<PAGE> 1
Registration Nos. 33-50208
811-7062
As filed with the Securities and Exchange Commission on April 29, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
----
Post-Effective Amendment No. 4 / x /
----
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 / x /
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(Check appropriate box or boxes)
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Pacific Global Fund, Inc.
d/b/a Pacific Advisors Fund Inc.
(Exact Name of Registrant as Specified in Charter)
206 North Jackson Street, Suite 201
Glendale, California 91206
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
(818) 242-6693
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George A. Henning
Pacific Global Investment Management Company
206 North Jackson Street, Suite 201
Glendale, California 91206
Copies to:
Joan E. Boros, Esq.
Katten Muchin & Zavis
1025 Thomas Jefferson St., N.W., Suite 700
Washington, D.C. 20007
<PAGE> 2
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective:
X Immediately upon filing pursuant to Paragraph (b) of Rule 485
____ On ___________________ pursuant to Paragraph (b) of Rule 485
____ 60 days after filing pursuant to Paragraph (a)(1) of Rule 485
____ On _________________ pursuant to Paragraph (a)(1) of Rule 485
____ 75 days after filing pursuant to Paragraph (a)(2) of Rule 485
____ On __________________ pursuant to Paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its four series under the Securities Act of 1933
pursuant to Rule 24f-2 on July 29, 1992. The Registrant filed a Rule 24f-2
Notice on or about February 29, 1996.
<PAGE> 3
PACIFIC GLOBAL FUND, INC.
d/b/a PACIFIC ADVISORS FUND INC.
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Form N-1A Item No. Caption in Prospectus
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Cover Page; Table of Contents
3. Condensed Financial Not Applicable
Information
4. General Description of The Funds; Government Securities
Registrant Fund; Income Fund; Balanced Fund;
Small Cap Fund; Other
Investment Practices, Risk
Considerations, and Policies of the Funds
5. Management of the Fund Fund Management Organizations
6. Capital Stock and Other More Facts About the Company
Securities
7. Purchase of Securities Shareholder Guide
Being Offered
8. Redemption or Repurchase Shareholder Services
9. Pending Legal Proceedings Not Applicable
</TABLE>
PART B
<TABLE>
<CAPTION>
Caption in Statement of
Form N-1A Item No. Additional Information
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<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and The Funds; Investment Management and Other
History Services
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Caption in Statement of
Form N-1A Item No. Additional Information
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<S> <C> <C>
13. Investment Objectives and Investment Restrictions; Description of Certain
Policies Investments; Appendix
14. Management of the Fund Investment Management and Other
Services; Management of the Company
and Its Funds
15. Control Persons and Management of the Company and
Principal Holders of Its Funds
Securities
16. Investment Advisory and Investment Management and Other
Other Services Services; Distribution Plan
17. Brokerage Allocation and Other Considerations
Other Practices
18. Capital Stock and Other None
Securities
19. Purchase, Redemption and Other Considerations
Pricing of Securities
Being Offered
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Not Applicable
Data
23. Financial Statements Independent Auditors
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 5
Distributors
Pacific Global Fund Distributors, Inc.
206 North Jackson Street
Suite 201
Glendale, California 91206
1.800.282.6693
[PACIFIC ADVISORS LOGO]
PACIFIC
ADVISORS
-
Fund Inc.
PROSPECTUS
May 1, 1996
Government
Securities Fund
Income
Fund
Balanced
Fund
Small Cap
Fund
<PAGE> 6
The Pacific Advisors Fund Inc. is designed to provide a range of investment
alternatives for individual investors. The Pacific Advisors Fund Inc. consists
of the following four investment funds (the "Funds"):
GOVERNMENT SECURITIES FUND seeks to provide high current income,
preservation of capital, and rising future income, consistent with prudent
investment risk.
INCOME FUND seeks to provide current income and, secondarily, long-term
capital appreciation.
BALANCED FUND seeks to achieve long-term capital appreciation and income
consistent with reduced market risk.
SMALL CAP FUND seeks to provide capital appreciation through investment in
small market capitalization companies.
There is no assurance that the objective of each Fund will be realized. For
general information please call Pacific Advisors Fund Inc. toll free at
1-800-282-6693
About this Prospectus
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about each Fund that you
should know before investing. It should be retained for future reference. A
Statement of Additional Information, dated May 1, 1996, about the Funds has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. It is available, at no charge, by calling the Pacific Advisors Fund
Inc. at the telephone number shown above.
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 NOR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No dealer, salesperson, or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized. This Prospectus does not constitute an offering of any
securities other than the registered securities to which it relates or an offer
to any person in any state or jurisdiction of the United States or any country
where such offer would be unlawful.
