of the Growth, Nifty Fifty and Balanced
Return Funds anticipates investing a significant portion of its assets in
foreign securities, each of these Funds may 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.
FOREIGN CURRENCY TRANSACTIONS
IN GENERAL. As described below, each Fund (except the Growth Fund, the
Nifty Fifty Fund and the Balanced Return Fund) may engage in certain foreign
currency exchange and option transactions. These transactions involve
investment risks and transaction costs to which a Fund would not be subject
absent the use of these strategies. If the Manager's predictions of movements
in the direction of securities prices or currency exchange rates are inaccurate,
the adverse consequences to a Fund may leave such Fund in a worse position than
if it had not used such strategies. Risks inherent in the use of option and
foreign currency forward and futures contracts include: (1) dependence on the
Manager's ability to correctly predict movements in the direction of securities
prices and currency exchange rates; (2) imperfect correlation between the price
of options and futures contracts and movements in the prices of the securities
or currencies being hedged; (3) the fact that the skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular instrument
at any time; and (5) the possible need to defer closing out certain hedged
positions to avoid adverse tax consequences. Each Fund's ability to enter into
futures contracts is also limited by the requirements of the Internal Revenue
Code of 1986, as amended
B-4
<PAGE>
(the "Code"), for qualification as a regulated investment company.
Each of the above Funds may engage in currency exchange transactions to
protect against uncertainty in the level of future currency exchange rates. In
addition, each Fund may write covered put and call options on foreign currencies
for the purpose of increasing its return.
Generally, each of the above Funds may engage in both "transaction hedging"
and "position hedging." When it engages in transaction hedging, a Fund enters
into foreign currency transactions with respect to specific receivables or
payables, generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, a Fund will attempt to protect itself against
a possible loss resulting from an adverse change in the exchange rate between
the U.S. dollar and the applicable foreign currency during the period between
the date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
Each of the above Funds may purchase or sell a foreign currency on a spot
(or cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency. Each
Fund may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes each of the above Funds may also purchase
exchange-listed and over-the-counter put and call options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives a Fund the right to assume a short position in the futures contract until
the expiration of the option. A put option on a currency gives a Fund the right
to sell the currency at an exercise price until the expiration of the option. A
call option on a futures contract gives a Fund the right to assume a long
position in the futures contract until the expiration of the option. A call
option on a currency gives a Fund the right to purchase the currency at the
exercise price until the expiration of the option.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the values of currency for securities which such Fund expects to
B-5
<PAGE>
purchase, when such Fund holds cash or short-term investments). In connection
with position hedging, each of the Funds may purchase put or call options on
foreign currency and on foreign currency futures contracts and buy or sell
forward contracts and foreign currency futures contracts. Each Fund may also
purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is also impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency such Fund is obligated to deliver and a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currency a Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in value of
such currency.
Each of the above Funds may seek to increase its return or to offset some
of the costs of hedging against fluctuations in currency exchange rates by
writing covered put options and covered call options on foreign currencies. A
Fund receives a premium from writing a put or call option, which increases such
Fund's current return if the option expires unexercised or is closed out at a
net profit. A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written.
A Fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at times not
involve currencies in which its portfolio securities are then denominated. The
Manager will
B-6
<PAGE>
engage in such "cross hedging" activities when it believes that such
transactions provide significant hedging opportunities for a Fund. Cross
hedging transactions by a Fund involve the risk of imperfect correlation between
changes in the values of the currencies to which such transactions relate and
changes in the value of the currency or other asset or liability which is the
subject of the hedge.
None of the Funds is a commodity pool. The Funds' transactions in futures
and options thereon as described herein will constitute bona fide hedging or
other permissible transactions under regulations promulgated by the Commodity
Futures Trading Commission ("CFTC"). In addition, no Fund may engage in such
transactions if the sum of the amount of initial margin deposits and premiums
paid for unexpired futures and options thereon would exceed 5% of the value of
such Fund's assets, with certain exclusions as defined in the applicable CFTC
rules.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
The holder of a cancelable forward contract has the unilateral right to cancel
the contract at maturity by paying a specified fee. The contracts are traded in
the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency at a future date at a price
set at the time of the contract. Foreign currency futures contracts traded in
the United States are designed by and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund either may accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts
B-7
<PAGE>
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 each Fund (except the Growth Fund, the Nifty Fifty Fund and the
Balanced Return Fund) intends to purchase or sell foreign currency futures
contracts only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign currencies
operate similarly to options on securities and are subject to many similar
risks. Foreign currency options are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Options are traded not only on the currencies of individual
nations, but also on the European Currency Unit, which is composed of amounts of
a number of currencies and is the official medium of exchange of the European
Community's European Monetary System.
Each Fund (except the Growth, Nifty Fifty and Balanced Return Funds) 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
B-8
<PAGE>
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 exchange
rates for smaller odd-lot transactions (less than $1 million) where rates may be
less favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that options markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements may take place in the underlying markets that cannot be reflected
in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Funds'
investments in foreign securities and to the Funds' foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in the Funds' domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and a Fund may be required to accept or make delivery of the
underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
Settlement procedures in many foreign countries are less established than those
in the United States, and some foreign country settlement periods can be
significantly longer than those in the United States.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should such Fund
desire to resell that currency to the dealer.
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
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<PAGE>
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. None of the Funds that
can invest in futures contracts and related options will invest more than 5% of
its net assets in such contracts and options.
No Fund will not deal in commodity contracts per se, and the Global Growth,
Small & Mid-Cap Growth and Value 25 Funds will deal only in futures contracts
involving financial instruments. Although futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. Similarly, the closing out of a futures contract purchase is effected by
the purchaser's entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the purchaser realizes a gain, and if the
purchase price exceeds the offsetting sale price, he realizes a loss. Futures
contracts traded on an exchange approved by the CFTC are "marked to market" at
the end of each year, whether or not they are closed out. In general, 40% of
the gain or loss arising from the closing out or marking to market of a futures
contract traded on an exchange approved by the CFTC is treated as short-term
capital gain or loss, and 60% is treated as long-term capital gain or loss.
Unlike when a Fund purchases or sells a security, no price is paid or
received by such Fund upon the purchase or sale of a futures contract. Upon
entering into a contract, such Fund is required to deposit with its custodian in
a segregated account in the name of the futures broker an amount of cash and/or
certain liquid securities. This amount is known as "initial margin." The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds to finance the transactions. Rather, initial margin is
similar to a
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performance bond or good faith deposit which is returned to such Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or
the custodian) are made on a daily basis as the price of the underlying security
or commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to the market." For
example, when a Fund has purchased a futures contract on a security and the
price of the underlying security has risen, that position would increase in
value and such Fund would receive from the broker a variation margin payment
based on that increase in value. Conversely, when a Fund has purchased a
security futures contract and the price of the underlying security has declined,
the position would be less valuable and such Fund would be required to make a
variation margin payment to the broker.
A Fund may elect to close some or all of its futures positions at any time
prior to their expiration in order to reduce or eliminate a hedge position then
currently held by such Fund. A Fund may close its positions by taking opposite
positions which will operate to terminate such 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 such Fund, and such Fund realizes
a loss or a gain. Such closing transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. Each Fund (except the Growth Fund, the Nifty
Fifty Fund and the Balanced Return Fund) may purchase and write put and call
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on future contracts give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. Each of the above
Funds may use options on futures contracts in lieu of writing or buying options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. For example, to hedge against a possible decrease in the
value of its portfolio securities, a Fund may purchase put options or write call
options on futures contracts rather than selling futures contracts. Similarly,
a Fund may purchase call options or write put options on futures contracts as a
substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities which such Fund expects to purchase. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate its position by selling or purchasing an
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offsetting option. There is no guarantee that such closing transactions can be
effected.