<PAGE> 7
Table of contents
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EXPENSE TABLE ........................................................... 4
FINANCIAL HIGHLIGHTS .................................................... 5
THE FUNDS ............................................................... 10
Government Securities Fund ............................................ 10
Income Fund ........................................................... 12
Balanced Fund ......................................................... 13
Small Cap Fund ........................................................ 15
Additional Funds ...................................................... 16
FUND MANAGEMENT ORGANIZATIONS ........................................... 16
The Manager ........................................................... 16
The Advisers .......................................................... 17
The Distributor ....................................................... 18
The Transfer Agent, Dividend Disbursing Agent and
Administrative Services Agent ......................................... 19
SHAREHOLDER GUIDE ....................................................... 19
How to Invest ......................................................... 19
Initial Investment .................................................... 19
Subsequent Investments ................................................ 19
Reducing Your Sales Charge ............................................ 22
SHAREHOLDER SERVICES .................................................... 23
Exchanges of Shares ................................................... 23
Additional Services ................................................... 25
Redemptions ........................................................... 26
Signatures and Signature Guarantees ................................... 27
Telephone Exchanges and Redemptions ................................... 28
RETIREMENT PLANS ........................................................ 29
OTHER CONSIDERATIONS .................................................... 29
General ............................................................... 29
Certificates .......................................................... 29
Net Asset Value ....................................................... 29
Distributions ......................................................... 30
Taxes ................................................................. 30
PERFORMANCE AND YIELD INFORMATION ....................................... 31
RISK FACTORS, OTHER INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS ..... 32
Cash Reserves and Repurchase Agreements ............................... 32
Fixed-Income Securities ............................................... 32
Forward Commitments and When-Issued Securities ........................ 32
Mortgage-Backed Securities ............................................ 33
Collateralized Mortgage Obligations (CMOs) ............................ 33
Asset-Backed Securities ............................................... 34
Zero-Coupon Bonds ..................................................... 34
Securities Lending .................................................... 34
Foreign Securities .................................................... 35
Writing and Purchasing Covered Put and Call Options on Securities ..... 36
Certain Policies to Reduce Risk ....................................... 36
MORE FACTS ABOUT THE COMPANY ............................................ 36
Organization and Capitalization ....................................... 36
Portfolio Turnover .................................................... 37
Distribution Plan ..................................................... 37
Expenses .............................................................. 37
Meetings and Voting Rights ............................................ 38
Shareholder Communications ............................................ 38
Additional Information ................................................ 38
FUND SERVICE ORGANIZATIONS .............................................. 40
3
<PAGE> 8
Expense Table
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<TABLE>
<CAPTION>
GOVERNMENT SMALL
SECURITIES INCOME BALANCED CAP
FUND FUND FUND FUND
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 4.75% 4.75% 5.75% 5.75%
Maximum Sales Charge Imposed
on Reinvested Dividends and
Transfers, including Exchanges
from Eligible Funds None None None None
Exchange Fee $5.00 $5.00 $5.00 $5.00
Redemption Fee None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE WAIVER OR ASSUMPTION
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees 0.65** 0.75** 0.75** 0.75**
Service Fees 0.01** 0.05** 0.01** 0.15**
Other Expenses 0.99** 1.06** 1.48** 1.59**
Total Fund Operating Expenses 1.65%** 1.86%** 2.24%** 2.49%**
</TABLE>
* Accounts with a share value of less than $1,000 on the last business day at
the end of a calendar year generally are subject to an annual $10.00 fee.
The investment management fees for the Funds, other than the Government
Securities Fund, are higher than that paid by most Funds in those investment
categories. The fees, however, may be in line with other funds that are
managed in a similar manner, i.e., for total return. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges.
** For each Fund, the Manager has agreed to reduce its investment management
fee in any fiscal year in which all Fund Operating Expenses exceed the
lowest applicable limit actually enforced by any state and to reimburse each
Fund for any additional expenses that exceed such limit. In addition, from
time to time the Manager and the Advisers may voluntarily waive their
management and advisory fees, respectively, and/or absorb certain expenses
for each Fund. Absent the expense limitation, the voluntary waiver of fees
and the assumption of expenses by the Manager and the Advisers, the Total
Fund Operating Expenses for the Government Securities Fund, the Income Fund,
the Balanced Fund, and the Small Cap Fund, would have been 2.80%, 8.25%,
5.31% and 3.64%, respectively, for the fiscal year ended December 31, 1995.
4
<PAGE> 9
EXAMPLES:
An investor in each Fund would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) a redemption at the end of
one year, three years, five years and ten years.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
Government Securities Fund $63 $ 96 $132 $231
Income Fund 65 102 142 252
Balanced Fund 79 123 169 297
Small Cap Fund 81 130 181 321
</TABLE>
The Expense Table at left and the Examples above in this section are
provided to assist your understanding of the various costs and expenses to which
an investment in each Fund is subject. The figures shown reflect all the fees
and expenses, net of expense waiver or assumption, incurred by the Funds for the
fiscal year ended December 31, 1995. Actual fees and expenses for the current
year may be greater or less than the estimates. For more information regarding
expenses see "MORE FACTS ABOUT THE COMPANY."
These Examples should not be considered a representation of past or future
expenses for each Fund. Actual expenses may be greater or less than those shown
above. Similarly, the annual rate of return of 5% assumed in the Examples is not
an estimate or guarantee of future investment performance.
Financial Highlights
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The following information, for the periods from February 8, 1993 (commencement
of operations) to December 31, 1993 and for the fiscal years ended December 31,
1994 and December 31, 1995, has been audited by Ernst & Young LLP, the Company's
independent auditors. The table below represents a condensed financial history
of the operations of each Fund and expresses the information in terms of a
single share of each Fund outstanding throughout the period.
This per share and other information should be read in conjunction with the
financial statements and related notes included in the Company's Annual Reports
to Shareholders, which, except for pages 1 through 2 thereof for the Income and
balanced Funds and pages 1 through 3 thereof for the Small Cap and Government
Securities Funds, is incorporated by reference into the Company's Statement of
Additional Information. A copy of each Fund's Annual Report is available without
charge.
5
<PAGE> 10
Financial Highlights - Government Securities Fund
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(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the Year Ended For the Period
December 31 February 8, 1993(3)
1995 1994 to December 31, 1993
----------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $8.82 $9.00 $9.00
----------------------------------------------
Income from Investment Operations:
Investment Income 0.45 0.22 0.11
Expenses (0.14) (0.09) (0.04)
----------------------------------------------
Net Investment Income 0.31 0.13 0.07
Net realized and unrealized gain (loss) on securities 1.53 (0.14) (0.04)
----------------------------------------------
Total from Investment Operations 1.84 (0.01) 0.03
Less Distributions:
Distributions from net investment income (0.31) (0.17) (0.03)
Dividends from net capital gains (0.19) 0.00 0.00
Net Asset Value, End of Period $10.16 $8.82 $9.00
==============================================
TOTAL INVESTMENT RETURN 20.32% (0.15%) 0.36%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $5,837 $3,185 $1,179
Ratio of Expenses to Average Net Assets (1) 1.65% 1.60% 1.38% (2)
Ratio of Net Investment Income to Average Net Assets 3.75% 2.09% 1.12% (2)
Portfolio Turnover Ratio 57.85% 81.59% 129.16% (2)
</TABLE>
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1. Without the voluntary fee waivers and reimbursement of expenses, the ratio
of expenses to average daily net assets for the Government Securities Fund
would have been 2.80%, 4.86% and 15.46%, for the years 1995 through 1993
respectively.
2. Annualized.
3. Commencement of Operations.
See Financial Statements and Notes included in the Fund's Annual Report
to Shareholders for the year ended December 31, 1995.
6
<PAGE> 11
Financial Highlights - Income Fund
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(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the Year Ended For the Period
December 31 February 8, 1993(3)
1995 1994 to December 31, 1993
---------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $8.98 $9.06 $9.00
Income from Investment Operations: --------------------- -----
Investment Income 0.45 0.28 0.15
Expenses (0.14) (0.12) (0.09)
--------------------- -----
Net Investment Income 0.31 0.16 0.06
Net realized and unrealized gain (loss) on securities 0.72 (0.07) 0.04
--------------------- -----
Total from Investment Operations 1.03 0.09 0.10
Less Distributions:
Distributions from net investment income (0.31) (0.17) (0.04)
Dividends from net capital gains (0.03) 0.00 0.00
Net Asset Value, End of Period $9.67 $8.98 $9.06
===================== =====
TOTAL INVESTMENT RETURN 11.98% 0.99% 1.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $1,071 $632 $135
Ratio of Expenses to Average Net Assets (1) 1.86% 1.75% 1.68% (2)
Ratio of Net Investment Income to Average Net Assets 4.06% 2.17% 0.79% (2)
Portfolio Turnover Ratio 33.40% 37.12% 0.00% (2)
</TABLE>
- --------------------------------------------------------------------------------
1. Without the voluntary fee waivers and reimbursement of expenses, the ratio
of expenses to average daily net assets for the Income Fund would have
been 8.25%, 12.73%, and 70.32%, for the years 1995 through 1993
respectively.
2. Annualized.
3. Commencement of Operations.
See Financial Statements and Notes included in the Fund's Annual Report
to Shareholders for the year ended December 31, 1995.
7
<PAGE> 12
Financial Highlights - Balanced Fund
- --------------------------------------------------------------------------------
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the Year Ended For the Period
December 31 February 8, 1993(3)
1995 1994 to December 31, 1993
---------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $8.75 $8.99 $9.00
-------------------- -----
Income from Investment Operations:
Investment Income 0.35 0.07 0.07
Expenses (0.17) (0.05) (0.06)
-------------------- -----
Net Investment Income 0.18 0.02 0.01
Net realized and unrealized gain (loss) on securities 0.57 (0.24) (0.01)
-------------------- -----
Total from Investment Operations 0.75 (0.22) 0.00
Less Distributions:
Distributions from net investment income (0.18) (0.02) (0.01)
Dividends from net capital gains (0.01) 0.00 0.00
Net Asset Value, End of Period $9.31 $8.75 $8.99
==================== =====
TOTAL INVESTMENT RETURN 8.70% (2.41%) 0.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $2,129 $1,341 $121
Ratio of Expenses to Average Net Assets (1) 2.24% 1.83% 1.60% (2)
Ratio of Net Investment Income to Average Net Assets 2.46% 0.93% 0.25% (2)
Portfolio Turnover Ratio 41.23% 60.68% 61.71% (2)
</TABLE>
- --------------------------------------------------------------------------------
1. Without the voluntary fee waivers and reimbursement of expenses, the ratio
of expenses to average daily net assets for the Balanced Fund would have
been 5.31%, 17.85%, and 108.91%, for the years 1995 through 1993
respectively.
2. Annualized.
3. Commencement of Operations.
See Financial Statements and Notes included in the Fund's Annual Report
to Shareholders for the year ended December 31, 1995.