Each of the above Funds will be required to deposit initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described above
in connection with the discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful
use of futures contracts by a Fund is subject to the Manager's ability to
predict movements in the direction of interest rates and other factors affecting
securities markets. For example, if a Fund has hedged against the possibility
of decline in the values of its investments and the values of its investments
increase instead, such Fund will lose part or all of the benefit of the increase
through payments of daily maintenance margin. A Fund may have to sell
investments at a time when it may be disadvantageous to do so in order to meet
margin requirements.
Compared to the purchase or sale of futures contracts, the purchase of put
or call options on futures contracts involves less potential risk to a Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
put or call option on a futures contract would result in a loss to a Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by a Fund, such Fund may seek
to close out a position. The ability to establish and close out positions will
be subject to the development and maintenance of a liquid secondary market. It
is not certain that this market will develop or continue to exist for a
particular futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen
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circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series of contracts or
options), in which event the secondary market on that exchange for such
contracts or options (or in the class or series of contracts or options) would
cease to exist, although outstanding contracts or options on the exchange that
had been issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or
sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. Each of the Global Growth, Small & Mid-Cap
Growth and Value 25 Funds may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective. Each of these Funds may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are listed on the
New York Stock Exchange. The S&P 500 assigns relative weightings to the common
stocks included in the index, and the value fluctuates with changes in the
market values of those common stocks. In the case of the S&P 500, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract would be worth $75,000 (500 units x $150). A stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150 and the S&P 500
is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of
$4 per unit). If a Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 is at $152 on that future date, the Fund will lose $1,000 (500 units x loss
of $2 per unit).
There are several risks in connection with the use by the Funds of index
futures as a hedging device. One risk arises
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because of the imperfect correlation between movements in the prices of the
index futures and movements in the prices of securities which are the subject of
the hedge. The Funds' Manager will, however, when engaging in this type of
activity, attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its judgment, have
a significant correlation with movements in the prices of the securities sought
to be hedged.
Successful use of index futures by a Fund for hedging purposes is also
subject to the Manager's ability to predict movements in the direction of the
market. It is possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in such Fund's portfolio
may decline. If this occurred, such Fund would lose money on the futures and
also experience a decline in value in its portfolio securities. It is also
possible that, if a Fund has hedged against the possibility of a decline in the
market adversely affecting securities held in its portfolio and securities
prices increase instead, such Fund will lose part or all of the benefit of the
increased value of those securities it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
such 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
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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, each
of the Global Growth, Small & Mid-Cap Growth and Value 25 Funds may purchase and
sell put and call options on the underlying indices themselves. Such options
would be used in a manner identical to the use of options on index futures.
INDEX WARRANTS
Each Fund (except the Growth Fund, the Nifty Fifty Fund and the Balanced
Return Fund) may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities indices
("index warrants"). Index warrants are generally issued by banks or other
financial institutions and give the holder the right, at any time during the
term of the warrant, to receive upon exercise of the warrant a cash payment from
the issuer based on the value of the underlying index at the time of exercise.
In general, if the value of the underlying index rises above the exercise price
of the index warrant, the holder of a call warrant will be entitled to receive a
cash payment from the issuer upon exercise based on the difference between the
value of the index and the exercise price of the warrant; if the value of the
underlying index falls, the holder of a put warrant will be entitled to receive
a cash payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at any time when,
in the case of a call warrant, the exercise price is greater than the value of
the underlying index, or, in the case of a put warrant, the exercise price is
less than the value of the underlying index. If a Fund were not to exercise an
index warrant prior to its expiration, then such Fund would lose the amount of
the purchase price paid by it for the warrant.
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A Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of a Fund's use of index warrants are
generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although each Fund will
normally invest only in exchange listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing agency.
In addition, the terms of index warrants may limit a Fund's ability to exercise
the warrants at such time, or in such quantities, as the Fund would otherwise
wish to do.
SECURITIES LOANS
Each Fund (except the Growth, Nifty Fifty and Balanced Return Funds) may
make secured loans of its portfolio securities amounting to not more than 50%
(25% for the Value 25 Fund) 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 such
Fund an amount equal to any dividends or interest received on securities lent.
A 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, a
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. A Fund may also call such loans in order
to sell securities.
FORWARD COMMITMENTS
Each Fund (except the Growth Fund, the Nifty Fifty Fund and the Balanced
Return 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
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addition to the risk of decline in the value of the Fund's other assets. Where
such purchases are made through dealers, the Fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to
the Fund of an advantageous yield or price. Although each Fund will generally
enter into forward commitments with the intention of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered into,
such Fund may dispose of a commitment prior to settlement if the Manager deems
it appropriate to do so. A Fund may realize short-term profits or losses upon
the sale of forward commitments.
DEPOSITARY RECEIPTS
The Global Growth Fund may invest up to 100%, the Small & Mid-Cap Growth
Fund may invest up to 50%, and the Value 25 Fund may invest up to 25% and each
of the Growth, Nifty Fifty and Balanced Return Funds may invest up to 15% of the
value of its net assets in the securities of foreign issuers in the form of
Depositary Receipts ("DRs"), e.g., American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"),
Continental Depositary Receipts ("CDRs"), or other forms of DRs. DRs are
receipts typically issued by a United States or foreign bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. The Fund may invest in DRs through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depository, whereas a depository may establish an
unsponsored facility without participation by the issuer of the deposited
security. The depository of unsponsored DRs generally bears all the costs of
such facilities and the depository of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through voting rights to the holders
of such receipts in respect of the deposited securities.
ILLIQUID SECURITIES
Each of the Global Growth, Small & Mid-Cap, and Value 25 Funds may invest
up to 15% and each of the Growth, Nifty Fifty and Balanced Return Funds may
invest up to 10% of the value of its net assets in securities as to which a
liquid trading market does not exist, provided such investments are consistent
with such Fund's objective and other policies. Such securities may include
securities that are not readily marketable, such as certain securities that are
subject to legal or contractual restrictions on resale, repurchase agreements
providing for settlement in more than seven days after notice, certain options
traded in the over-the-counter market and securities used to cover such options.
As to these securities, a Fund is subject to a risk that should the Fund desire
to sell them when a ready buyer is not available at a price the Fund deems
representative
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of their value, the value of the Fund could be adversely affected. When
purchasing securities that have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), and are not readily marketable, each Fund
will endeavor to obtain the right to registration at the expense of the issuer.
Generally, there will be a lapse of time between a Fund's decision to sell any
such security and the registration of the security permitting sale. During any
such period, the price of the securities will be subject to market fluctuations.
However, if a substantial market of qualified institutional buyers develops
pursuant to Rule 144A under the 1933 Act for certain unregistered securities
held by a Fund, such Fund intends to treat such securities as liquid securities
in accordance with procedures approved by the Trust's Board of Trustees.
Because it is not possible to predict with any assurance how the market for
restricted securities pursuant to Rule 144A will develop, the Board of Trustees
has directed the Manager to monitor carefully any Fund investments in such
securities with particular regard to trading activity, availability or reliable
price information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A, a Fund's investing in such securities may have
the effect of increasing the level of illiquidity in the Fund's portfolio during
such period.
REPURCHASE AGREEMENTS
Each Fund may, for temporary defensive purposes, invest its assets in
eligible U.S. Government securities and concurrently enter into repurchase
agreements with respect to such securities. Under such agreements, the seller
of the security agrees to repurchase it at a mutually agreed upon time and
price. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the U.S. Government security itself. Such
repurchase agreements will be made only with banks with assets of $1 billion or
more that are insured by the Federal Deposit Insurance Corporation or with
Government securities dealers recognized as primary dealers by the Federal
Reserve Board and registered as broker-dealers with the SEC or exempt from such
registration. In addition, to the extent a Fund has over $10 million in assets,
the Fund will limit the amount of its transactions with any one bank or
Government securities dealer to a maximum of 25% of its assets. Any repurchase
agreements entered into by a Fund will be of short duration, from overnight to
one week, although the underlying securities generally have longer maturities.
No Fund may enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 10% of the value of the Growth, Nifty Fifty
or Balanced Return Funds' or 15% of the value of the Global Growth, Small &
Mid-Cap
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Growth or Value 25 Funds' net assets would be invested in such repurchase
agreements and other illiquid assets.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from a Fund to the seller of the
U.S. Government security subject to the repurchase agreement. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, a Fund may encounter delays and incur costs before being able to sell
the security. Delays may involve loss of interest or a decline in price of the
U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at risk of losing some or all of the principal and
income involved in the transaction. As with any unsecured debt instrument
purchased for a Fund, the Manager seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, each
Fund will always receive as collateral for any repurchase agreement to which it
is a party U.S. Government securities acceptable to it, the market value of
which is equal to at least 100% of the amount invested by the Fund plus accrued
interest, and the Fund will make payment against such securities only upon
physical delivery or evidence of book entry transfer to the account of its
Custodian or other entity authorized by the Trust's Board of Trustees to have
custody for purposes of repurchase agreement transactions. If the market value
of the U.S. Government security subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the U.S. Government security to deliver additional securities so that the
market value of all securities subject to the repurchase agreement will equal or
exceed the repurchase price. It is possible that the Fund will be unsuccessful
in seeking to impose on the seller a contractual obligation to deliver
additional securities, however.
SPECIAL SITUATIONS
Subject to the limitations in the Prospectus, each Fund (except the Global
Growth Fund) may invest in special situations that the Manager believes present
opportunities for capital growth. Such situations most typically include
corporate restructurings, mergers, and tender offers.
A special situation arises when, in the opinion of the Manager, the
securities of a particular company will, within a
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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.
OTHER INVESTMENT RESTRICTIONS
The following restrictions have been adopted as matters of fundamental or
operating policy for the Fund. Fundamental policies may not be changed without
the approval of a majority of the Fund's outstanding voting securities and
approval of the Board of Trustees. Operating policies can be changed by vote of
the Board of Trustees. The Funds MAY NOT:
(1) With respect to 75% of a Fund's total assets, purchase any security
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result, more than 5% of the value of the
Fund's total assets would be invested in securities of any one issuer. 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).
[Fundamental Policy]
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of its
portfolio securities, and may make margin payments in connection with
transactions in permissible futures and options contracts) or make uncovered
short sales. [Operating Policy]
(3) With respect to 75% of the Global Growth, Small & Mid-Cap Growth and
Value 25 Funds' and 100% of the Growth, Nifty Fifty and Balanced Return Funds'
total assets, acquire more than 10% of any one class of securities of an issuer
or more than 10% of the outstanding voting securities of any one issuer. (For
this purpose all common stocks of an issuer are regarded as a single class, and
all preferred stocks of an issuer are regarded as a single class.) [Fundamental
Policy]
(4) Borrow money in excess of 20% (5% for the Growth, the Nifty Fifty and
Balanced Return Funds) of its total assets (taken at cost) and then only as a
temporary measure for extraordinary or emergency reasons and not for investment.
(Each Fund may
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borrow only from banks and immediately after any such borrowings there must be
an asset coverage [total assets of the Fund, including the amount borrowed, less
liabilities other than such borrowings] of at least 300% of the amount of all
borrowings. In the event that, due to market decline or other reasons, such
asset coverage should at any time fall below 300%, the Fund is required within
three days, not including Sundays and holidays, to reduce the amount of its
borrowings to the extent necessary to cause the asset coverage of such
borrowings to be at least 300%. If this should happen, the Fund may have to
sell securities at a time when it would be disadvantageous to do so.)
[Fundamental Policy]
(5) With respect to the Global Growth, the Small & Mid-Cap Growth and the
Value 25 Funds, pledge more than 25% of its total assets (taken at cost) in
connection with permissible borrowings. For the purposes of this restriction,
the deposit of underlying securities and other assets in connection with the
writing of put and call options and collateral arrangements with respect to
margin for currency futures contracts are not deemed to be a pledge of assets.
[Fundamental Policy]
(6) Invest more than 5% (30% for the Balanced Return Fund) of its total
assets in securities of any one issuer which, together with any predecessor, has
been in continuous operation for less than three years. [Fundamental Policy]
(7) Invest in securities of any company, if officers and Trustees of the
Trust and officers and directors of the Manager who beneficially own more than
0.5% of the shares or securities of that company collectively own more than 5%
of such securities. [Fundamental Policy with respect to the Growth, Nifty
Fifty, Balanced Return, Global Growth and Small & Mid-Cap Growth Funds]
(8) Make loans, except (a) by purchase of marketable bonds, debentures,
commercial paper or corporate notes, and similar marketable evidences of
indebtedness which are part of an issue to the public or to financial
institutions, (b) by entry into repurchase agreements, or (c) through the
lending of its portfolio securities with respect to not more than 25% of its
total assets. [Fundamental Policy]
(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts or commodities or commodity contracts, except for transactions in
futures contracts and options thereon entered into for hedging purposes, and the
Growth, Nifty Fifty and Balanced Return Funds may purchase marketable securities
of companies or partnerships holding such interests. [Fundamental Policy for
the Global Growth, Small & Mid-Cap Growth and Value 25 Funds]
(10) Act as an underwriter except to the extent that, in connection with
the disposition of its portfolio securities, it
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may be deemed to be an underwriter under certain federal securities laws.
[Fundamental Policy]
(11) Make investments for the purpose of exercising control of a company's
management. [Operating Policy]
(12) Concentrate its investments in particular industries, and in no event
invest more than 25% of the value of its total assets in any one industry.
[Fundamental Policy]
(13) Engage in puts, calls, straddles, spreads or any combination thereof,
except that, to the extent described in the Prospectus and this Statement of
Additional Information, a Fund may buy and sell put and call options (and any
combination thereof) on securities, on financial futures contracts, on
securities indices, on currency futures contracts and on foreign currencies and
may buy and sell put and call warrants, the values of which are based upon
securities indices. [Operating Policy]
(14) Purchase warrants if as a result its warrant holdings, valued at the
lower of cost or market, would exceed 5% of the Fund's net assets, with no more
than 2% of net assets in warrants not listed on the New York or American Stock
Exchanges. [Operating Policy]
(15) Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Funds, or by a person designated by the
Trustees of the Funds, to make such determinations pursuant to procedures
adopted by the Trustees to be readily marketable), and (c) repurchase agreements
maturing in more than seven days, if, as a result, more than 10% of the Growth,
Nifty Fifty and Balanced Return Funds' and more than 15% of the Global Growth,
Small & Mid-Cap Growth and Value 25 Funds' net assets (taken at current value)
would be invested in the aggregate in securities described in (a), (b) and (c)
above. [Operating Policy]
(16) Purchase or sell real property (including limited partnership
interests), except that the Fund may (a) purchase or sell readily marketable
interests in real estate investment trusts or readily marketable securities of
companies which invest in real estate, (b) purchase or sell securities that are
secured by interests in real estate or interests therein, or (c) acquire real
estate through exercise of its rights as a holder of obligations secured by real
estate or interests therein or sell real estate so acquired. [Fundamental
Policy]
(17) Participate on a joint or joint and several basis in any securities
trading account. [Operating Policy]
(18) Purchase the securities of any other investment company except
(a) within the limits of the 1940 Act, (b) in a
B-22
<PAGE>
public offering or in the open market or in privately negotiated transactions
where, in either case, to the best information of the Fund, no commission,
profit or sales charge to a sponsor or dealer (other than a customary broker's
commission or underwriting discount) results from such purchase, (c) if such
purchase is part of a merger, consolidation, or acquisition of assets, or (d) as
part of a master-feeder arrangement (see below). [Fundamental Policy]
(19) With respect to the Growth Fund. the Nifty Fifty Fund and the Balanced
Return Fund, purchase or sell financial futures, commodities or commodities
contracts, including futures contracts on physical commodities. [Fundamental
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 objective, policies and limitations as such Fund.