8
<PAGE> 13
Financial Highlights - Small Cap Fund
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(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the Year Ended For the Period
December 31 February 8, 1993(3)
1995 1994 to December 31, 1993
--------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $10.35 $11.47 $9.00
--------------------------------------------
Income from Investment Operations:
Investment Income 0.19 0.019 0.09
Expenses (0.27) (0.23) (0.12)
--------------------------------------------
Net Investment Income (0.08) (0.04) (0.03)
Net realized and unrealized gain (loss) on securities 1.89 (0.42) 2.50
--------------------------------------------
Total from Investment Operations 1.81 (0.46) 2.47
Less Distributions:
Distributions from net capital gains (0.34) (0.66) 0.00
Net Asset Value, End of Period $11.82 $10.35 $11.47
============================================
TOTAL INVESTMENT RETURN 17.27% (3.97%) 29.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $4,279 $3,169 $2,175
Ratio of Expenses to Average Net Assets (1) 2.49% 2.45% 2.20% (2)
Ratio of Net Investment Income (loss) to Average Net Assets (0.71%) (0.42%) (0.32%) (2)
Portfolio Turnover Ratio 44.95% 49.79% 5.91% (2)
</TABLE>
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1. Without the voluntary fee waivers and reimbursement of expenses, the ratio
of expenses to average daily net assets for the Small Cap Fund would have
been 3.64%, 5.40% and 7.20%, for the years 1995 through 1993 respectively.
2. Annualized.
3. Commencement of Operations.
See Financial Statements and Notes included in the Fund's Annual Report
to Shareholders for the year ended December 31, 1995.
9
<PAGE> 14
The Funds
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The Pacific Global Fund, Inc., a Maryland corporation doing business as Pacific
Advisors Fund Inc. (the "Company"), is registered with the Securities and
Exchange Commission ("SEC") as an open-end diversified management investment
company. The Company currently offers four Funds: Government Securities Fund,
Income Fund, Balanced Fund, and Small Cap Fund. Also see "Exchanges to Eligible
Funds" for availability of exchanges at net asset value to and from certain
other eligible mutual funds ("Eligible Funds"). Each Fund is a separate
investment portfolio of the Company with a distinct fundamental investment
objective, investment program, policies, and restrictions. Each Fund's
investment objective may not be changed without the approval of a majority of
its shareholders. Each Fund is advised and managed by Pacific Global Investment
Management Company (the "Manager" or "Pacific Global"), which supervises the
day-to-day investment operations of each Fund. The Manager and the Company, on
behalf of each Fund, other than Small Cap Fund have entered into sub-advisory
agreements with registered investment advisers (the "Adviser(s)"). Spectrum
Asset Management, Inc. ("Spectrum") serves as Adviser to the Government
Securities Fund. MMG Money Management Group, Inc. ("MMG Money Management") also
doing business as Expansion Funds of Arizona, Inc. serves as Adviser to the
Income Fund. Hamilton & Bache, Inc. ("Hamilton & Bache") serves as Adviser
to the Balanced Fund. The Manager serves as Adviser to the Small Cap Fund.
GOVERNMENT SECURITIES FUND
Investment Objective. The Government Securities Fund seeks to provide high
current income, preservation of capital, and rising future income, consistent
with prudent investment risk.
Investment Program. In seeking to achieve its objective, the Fund will invest
primarily (i.e., at least 65% of its total assets) in fixed-income securities
issued or guaranteed by the U.S. Government, or its agencies and
instrumentalities ("U.S. Government Securities"). The U.S. Government Securities
in which the Fund may invest include: (i) U.S. Treasury bills, notes, and bonds,
which are direct obligations of the U.S. Government; (ii) Government National
Mortgage Association ("GNMA") mortgage-backed securities, which are guaranteed
as to the timely payment of principal and interest by GNMA and backed by the
full faith and credit of the U.S. Treasury; (iii) securities such as those
issued by the Federal Home Loan Banks and the Federal National Mortgage
Association ("FNMA"), which are supported by the agency's right to borrow money
from the U.S. Treasury under certain circumstances; and (iv) securities such as
those issued by the Farmers Home Administration, which are supported only by the
issuing agency's or instrumentality's credit.
The Fund also will invest in high-grade fixed-income securities issued by
U.S. corporations, including convertible debt securities and preferred stocks,
and zero coupon bonds issued by agencies and instrumentalities of the U.S.
Government or by private corporations. High-grade securities are rated within
the three highest credit categories by any nationally recognized statistical
rating organization ("NRSRO") or, if unrated, are of comparable quality as
determined by Spectrum, the Fund's Adviser. In selecting such
10
<PAGE> 15
fixed-income securities, Spectrum focuses on building core investments in areas
of low risk and high intrinsic value. The Fund's corporate bond investments
emphasize short and intermediate-term issues of domestic corporations that have
strong or improving balance sheets.
Spectrum will actively manage the Fund's portfolio maturity to increase the
Fund's total rate of return. The proportion of the Fund's assets invested in
long, intermediate, or short-term securities is expected to vary depending on
Spectrum's evaluation of market patterns and economic conditions. When long term
interest rates are declining, the Fund will increase its investments in longer
term bonds. Conversely, when long term interest rates are rising, the Fund will
decrease its investments in longer term bonds and increase its investments in
high quality money market securities and other short term debt securities. For
temporary defensive purposes, the Fund may invest, without limitation, in high
quality money market securities. The Fund may also invest up to 10% of its total
assets in other open-end investment companies, in accordance with Section
12(d)(1)(A) of the Investment Company Act of 1940. Such investment in other
investment companies will take into consideration the operating expenses and
fees of those companies, including advisory fees, as such expenses will reduce
investment return.