Some of the practices referred to above are subject to restrictions
contained in the 1940 Act. In addition to the restrictions described above, a
Fund may from time to time agree to additional investment restrictions for
purposes of compliance with the securities laws of those states and foreign
jurisdictions where such Fund intends to offer or sell its shares. Any such
additional restrictions that would have a material bearing on a Fund's
operations will be reflected in the Prospectus or a Prospectus supplement and
may require shareholder approval.
PORTFOLIO TURNOVER. As stated in the Prospectus, each Fund may purchase
and sell securities without regard to the length of time the security is to be
held or has been held. The increase in the portfolio turnover rate for each of
the Nifty Fifty, Global Growth, and Small & Mid-Cap Growth Funds is primarily
due to an increase in the amount of short-term portfolio trades by such Funds.
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 Funds' 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 Funds. The current
B-23
<PAGE>
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
(56) 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
(53) 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, an
Pasadena, accounting firm, since
California 91101 its inception in 1971.
(61)
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
(59) of Jon Douglas Company,
a real estate firm.
Prior thereto he was
associated with the
real estate brokerage
firm of R.A. Rowan &
Co.
B-24
<PAGE>
Positions(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past Five Years
- --------------------- ----------------- -----------------------
Michael Stolper*+ Trustee President of Stolper
- --------------- and Company, Inc., an
525 "B" Street, investment adviser and
Suite 1080 broker-dealer since
San Diego, 1975. Director of
California 92101 Pasadena Capital
(51) Corporation since
February 1994.
Richard C. Taylor Trustee President of Richard
- ----------------- Taylor Company, Inc., a
2100 Huntington food ingredients
Drive, #9 broker, since 1987.
San Marino,
California 91108
(50)
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.
(45)
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
(43) 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.
B-25
<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 fees from the
Funds. The table provides information regarding all Funds in The Pasadena Group
of Mutual Funds for the fiscal year ended December 31, 1996.
<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>
As of February 28, 1997, the Trustees and Officers of the Trust, as a
group, owned less than 1% of the outstanding shares of the Growth Fund, the
Nifty Fifty Fund and the Balanced Return Fund. As of February 28, 1997, the
Trustees and Officers of the Trust, as a group, owned 10.75% of the Global
Growth Fund, 7.9% of the Small & Mid-Cap Growth Fund and 15.05% of the
Value 25 Fund.
B-26
<PAGE>
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES
The following information concerning the investment management and
administrative services provided to the Funds supplements the information
contained in the section in the Prospectus entitled "Management."
INVESTMENT MANAGEMENT AGREEMENT
The Manager, Roger Engemann Management Co., Inc., has entered into an
Investment Management Agreement (the "Management Agreement") with the Trust, on
behalf of each series of the Trust including the Funds, to provide investment
advice and investment management services with respect to the assets of each
Fund, provide personnel, office space, facilities and equipment as may be needed
by the Funds in their day-to-day operations, provide the officers of the Trust,
and provide the Funds with fund accounting, including assistance and personnel
necessary to price the portfolio securities of each Fund, calculate each Fund's
net asset value, and maintain the 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, 1998. 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 a Fund,
(iii) interest charges on borrowings, (iv) charges and expenses of a Fund's
custodian and transfer agent, (v) payment of all investment advisory and
management fees, (vi) insurance premiums
B-27
<PAGE>
on a 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 a Fund's shares under the federal securities laws and of qualifying
its shares under applicable state securities (Blue Sky) laws subsequent to a
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 based on a Fund's average daily net assets at the
following annual rates: 1% of each of the Growth, Nifty Fifty and Balanced
Return Fund's average daily net assets up to $30 million, 1.10% of the Global
Growth Fund's, 1% of the Small & Mid-Cap Growth Fund's and 0.90% of the Value 25
Fund's average daily net assets up to $50 million, which rates are reduced at
higher levels of net assets as set forth in the Prospectus.
For the years ended December 31, 1994, 1995 and 1996, pursuant to the
then-effective investment management agreements with the Manager, the Growth
Fund paid management fees to the Manager of approximately $2,951,000,
$2,985,000, and $3,202,000, respectively. For the years ended December 31,
1994, 1995, and 1996, pursuant to the then-effective investment management
agreements with the Manager, the Balanced Return Fund paid management fees to
the Manager of approximately $596,000, $512,000, and $528,000 respectively. For
the years ended December 31, 1994, 1995, and 1996 pursuant to the then-effective
investment management agreement, the Nifty Fifty Fund paid management fees to
the Manager of approximately $940,000, $1,131,000 and $1,391,000, respectively.
For the Global Growth Fund for the periods ended December 31, 1994, 1995 and
1996, the Manager was entitled to receive fees under the Management Agreement in
the amounts of $1,210, $18,498, and $49,793 respectively. For the Small &
Mid-Cap Growth Fund for the periods ended December 31, 1995 and 1996, the
Manager was entitled to receive fees under the Management Agreement in the
amounts of $5,845, and $25,255, respectively. The Manager has
B-28
<PAGE>
waived receipt of all such fees for the years 1994 and 1995 and waived $27,147
and $8,043 for the Global Growth Fund and the Small & Mid-Cap Growth Fund,
respectively, for the first eight months of 1996.
The Management Agreement is terminable with respect to each Fund on
60-days' written notice by vote of a majority of such 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 as defined in 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 each Fund. 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 a Fund, except for the fees and expenses related to the
services to be provided by the Manager under the Investment Management
Agreement, the fees under the Administration Agreement, the services fees paid
under the Services Agreements, the distribution fees paid under the Class B and
Class C Rule 12b-1 distribution plans, brokerage and commission expenses and
certain DE MINIMIS fees of its independent auditors, legal counsel and trustees.
See "Class B and Class C Distribution Plans."
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.
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 Growth, Nifty Fifty, and Balanced Return Funds'
average daily net assets up to $30 million, which rate is reduced at higher
levels of net assets. 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,
B-29
<PAGE>
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. For the year ended December 31, 1996, the Growth
Fund, the Balanced Return Fund and the Nifty Fifty Fund paid administrative fees
to the Manager of approximately $3,453,000, $557,000, and $1,485,000,
respectively. The Administrator has contractually agreed to limit expenses for
these Funds. Please refer to the Prospectus dated March 31, 1997 for details.
With respect to the Global Growth, Small & Mid-Cap Growth and Value 25
Funds, as compensation for its services and obligations under the Administration
Agreement, the Administrator is paid a monthly fee at an annual rate equal to
0.60% of the Fund's average daily net assets up to $50 million, which rate is
reduced at higher levels of net assets as set forth in the Prospectus. For the
Global Growth Fund, for the periods ended December 31, 1994, 1995 and 1996, the
Manager was entitled to receive fees pursuant to the Administration Agreement in
the amounts of $1,271, $19,423 and $40,856, respectively. For the Small &
Mid-Cap Growth Fund, for the periods ended December 31, 1994, 1995, and 1996,
the Manager was entitled to receive fees pursuant to the Administration
Agreement in the amounts of $267, $6,137, and $18,772, respectively. The
Manager has waived receipt of all such fees for the years 1994 and 1995 and
waived $28,504 and $8,445 for the Global Growth Fund and the Small & Mid-Cap
Growth Fund, respectively, for the first eight months of 1996.
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 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 such
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 such
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,
B-30
<PAGE>
respectively, of which approximately $199,000, $24,000, and $51,000,
respectively, were received by the Manager or the Distributor. For the year
ended December 31, 1996, the Growth Fund, the Balanced Return Fund and the Nifty
Fifty Fund paid service fees of approximately $1,223,075, $145,333, and
$469,651, respectively, of which approximately $226,547, $25,811, and $73,704,
respectively, were received by the Manager or the Distributor.
During 1994, 1995, and 1996, service fees in the amounts of $303, $4,624,
and $5,078, respectively, were payable by the Global Growth Fund to the Manager
or the Distributor. During 1994, 1995, and 1996, service fees in the amounts of
$64, $1,461 and $4,340 were payable by the Small & Mid-Cap Growth Fund to the
Manager or the Distributor. The Manager has waived receipt of all such fees for
the years 1994 and 1995 and waived $4,559 and $3,216 for the Global Growth Fund
and the Small & Mid-Cap Growth Fund, respectively, for the first eight months of
1996.
Notwithstanding the above-described division of expenses, the Manager will
reduce its fees to a Fund under the Management Agreement for the amount, if any,
by which the Fund's annual operating expenses, expressed as a percentage of
average daily net assets, exceeds the most restrictive limitation imposed by any
state in which such Fund's shares are then qualified for sale. Operating
expenses for these purposes include the Manager's management and administration
fee but do not include any taxes, interest, brokerage commissions, expenses
incurred in connection with any merger or reorganization, the distribution fees
paid under the Class B and Class C Rule 12b-1 distribution plans, and, with the
prior written approval of any state securities commission requiring the same,
any extraordinary expenses, such as litigation. The Manager also may choose, in
its discretion, to reimburse or waive expenses specific to one or more Classes
on a temporary basis. The amount of any such expenses waived or reimbursed by
the Manager may vary from Class to Class. In addition, the Manager in its
discretion may waive or reimburse Trust expenses and/or Fund expenses (with or
without a waiver or reimbursement of Class-specific expenses) on a temporary
basis, but only if the same proportionate amount of Trust expenses and/or Fund
expenses are waived or reimbursed for each Class.
The Manager also may act as an investment adviser to other persons,
entities, and corporations, including other investment companies and the Trust's
other series. Personnel of the Manager are affiliated with another investment
adviser that has numerous advisory clients and will devote portions of their
time to such clients.
B-31
<PAGE>
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 a 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 such Fund (involving
both price paid or received and any commission or spread and other costs paid),
the efficiency of the transaction execution, the ability to effect the
transaction when a large block of securities is involved, the known practices of
brokers and their availability to execute possibly difficult transactions in the
future, and the financial strength and stability of the broker or dealer. While
the Manager generally seeks reasonably competitive commission rates or spreads
as part of this policy, a Fund may not necessarily pay the lowest commission or
spread available for a particular transaction.
Each Fund and the Manager may direct portfolio transactions to persons or
firms because of research and investment services provided by such persons or
firms if the commissions or spreads on the transactions are reasonable in
relation to the value of the investment information provided. Among such
research and investment services are those that brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on companies and industries. Such research provides lawful and
appropriate assistance to the Manager in the performance of its investment
decision-making responsibilities. The Manager may use these services in
connection with all of its investment activities, and some services obtained in
connection with a Fund's transactions may be used in connection with other
investment advisory clients of the Manager, including other mutual funds, other
series of the Trust, or the Manager's affiliates.
Each Fund may invest in securities that are traded exclusively in the
over-the-counter market. Each Fund may also purchase securities listed on a
national securities exchange through the "third market" (I.E., through markets
other than the exchanges on which the securities are listed). When executing
transactions in the over-the-counter market or the third market, the Manager
will seek to execute transactions through brokers or dealers that, in the
Manager's opinion, will provide the best overall price and execution so that the
resultant price to such Fund is as favorable as possible under prevailing market
conditions.
B-32
<PAGE>
None of the Funds allocates 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 a Fund to brokers or dealers nor will they
receive any reciprocal business, directly or indirectly, as a result of such
commissions or spreads.
Stolper & Company, Inc., of which Michael Stolper, a Trustee of the Trust
and a Director of Pasadena Capital Corporation, is the sole shareholder, has in
the past received brokerage business from Roger Engemann & Associates, Inc.
Mr. Stolper owns 6.5% of the Manager. Stolper & Company, Inc. assists its
clients in selecting an investment adviser and offers a service measuring the
performance of investment advisers, in return for which the client pays cash or
directs the investment adviser to execute a portion of the brokerage business
through Bear, Stearns & Company for the credit of Stolper & Company, Inc.
Stolper & Company, Inc. and Roger Engemann & Associates, Inc. anticipate that
such brokerage allocation from Roger Engemann & Associates, Inc. will continue.
However, neither Michael Stolper nor Stolper & Company, Inc. will receive or
participate in commissions paid by a Fund nor receive any reciprocal business as
a result of commissions paid by a Fund, although a Fund may pay usual and
customary brokerage commissions to Bear, Stearns & Company for brokerage
business by such Fund.
It is possible that purchases or sales of securities for a 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 such Fund and such other clients in a manner
deemed equitable to all by the Manager, taking into account the respective sizes
of the Fund and the other clients' accounts, and the amount of securities to be
purchased or sold. It is recognized that it is possible that in some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as that 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 such 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 1994, 1995, and 1996,
were $1,411,544, 839,679, and $2,301,351, respectively. For the years ended
December 31, 1994, 1995, and 1996, the Balanced Return Fund paid $94,899,
$33,853, and $35,776, respectively, in brokerage commissions. For the years
ended December 31, 1994, 1995, and 1996, the Nifty Fifty Fund paid $123,205,
$132,426, and $245,499 respectively, in brokerage commissions. For the years
ended
B-33
<PAGE>
December 31, 1994, 1995, and 1996, the Global Growth Fund paid $10,627,
$4,931, and $130,703, respectively, in brokerage commissions. For the years
ended December 31, 1994, 1995, and 1996, the Small & Mid-Cap Growth Fund paid
$2,400, $2,523, and $162,103 respectively, in brokerage commissions. The
amounts shown for each Fund for 1993 and 1994 include mark-ups paid by the
Fund on principal trades.
The increase in brokerage commissions for the Nifty Fifty, Global
Growth and Small & Mid-Cap Growth Funds is due to increased portfolio turnover
for these Funds.