In addition, to enhance its income, the Fund will invest in dividend-paying
common stocks. In selecting such common stocks, the Fund emphasizes companies
with favorable prospects for rising dividend income. Investments in equity
securities may entail greater price volatility than investments in high-grade
fixed-income securities. However, to minimize such exposure to greater
volatility, the Fund's investments in equity securities will generally be made
in companies that have some of the following characteristics: (i) established
operating histories; (ii) strong or improving balance sheets; and (iii) above
average current dividend yields relative to the Standard & Poor's 500 Composite
Price Index ("S&P 500"). When the Fund invests more than 25% of its total assets
in dividend-paying common stocks, the Fund will concentrate such investments in
securities of issuers in the public utilities industry. The securities of high
quality public utilities are used by Spectrum as substitutes for long term
bonds. Concentration of investments in this area are made when the current yield
on U.S. Government 30-year bonds declines 60 basis points (6/10 of 1%) from
previous yield peaks for the period of the last 50 trading days. Public
utilities industry issuers include those engaged in the manufacture, production,
generation, transmission and sale of gas, electric energy, and water and
sanitary services, as well as issuers in the communication field including
telephone, telegraph, satellite, microwave, and other companies providing
communication facilities for the public benefit (other than those in the public
broadcasting industry). Investments in public utilities industry securities may
be affected by such factors as environmental conditions, energy conservation
programs, fuel shortages, and federal, state and local legislative and
regulatory actions.
The common stocks in which the Fund invests generally will be listed on a
national securities exchange. The Fund may also invest up to 25% of its total
assets in common stocks and fixed-income securities of foreign issuers.
Investments in common stocks of foreign issuers will be made primarily through
the use of American Depository Receipts ("ADRs"), although direct market
purchases also may be made.
Each Fund's investment objective is to provide current income consistent
with liquidity and conver-
11
<PAGE> 16
sation of capital. In pursuing its investment objective, each Fund may invest in
certain types of securities that have special risks which are described under
"RISK FACTORS, OTHER INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS" of this
prospectus and therefore, may not be suitable for all investors. Each Fund may
purchase securities on a when-issued, delayed delivery, or forward commitment
basis, but not for leverage (borrowing purposes). Generally, each Fund may
invest in some or all of the following: high-grade money market instruments with
remaining maturities of 13 months or less, including U.S. government securities,
obligations of U.S. banks, commercial paper and other short-term corporate
obligations, corporate bonds and participation interests or repurchase
agreements involving any of the foregoing securities. Each Fund may invest in
obligations of banks, including foreign branches of domestic banks and foreign
and domestic branches of foreign banks. However, each Fund does not intend to
hedge its foreign currency risks and will engage in currency exchange
transactions on a spot (i.e., cash) basis only at the spot rate prevailing in
the foreign exchange market. Investors should carefully assess the risks
associated with an investment in each Fund.
INCOME FUND
Investment Objective. The Income Fund seeks to provide current income and,
secondarily, long-term capital appreciation.
Investment Program. To achieve its objective, the Income Fund will invest
primarily (i.e., at least 65% of its total assets) in fixed-income securities
and income-producing equity and equity-related securities. Under normal
circumstances, it is expected that approximately 50% of the Fund's total assets
will be invested in fixed-income securities, including U.S. Government
Securities (such as those utilized by the Government Securities Fund), corporate
bonds, mortgage-backed securities, asset-backed securities, collateralized
mortgage obligations ("CMOs"), convertible debt securities, Liquid Yield Option
Notes ("LYONS"), Preference Equity Redemption Cumulative Stock ("PERCS") and
zero-coupon bonds. The fixed-income securities utilized by the Fund will be
primarily investment-grade, i.e., rated within the four highest credit
categories by any NRSRO or, if unrated, are of comparable quality as determined
by the Fund's Adviser. In the event that the ratings for investment grade
securities held by the Fund fall below investment grade, the Fund will not be
obligated to dispose of such securities if, in the opinion of the Fund's
Adviser, such investment is considered appropriate under the circumstances. No
more than 5% of the Fund's net assets will be invested or held in securities
with ratings less than investment-grade. The proportion of the Fund's assets
invested in any particular type of fixed-income security or in any maturity will
vary depending on the Adviser's evaluation of market and economic conditions.
The remainder of the Fund's assets will be invested in equity and
equity-related securities, including common stocks, preferred stocks, and
convertible equity securities. Such securities will be chosen largely for their
total return characteristics. In evaluating such securities for investment, the
Fund's Adviser may consider the following factors: (i) above-average earning's
growth potential; (ii) sound balance sheets and other financial characteristics;
(iii) quality of management; and (iv) growth of dividends. While the majority of
these equity investments will consist of dividend-paying securities of
established companies, the Fund may also invest in certain equity secu-
12
<PAGE> 17
rities that do not pay current dividends, but which offer prospects for capital
growth or future income.
The equity securities in which the Fund invests may be listed on a national
securities exchange or traded in an established over-the-counter ("OTC") market.
The Fund may also invest up to 10% of its total assets in equity and
equity-related securities of foreign issuers. The Fund will invest in such
foreign equity securities primarily through the purchase of ADRs or other
similar securities. (See "RISK FACTORS, OTHER INVESTMENT PRACTICES, AND POLICIES
OF THE FUNDS" of this prospectus for a more detailed description of these
investment practices and their risks.)
The mix of bonds and stocks held by the Fund will vary from time to time
depending on the Fund's Adviser's assessment of business, economic, and
investment conditions. However, fixed-income securities can be expected to
represent the majority of the Fund's total assets as long as the general level
of interest rates remains well in excess of dividend yields available from
common stocks.
In addition to investing in fixed-income securities and income-producing
equity and equity-related securities, the Fund may also invest in high-quality
money market securities. For temporary defensive purposes, the Fund may invest
in such money market securities without limitation.