PRINCIPAL UNDERWRITER
Pasadena Fund Services, Inc. (the "Distributor") acts as the principal
underwriter for the Funds in a continuous offering of the Funds' 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 Fund, and the Distributor
is currently in effect through February 28, 1998. The Underwriting Agreement
shall continue in effect thereafter for periods not exceeding one year if
approved at least annually by (i) the Board of Trustees or a vote of a majority
of the outstanding shares of the Trust (as defined in the 1940 Act) and (ii) a
majority of the Trustees who are not interested persons of any such party, in
each case cast in person at a meeting called for the purpose of voting on such
approval. The Underwriting Agreement may be terminated without penalty by the
parties thereto upon 60-days' written notice, and is automatically terminated in
the event of its assignment as defined in the 1940 Act.
Pursuant to the Underwriting Agreement, the Distributor is entitled to
receive a front-end sales charge in connection with certain sales of Class A
shares, and a contingent deferred sales charge (a "CDSC") in connection with
certain redemptions of Class B and Class C shares. The Distributor reallows all
or a portion of the sales charges to selected dealers and agents for selling
Class A shares. All sales of the Funds' 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.
For the year ended December 31, 1994, the Distributor received front-end
sales charges of $116,677, $18,160, and $34,210, after reallowances to dealers
of $754,323, $52,840, and $198,790, respectively, for sales of Class A shares of
the Growth
B-34
<PAGE>
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. For the year ended December 31, 1996, the Distributor received
front-end sales charges of $63,000, $10,000, $64,000, $1,000, and $5,000 after
reallowances of front-end sales charges to dealers of $486,000, $25,000,
$212,000, $4,000, and $20,000, respectively, for sales of the Growth Fund, the
Balanced Return Fund, the Nifty Fifty Fund, the Global Growth Fund and the Small
& Mid-Cap Growth 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. For the year ended December 31, 1996,
the Distributor received contingent deferred sales charges of $247,083, $15,362,
$217,219, $337, and $1 for redemptions of the Class B shares of the Growth Fund,
the Balanced Return Fund, the Nifty Fifty Fund, the Global Growth Fund and the
Small & Mid-Cap Growth Fund, respectively
The Distributor is responsible for certain expenses of distribution of the
shares of the Funds, 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 Funds and may, therefore, be deemed "underwriters" under the Securities Act
of 1933, as amended.
The Distributor is a wholly owned subsidiary of Pasadena Capital
Corporation.
CLASS B AND CLASS C DISTRIBUTION PLANS
Pursuant to separate Distribution Plans (each a "Plan" and collectively the
"Plans") adopted by each of the Funds pursuant to Rule 12b-1 under the 1940 Act,
the Distributor incurs the expenses of distributing the Funds' Class B and
Class C shares. See "Principal Underwriter."
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On July 13, 1993, the Board of Trustees of the Trust, including a majority
of the Trustees who are not interested persons of the Trust and who have no
direct or indirect financial interest in the operation of the Plans or in any
agreement related to any Plan (the "Rule 12b-1 Trustees"), at a meeting called
for the purpose of voting on each Plan, adopted a Plan of distribution for the
Class B and Class C shares of each series of the Trust.
Under the Plans, each Fund pays distribution fees to the Distributor at an
annual rate of 0.75% of the Fund's aggregate average daily net assets
attributable to its Class B shares and Class C shares, respectively, to
reimburse the Distributor for its expenses in connection with the promotion and
distribution of those Classes.
Each Plan provides that the Distributor may use the distribution fees
received from the Class of a 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 a Fund by vote of a majority of
the Rule 12b-1 Trustees, or by vote of a majority of the outstanding shares (as
defined in the 1940 Act) of the Class to which the Plan applies.
All distribution fees paid by a Fund under the Plans will be paid in
accordance with Rule 2830 of the NASD Conduct Rules, as such Rule 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.
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<PAGE>
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.
For the year ended December 31, 1996, the Distributor received distribution fees
of $320,195, $47,353, $247,408, $337, and $1,200, respectively, with respect to
the Class B shares of the Growth Fund, the Balanced Return Fund, the Nifty Fifty
Fund, the Global Growth Fund and the Small & Mid-Cap Growth 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. For the
year ended December 31, 1996, the Distributor received distribution fees of
$181,326, $25,217, $142,260, $37, and $41, respectively, with respect to the
Class C shares of the Growth Fund, the Balanced Return Fund, the Nifty Fifty
Fund, the Global Growth Fund and the Small & Mid-Cap Growth Fund. 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, "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
Funds' management in its discretion may elect to waive such requirements in
connection with individual purchases and sales. The following is additional
information regarding purchase, redemption, and pricing of Fund shares:
ALTERNATIVE PURCHASE ARRANGEMENTS. Each Fund offers investors three
Classes of shares which bear sales and distribution charges in different forms
and amounts. Class A shares are subject to a maximum front-end sales charge at
time of purchase of 5.50% of the public offering price per share.
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<PAGE>
Certain purchases of Class A shares may qualify for reduced sales charges.
Class A shares do not pay a 12b-1 distribution fee, and redemptions of Class A
shares are not subject to a CDSC. Class B shares are sold without an initial
sales charge, but are subject to a CDSC of up to 5.00% if redeemed within four
years of purchase. Class B shares are subject to a 12b-1 distribution fee at
the annual rate of 0.75% of the average net assets attributable to the Class B
shares. Class B shares will automatically convert into Class A shares, based on
relative net asset values, at the beginning of the seventh year after purchase.
Class C shares are not subject to a front-end sales charge, but are subject to a
CDSC of 1% if redeemed within one year of purchase (CDSC applies to the Global
Growth Fund, the Small & Mid-Cap Fund and Value 25 Fund only). Class C shares
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 4:15 p.m.
New York City Time on each day the New York Stock Exchange (the "Exchange") is
open for trading (or such earlier time if the Exchange closes early for any
reason). Portfolio securities will be priced at 4:00 p.m., at the close of
trading on the Exchange, and any equity options or futures contracts and index
options will be priced as of their close of trading on the same days at 4:10
p.m. and 4:15 p.m., respectively. It is expected that during 1997 the Exchange
will be closed on Saturdays and Sundays and for Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and
New Year's Day. The Funds do not expect to determine the net asset value of its
shares on any day when the Exchange is not open for trading even if there is
sufficient market movement with respect to its portfolio securities in other
markets on such days to materially affect the net asset value per share.
In valuing a 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 a Fund's shares are computed as of such times and included in the
pricing at 4:00 p.m.
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<PAGE>
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 a 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. A
Fund may utilize a pricing service, bank, or broker/dealer experienced in such
matters to perform any of the pricing functions under procedures approved by the
Board of Trustees.
Reliable market quotations may not be considered to be readily available
for certain U.S. and foreign securities. These investments are stated at fair
value in accordance with procedures approved by the Trustees.
If any securities held by a Fund are restricted as to resale, the Funds'
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 such 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 such 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.
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<PAGE>
Occasionally, events affecting the values of a Fund's securities may occur
between the times at which the values are determined and the close of trading on
the Exchange, and the effect of these events will not be reflected in the
computation of 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. 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 by the Fund, the Distributor, or another authorized
agent or subagent of such Fund, before 4:15 p.m., New York City time, Fund
shares will be purchased at the public offering price (I.E., net asset value,
plus the applicable sales charge set forth in the Prospectus for the Class A
shares only) determined on that day. Otherwise, Fund shares will be purchased
at the offering price determined as of the close of trading on the next business
day. It is the responsibility of any securities firm to transmit orders placed
through it so that they will be received by the Distributor on a timely basis as
described in the Prospectus. If an application for the purchase of shares of a
Fund is received by the Fund, the Distributor, or another authorized agent or
subagent of such 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 a 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 such Fund.