Each Fund's investment objective is to provide current income consistent
with liquidity and conversation of capital. In pursuing its investment
objective, each Fund may invest in certain types of securities that have special
risks which are described under "RISK FACTORS, OTHER INVESTMENT PRACTICES, AND
POLICIES OF THE FUNDS" of this prospectus and therefore, may not be suitable for
all investors. Each Fund may purchase securities on a when-issued, delayed
delivery, or forward commitment basis, but not for leverage (borrowing
purposes). Generally, each Fund may invest in some or all of the following:
high-grade money market instruments with remaining maturities of 13 months or
less, including U.S. government securities, obligations of U.S. banks,
commercial paper and other short-term corporate obligations, corporate bonds and
participation interests or repurchase agreements involving any of the foregoing
securities. Each Fund may invest in obligations of banks, including foreign
branches of domestic banks and foreign and domestic branches of foreign banks.
However, each Fund does not intend to hedge its foreign currency risks and will
engage in currency exchange transactions on a spot (i.e., cash) basis only at
the spot rate prevailing in the foreign exchange market. Investors should
carefully assess the risks associated with an investment in each Fund.
BALANCED FUND
Investment Objective. The Balanced Fund seeks to achieve long-term capital
appreciation and income consistent with reduced market risk.
Investment Program. To achieve its objective, the Balanced Fund will invest in a
flexible combination of equity and equity-related securities, investment-grade
fixed-income securities, and high-quality money market securities or money
market funds. Hamilton & Bache will vary the composition of the Fund's portfolio
based on its evaluation of economic and market conditions, price trends, and the
anticipated returns available from each of the three asset classes.
Nevertheless, at least 25% of the Fund's total assets will be invested at all
times in fixed-income securities, including corporate debt securities and
preferred stocks.
13
<PAGE> 18
In selecting equity and equity-related investments for the Fund, including
common stocks and convertible preferred stocks, Hamilton & Bache will consider
all factors that it believes influence security prices. In particular, it will
evaluate the momentum in trends of security prices of individual companies,
industries, and the stock market in general. Hamilton & Bache also will analyze
the fundamental values of both particular companies and industries, including
their financial soundness and future prospects. The Fund's equity and
equity-related investments will be primarily in medium and large capitalization
companies (i.e., companies having market capitalizations in excess of $500
million).
The fixed-income portion of the Fund will be invested in investment-grade
quality bonds, debentures or asset-backed securities. Under normal conditions,
the Fund also may invest up to 25% of its total assets in high-quality money
market securities and money market funds. Such bonds and money market securities
may include: U.S. Government Securities (such as those used by the Government
Securities Fund), corporate bonds, mortgage-backed securities, convertible debt
securities, and CMOs. When market conditions warrant temporary or defensive
purposes, the Fund may invest up to 60% of the Fund's total assets in money
market securities.
The equity securities in which the Fund invests may be listed on a national
securities exchange or traded in an established OTC market. The Fund may invest
up to 20% of its total assets in equity and equity-related securities of foreign
issuers. The Fund may invest in such foreign equity securities through the
purchase of ADRs or other similar securities. (See "RISK FACTORS, OTHER
INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS" for a more detailed description
of these investment practices and their risks.) The Fund may also invest up to
10% of its total assets in the securities of other investment companies,
including closed-end investment companies, in accordance with Section
12(d)(1)(A) of the Investment Company Act of 1940. Such investment in other
investment companies will take into consideration the operating expenses and
fees of these companies, including advisory fees, as such expenses may reduce
investment return.
Each Fund's investment objective is to provide current income consistent
with liquidity and conversation of capital. In pursuing its investment
objective, each Fund may invest in certain types of securities that have special
risks which are described under "RISK FACTORS, OTHER INVESTMENT PRACTICES, AND
POLICIES OF THE FUNDS" of this prospectus and therefore, may not be suitable for
all investors. Each Fund may purchase securities on a when-issued, delayed
delivery, or forward commitment basis, but not for leverage (borrowing
purposes). Generally, each Fund may invest in some or all of the following:
high-grade money market instruments with remaining maturities of 13 months or
less, including U.S. government securities, obligations of U.S. banks,
commercial paper and other short-term corporate obligations, corporate bonds and
participation interests or repurchase agreements involving any of the foregoing
securities. Each Fund may invest in obligations of banks, including foreign
branches of domestic banks and foreign and domestic branches of foreign banks.
However, each Fund does not intend to hedge its foreign currency risks and will
engage in currency exchange transactions on a spot (i.e., cash) basis only at
the spot rate prevailing in the foreign exchange market. Investors should
carefully assess the risks associated with an investment in each Fund.
14
<PAGE> 19
SMALL CAP FUND
Investment Objective. The Small Cap Fund seeks to provide capital appreciation
through investment in small market capitalization companies.
Investment Program. In seeking to achieve its objective, the Fund will invest
primarily (i.e., at least 65% of the Fund's total assets) in equity and
equity-related securities of small capitalization companies that are in an early
growth stage of their development. Such small capitalization companies (i.e.,
companies with under $500 million in market capitalization) are often referred
to as emerging growth companies. In selecting securities of such emerging growth
companies for the Fund, Pacific Global, the Fund's Adviser, focuses on companies
it believes have unique characteristics or proprietary advantages that may offer
superior prospects for above-average increases in revenue and earnings. The Fund
will also purchase securities of companies that (i) are in industries that
Pacific Global believes are less likely to be affected by cyclical changes in
the economy and (ii) have strong prospects for earnings growth. Pacific Global
will continuously monitor these emerging growth companies and their industries
to make certain they retain the characteristics that led to their initial
selection, and to determine whether to increase the Fund's initial investment.
The Fund may also invest up to 10% of its total assets in the securities of
other investment companies, including closed-end investment companies, in
accordance with Section 12(d)(1)(A) of the Investment Company Act of 1940. Such
investment in other investment companies will take into consideration the
operating expenses and fees of those companies, including advisory fees, as such
expenses may reduce investment return.
Under normal circumstances, the Fund will be primarily invested in equity
and equity-related securities of such emerging growth companies, including:
common stocks, preferred stocks, and securities convertible into or exchangeable
for common stocks. Such equity and equity-related securities will be principally
traded in the U.S. OTC securities market and, as such, primarily NASDAQ traded
securities. Up to 5% of the Fund's total assets may be invested directly in
foreign securities.
While it is anticipated the Fund will invest principally in equity and
equity-related securities, the Fund also may invest in convertible preferred
stocks that pay above-average dividends and investment-grade fixed-income
securities provided such investments appear desirable in light of the Fund's
investment objective of capital appreciation. The Fund will not continue to hold
investment grade securities that have been down graded to below investment
grade. Convertible preferred stocks that pay above-average dividends and
long-term corporate bonds are considered by Pacific Global to have capital
appreciation potential. The fixed-income securities in which the Fund may invest
are generally expected to be long-term corporate bonds having an average
portfolio maturity of between 10 and 15 years, which have the potential to
provide capital appreciation. When, in the judgment of Pacific Global, a
temporary defensive posture is appropriate, the Fund may invest, without
limitation, in high-quality money market securities. (See "RISK FACTORS, OTHER
INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS" for a more detailed description
of fixed income securities.)
While the companies in which the Fund invests may offer greater opportunity
for capital appreciation than larger, more established companies, investment
15
<PAGE> 20
in small capitalization companies generally will involve greater risks. For
example, such small capitalization companies may have limited product lines,
markets, or financial and management resources. In addition, many OTC stocks
trade less frequently and in a smaller volume than exchange-traded stocks. The
securities of companies traded in the OTC securities market also may be more
sensitive to market changes than the securities of exchange-traded companies. In
addition, while it is the policy of the Fund not to invest in securities of
companies with no operating history, the Fund may invest up to 10% of its total
assets in securities of companies with an operating history of less than three
years. Investments in the securities of such unseasoned companies may involve a
higher degree of risk than investments in securities of companies with longer
operating histories. The Fund is appropriate only for investors who can afford
the risks described above that apply to investments in small capitalization
companies.
Each Fund's investment objective is to provide current income consistent
with liquidity and conversation of capital. In pursuing its investment
objective, each Fund may invest in certain types of securities that have special
risks which are described under "RISK FACTORS, OTHER INVESTMENT PRACTICES, AND
POLICIES OF THE FUNDS" of this prospectus and therefore, may not be suitable for
all investors. Each Fund may purchase securities on a when-issued, delayed
delivery, or forward commitment basis, but not for leverage (borrowing
purposes). Generally, each Fund may invest in some or all of the following:
high-grade money market instruments with remaining maturities of 13 months or
less, including U.S. government securities, obligations of U.S. banks,
commercial paper and other short-term corporate obligations, corporate bonds and
participation interests or repurchase agreements involving any of the foregoing
securities. Each Fund may invest in obligations of banks, including foreign
branches of domestic banks and foreign and domestic branches of foreign banks.
However, each Fund does not intend to hedge its foreign currency risks and will
engage in currency exchange transactions on a spot (i.e., cash) basis only at
the spot rate prevailing in the foreign exchange market. Investors should
carefully assess the risks associated with an investment in each Fund.
ADDITIONAL FUNDS
The Distributor has arranged for shares of two money market portfolios of The
Reserve Fund, "America's First Money Market Fund" ("Reserve Fund Portfolios"),
to be available in exchange for shares of the Funds through the Pacific Global
Fund Distributors Money Market Account. The Distributor may arrange for shares
of other funds to be available for exchanges with shares of the Funds (such
other funds are referred to collectively with the Reserve Fund Portfolios as the
"Eligible Funds"). See "Shareholder Services: Exchanges of Shares."
FUND MANAGEMENT ORGANIZATIONS
- --------------------------------------------------------------------------------
THE MANAGER
Pacific Global Investment Management Company is the Manager of the Company. The
Manager was incorporated on December 17, 1991 under the laws of the State of
California and has managed the assets of the Company since its inception. The
Manager has not previously served as adviser to any other registered investment
company. The Manager supervises a continuous investment program for the Company,
16
<PAGE> 21
evaluates, recommends, and monitors each Adviser's performance, investment
program, and compliance with applicable laws and regulations, and recommends to
the Board of Directors whether each Adviser's contract should be continued or
modified. The Manager also serves as Adviser to the Small Cap Fund. The Manager
is also responsible for managing the Company's operations and business affairs
and supervising the Company's administrative services agent. See "INVESTMENT
MANAGEMENT AND OTHER SERVICES" in the Statement of Additional Information for
more information regarding the Company's investment management arrangements.