When purchasing shares of a Fund, an investor must specify whether he
wishes to purchase Class A, Class B or Class C shares. An unspecified purchase
order will be considered an order for Class A shares.
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 such Fund or the Distributor
may purchase Class A shares of a Fund at net asset value. Family members are
defined as current spouse, children, parents, grandchildren,
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<PAGE>
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. To qualify, 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 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 Class
A shares of a Fund within 90 days before the Letter of Intent is filed will be
counted towards completion of the Letter of Intent but will not be entitled to a
retroactive downward adjustment of the sales charge. If the purchase specified
in the Letter of Intent is not completed within the 13-month period, there will
be an upward adjustment of the sales charge as specified below, depending upon
the amount actually purchased during the period.
The Letter of Intent requires that five percent (5%) of the amount of the
total intended purchase will be reserved in Class A shares of the applicable
fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the investor does not complete the intended
purchase. However, the reserved shares will be included in the total Class A
shares owned as reflected on the quarterly statement, and any income and capital
gain distributions on the reserved shares will be paid as directed. The
reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed, or the higher sales charge paid. If the
total purchases equal or exceed the amount specified under the Letter, the
reserved Class A shares will be deposited to the investor's Open Account. If
the total amount of purchases exceeds the amount specified under the Letter and
is an amount which would qualify for a further quantity discount, a retroactive
price adjustment will be made by the Distributor and the dealer through whom
purchases were made pursuant to the Letter of Intent (to reflect such further
quantity discount) on purchases of Class A shares made after filing the Letter.
The resulting difference in offering price will be applied to the purchase of
additional Class A shares at the offering price applicable to a single purchase
or the dollar
B-41
<PAGE>
amount of the total purchases. If the total purchases are less than the amount
specified under the Letter, the investor will remit to the Distributor an amount
equal to the difference in the dollar amount of sales charge actually paid and
the amount of sales charge which would have applied to the aggregate purchases
of Class A shares if the total of such purchases had been made at a single time.
Upon such remittance, the reserved Class A shares held for the investor's
account will be deposited to its Open Account. If within 20 days after written
request such difference in sales charge is not paid, the redemption of an
appropriate number of reserved Class A shares to realize such difference will be
made. In the event of a total redemption of the Class A shares in the account
prior to fulfillment of the Letter of Intent, the additional sales charge due
will be deducted from the proceeds of the redemption and the balance will be
forwarded to the investor.
By completing the Letter of Intent section of the application, the investor
grants to the Distributor a security interest in the reserved Class A shares and
agrees to irrevocably appoint the Distributor as its attorney-in-fact to
surrender for redemption any or all such shares with full power of substitution.
This power of attorney is coupled with an interest. The investor or its dealer
must inform the Distributor that this Letter of Intent is in effect each time a
purchase is made.
REDEMPTION OF SHARES.
The right of redemption may not be suspended and the date of payment upon
redemption postponed for more than seven days (or such shorter period as may be
required by applicable law or regulation) after a shareholder's redemption
request made in accordance with the procedures set forth above, except for any
period during which the Exchange is closed (other than customary weekend and
holiday closings) or during which the SEC determines 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 such Fund of securities owned by it
is not reasonably practicable or as a result of which it is not reasonably
practicable for a 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 such Fund.
A Fund may pay the redemption price (net of any CDSC imposed on Class B and
Class C shares) either in cash or in portfolio securities of such 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, a Fund will redeem shares wholly in cash unless the
Board of Trustees believes that economic conditions make cash redemption
detrimental to such Fund's interests. If payment for redeemed shares is made
wholly or
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<PAGE>
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 the Fund's
total net assets at the beginning of such period. Each Fund currently expects,
however, that the amount of a redemption request would have to be significantly
greater than $250,000 or 1% of total net assets before the Fund would make a
redemption in portfolio securities. Any such redemptions will be subject to
receipt by the Fund of any necessary regulatory approvals.
Class B shares are subject to payment of a CDSC of up to 5.00% if redeemed
within four years of purchase. Class C shares of the Global Growth, Small &
Mid-Cap Growth and Value 25 Funds are subject to a CDSC of 1% if redeemed within
one year 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 caption
"Dividends, Distributions, and Taxes" in the Prospectus, which is incorporated
herein by reference. The following is additional information with reference to
the Funds' distributions and tax status:
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays income dividends and any capital gain
distributions at least once a year as stated in the Prospectus except the Value
25 Fund expects to pay income dividends on a quarterly basis.
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<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 a
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 such Fund. The value of whole and fractional
shares shall be computed in accordance with the provisions of "Determination of
Net Asset Value." No sales or other types of charge will be assessed in
connection with the reinvestment of dividends and capital gain distributions.
TAXES
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund has qualified, and intends to continue to qualify and elect (except
the Value 25 Fund which intends to qualify), to be treated as a "regulated
investment company" under Subchapter M of the Code, and intends to maintain such
qualification. See "Dividends, Distributions and Taxes" in the Prospectus.
Qualification as a "regulated investment company" does not involve supervision
of a 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, a 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 a 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 such 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 a 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 such 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 a Fund's assets are invested in foreign securities, such dividends-received
deduction would not be applicable.
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<PAGE>
Distributions of net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) by a 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 of a Fund 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 such 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. The conversion
of Class B shares of a Fund into Class A shares of the Fund will not result in
gain or loss for federal income tax purposes.
CERTAIN FOREIGN CURRENCY-RELATED TRANSACTIONS
Foreign exchange gains and losses realized by 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.
HEDGING TRANSACTIONS
If a Fund engages in hedging transactions, including hedging transactions
in 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 such Fund,
defer losses to the Fund, cause adjustments in the holding periods of the Fund's
securities, or convert short-term capital losses into long-term capital losses.
These rules could therefore affect the amount, timing, and character of
distributions to Fund shareholders. Each Fund will endeavor to make any
available elections pertaining to such transactions in a manner believed to be
in the best interests of such Fund's shareholders.
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Certain of a Fund's hedging activities (including its transactions, if any,
in foreign currencies or foreign currency-denominated instruments) are likely to
produce a difference between its book income and its taxable income. If a
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 such 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 a Fund's book
income is less than its taxable income, such Fund could be required to make
distributions exceeding book income to qualify as a regulated investment company
that is accorded special tax treatment under Subchapter M of the Code.
Under one of the requirements for qualification as a "regulated investment
company" under the Code, each Fund will be limited in selling assets held or
considered under Code rules to have been held for less than three months, and in
engaging in certain hedging transactions (including hedging transactions in
options and futures) that in some circumstances could cause certain Fund assets
to be treated as held for less than three months.
DEBT SECURITIES ISSUED OR PURCHASED AT A DISCOUNT
Any investment by a Fund in debt securities issued at a discount and
certain other obligations will (and investments in debt securities purchased at
a discount may) require such Fund to accrue and distribute income not yet
received. In order to generate sufficient cash to make the requisite
distributions, a Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold.
CERTAIN FOREIGN ISSUES
If more than 50% of a Fund's assets at year-end consist of securities of
foreign corporations, such 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 a Fund in certain "passive foreign investment companies"
could subject such Fund to additional U.S. federal income tax or other charge on
the proceeds from the disposition
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<PAGE>
of its investment in such a company; however, this tax can be avoided by making
an election to mark such investments to market annually or to treat the passive
foreign investment company as a "qualified electing fund" which passes its
annual income through to the Fund regardless of whether the company makes
distributions.
GENERAL
A shareholder of a Fund who does not fall within one of certain exempt
categories may be subject to backup withholding at the rate of 31% with respect
to dividends and capital gain distributions paid to shareholders or reinvested
by such 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 a Fund) will be
furnished to each shareholder following the close of the calendar year during
which the payments are made.
The discussions herein and in the Prospectus have been prepared by the
management of the Trust, are general by nature and do not purport to be a
complete description of all tax implications of an investment in a Fund.
Heller, Ehrman, White & McAuliffe, the Trust's counsel, has expressed no opinion
in respect thereof. Investors should consult their own tax advisers for further
details and for the application of federal, state and local tax laws to their
particular situations.
PERFORMANCE INFORMATION
From time to time, a Fund may state its total return in advertisements and
investor communications. Total return is computed separately for 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. A Fund may also advertise aggregate and average
total return information over different periods of time.
Each Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
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<PAGE>
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.
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, 1996 were as follows:
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<PAGE>
CLASS A
1
One Five Inception to
Year* Years December 31, 1996*
----- ----- ------------------
The Growth Fund 15.77% 6.39% 11.97%
The Balanced 11.30% 7.68% 13.91%
Return Fund
The Nifty Fifty 19.57% 9.82% 17.65%
Fund
The Global Growth Fund 15.04% N/A 24.55%
The Small & Mid-Cap
Growth Fund 43.96% N/A 42.08%
CLASS B
2
One Inception to
Year December 31, 1996
---- -----------------
The Growth Fund 16.52% 13.09%
The Balanced
Return Fund 11.82% 11.16%
The Nifty Fifty
Fund 20.60% 16.56%
The Global Growth Fund N/A 4.98%
The Small & Mid-Cap
Growth Fund N/A 7.84%
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<PAGE>
CLASS C
One Inception(2) to
Year December 31, 1996
---- -----------------
The Growth Fund 21.52% 13.87%
The Balanced
Return Fund 16.79% 11.97%
The Nifty Fifty
Fund 25.60% 17.30%
The Global Growth Fund N/A 6.28%
The Small & Mid-Cap
Growth Fund N/A 2.12%
- -------------
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
Global Growth Fund -- November 1, 1993
Small & Mid-Cap Growth Fund -- October 10, 1994
2 The inception date for Class B and Class C shares for the Growth, Nifty
Fifty and Balanced Return Funds was January 1, 1994; the inception date
for the Class B shares for the Global Growth and Small & Mid-Cap Growth
Funds was September 18, 1996; the inception date for the Class C shares for
the Global Growth Fund was October 21, 1996 and the inception date for the
Class C shares of the Small & Mid-Cap Growth Fund was October 8, 1996.
* Prior to September 1, 1996, the Funds' shares were not offered to the
public and, although each Fund's portfolio was managed substantially in
accordance with the investment policies described in its current Prospectus
during that period, some management differences did occur due primarily to
each Fund's small asset size. Accordingly, each Fund's performance during
periods prior to September 1, 1996 may not be relevant to an assessment of
such Fund's performance subsequent to such date. Additionally, the Manager
waived all management, administrative and service fees otherwise payable to
it by the Global Growth Fund during 1993, 1994 and 1995 and the Small &
Mid-Cap Growth Fund during 1994 and 1995, which had the effect of
increasing each Fund's total return for those periods.
Each Fund may also state its yield in advertisements and investor
communications. The yield computation is determined by
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<PAGE>
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 such 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 a Fund for the applicable 30-day period, the
amount of such yield will not be advertised on behalf of such Fund.
A 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 such 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 a Fund and distributed to the shareholders. All calculations of a
Class's distribution rate are based on the distributions per share which are
declared, but not necessarily paid, during the fiscal year. The distribution
rate for a Class is determined by dividing the distributions declared during the
period by the maximum offering price per share of the Class on the last day of
the period and annualizing the resulting figure. The distribution rate does not
reflect capital appreciation or depreciation in the price of a 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.
B-51
<PAGE>
The performance of a 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, a Fund's standard performance may also be compared to
such Fund's performance calculated as if no sales charges were deducted.
From time to time, information concerning a 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 such Fund.
Investors should note that the investment results of each 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.
B-52
<PAGE>
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 the Funds. 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 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 a 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 February 28, 1997 the following shareholders, to the Trust's
knowledge, owned of record 5% or more of each Fund's outstanding shares by
class, as noted:
Class A Class B Class C
------- ------- -------
The Growth Fund
- ---------------
Merrill Lynch, Pierce, 48.78% 50.82% 73.59%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32246-6485
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<PAGE>
The Balanced Return Fund
- ------------------------
Merrill Lynch, Pierce, 29.19% 45.97% 76.21%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32246-6485
The Pasadena Nifty Fifty Fund
- -----------------------------
Merrill Lynch, Pierce, 51.28% 51.33% 73.41%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32216
The Pasadena Global Growth Fund
- -------------------------------
Merrill Lynch, Pierce, 7.51% 24.30% 39.57%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32216
Pasadena Capital Corporation 21.93%
600 North Rosemead Blvd.
Pasadena, California 91107-2133
Pasadena National Trust 9.12%
Cust for IRA of
Roger Engemann
731 S. Madre Street
Pasadena, California 91107-5662
Union Bank of California 7.29%
FBO Barney Sofro
475 Sansome Street, 11th Floor
San Francisco, California 94111-3103
First Trust Corp TTEE 5.82%
FBO Premier Care Inc. 401K
PO Box 5508
Denver, Colorado 80217-5508
Rauscher Pierce Refsnes C/F 13.97%
Carol A Rorschach
1407 S. Richmond Avenue
Tulsa, Oklahoma 74112-6129
B-54
<PAGE>
Painewebber FBO 15.03%
Painewebber CDN FBO
Merle W. Ferry
PO Box 3321
Weehawken, NJ 07087-8154
The Pasadena Small & Mid-Cap Growth Fund
- ----------------------------------------
Merrill Lynch, Pierce, 21.84% 70.45% 75.52%
Fenner & Smith, Inc.*
Attn: Book Entry
4801 Deer Lake Drive East
Jacksonville, Florida 32216
Pasadena Capital Corporation 11.48%
600 North Rosemead Blvd.
Pasadena, California 91107-2133
Pasadena National Trust 7.56%
Cust for IRA of
Roger Engemann
731 S. Madre Street
Pasadena, California 91107-5662
Union Bank of California 5.72%
FBO Barney Sofro
475 Sansome Street, 11th Floor
San Francisco, California 94111-3103
The Pasadena Value 25 Fund
- --------------------------
Pasadena Capital Corporation 85.27% 28.16%
600 North Rosemead Blvd.
Pasadena, California 91107-2133
Pasadena National Trust 18.14%
Cust for IRA of
Roger Engemann
731 S. Madre Street
Pasadena, California 91107-5662
Union Bank of California 7.30%
FBO Barney Sofro
475 Sansome Street, 11th Floor
San Francisco, California 94111-3103
Union Bank of California NA Cust 6.46%
FBO Michael P. Mork
PO Box 109
San Diego, California 92112-4103
B-55
<PAGE>
Union Bank of California Cust 12.72%
FBO Moore Investment Partnership
PO Box 109
San Diego, California 92112-4103
Micheline R. Roberts 67.65%
1622 Austin Way
Santa Rosa, California 95404-3604
- --------------
* 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.
The officers and Trustees of the Trust as a group, together with officers of the
Manager, beneficially owned or controlled ______ of the outstanding shares of
_________ as of February 28, 1997.
FINANCIAL STATEMENTS
The Funds' audited financial statements contained in their Annual Reports
to Shareholders for the period ended December 31, 1996 (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.
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<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-57
<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-58