George A. Henning, Chairman of the Company, is also the principal
stockholder and President and Director of the Manager. Mr. Henning, along with
Thomas H. Hanson, an Executive Vice President of the Manager, is primarily
responsible for the Manager's operations, which includes the services provided
to the Company, described above. Mr. Henning serves as the Chairman of Pacific
Global Fund Distributors, Inc. ("Distributor"), the Company's Distributor, and
Pacific Global Investor Services, Inc. ("PGIS"), the Company's transfer agent,
dividend disbursing agent, and administrative services agent. Previously, Mr.
Henning was Executive Vice President and Director of Financial West Group, Inc.
Mr. Hanson also serves as Vice President, Secretary, and Treasurer of the
Company, President and Director of the Distributor, and President and Director
of PGIS. In addition, Mr. Hanson is an Owner, Director, Chairman, and President
of TriVest Global Management, Inc., a holding company ("TriVest Global"), and
Chairman, President, and Chief Executive Officer of TriVest Capital Management,
Inc., a registered investment adviser ("TriVest Capital Management"). Prior
thereto, Mr. Hanson was Executive Vice President of Investors Research Company,
a Director of Investors Research Fund, Inc., an investment company, and a
principal of Unified Holdings, Inc. (a holding company).
The Company pays the Manager management fees at the maximum annual rates of
.65% of the average daily net assets of the Government Securities Fund and .75%
of the average daily net assets of the Income, Balanced, and Small Cap Funds.
For the fiscal year ending December 31, 1995, the Manager voluntarily waived its
management fees and assumed certain expenses of the Funds.
THE ADVISERS
The Manager (not the Funds) pays each Adviser for its services. The Manager as
Adviser to the Small Cap Fund is compensated by the Fund. Under the advisory and
sub-advisory agreements, each Adviser manages the assets of the respective Funds
in accordance with the investment objectives, investment programs, policies, and
restrictions under the supervision of the Manager and the Board of Directors.
Each Adviser determines which securities and other instruments are purchased and
sold for its respective Fund and obtains and evaluates financial data relevant
to each Fund. The Advisers are responsible for administering certain affairs of
the Fund arising from their investment activities. See the Statement of
Additional Information for further information regarding reductions in the
management and sub-advisory fees on assets in excess of $200 million in assets
of the Government Securities, Balanced and Small Cap Funds and in excess of $100
million in assets of the Income Fund. For the period ended December 31, 1995, no
fees were paid to the Advisers with respect to the Funds.
17
<PAGE> 22
Spectrum Asset Management, Inc.
Spectrum serves as Adviser to the Government Securities Fund. The Manager pays
Spectrum sub-advisory fees, computed daily and paid monthly, at the maximum
annual rate of .35% of the Fund's average daily net assets. Spectrum is a
registered investment adviser and a California corporation with $85 million in
assets under management, as of March 31, 1996. Spectrum serves as adviser to
individuals, family trusts, employee benefit plans and charitable and
educational endowments. Spectrum has not previously served as an adviser to any
other registered investment company. Spectrum's controlling interests are held
by R. "Kelly" Kelly, Chairman of Spectrum, and Marc Kelly, President and
Director of Spectrum, who are primarily responsible for the management of the
assets of the Government Securities Fund and have held such responsibility since
the Fund's inception.
MMG Money Management Group, Inc.
MMG Money Management serves as Adviser to the Income Fund. The Manager pays MMG
Money Management sub-advisory fees, computed daily and paid monthly, at the
maximum annual rate of .40% of the Fund's average daily net assets. MMG Money
Management is a registered investment adviser and an Arizona corporation with
$3.3 million in assets under management, as of March 31, 1996. Mr. Alan
Rosenfield, President and owner of MMG Money Management, is primarily
responsible for managing the assets of the Income Fund. Prior to founding MMG
Money Management, Mr. Rosenfield was a portfolio manager with Melhado Flynn &
Associates, Inc., a former sub-adviser, where he was primarily responsible for
managing the Income Fund since its inception. Prior thereto, Mr. Rosenfield was
manager of the high net worth group at Cantor Fitzgerald & Co., Inc. and a
registered representative of Ferris, Baker Watts, each a registered
broker-dealer.
Hamilton & Bache, Inc.
Hamilton & Bache serves as Adviser to the Balanced Fund. The Manager pays
Hamilton & Bache sub-advisory fees, computed daily and paid monthly, at the
maximum annual rate of .40% of the Fund's average daily net assets. Hamilton &
Bache is a registered investment adviser and a California corporation with $77
million in assets under management, as of December 31, 1995. Hamilton & Bache
serves as the investment manager to a number of separate discretionary accounts
for corporate pension and profit sharing plans and individuals on a fee only
basis. Prior to its resignation on July 19, 1994, Hamilton & Bache served as the
portfolio manager of a portfolio of a mutual fund that it managed in a similar
manner. Hamilton & Bache is wholly-owned by Mary N. Hamilton, founder and
President of Hamilton & Bache, and Stephen K. Bache, CFA, Chief Investment
Officer of Hamilton & Bache, who are primarily responsible for managing the
assets of the Balanced Fund and have had such responsibility since September 1,
1994.
THE DISTRIBUTOR
Pacific Global Fund Distributors, Inc. (the "Distributor"), a fully owned
subsidiary of the Manager, serves as exclusive distributor of shares of the
Company, pursuant to a Distribution Agreement with the Company. The Distributor
may enter into Selling Group Agreements with unaffiliated broker-dealers for the
sale of shares of the Funds and may sell shares through banks and other
financial services
18
<PAGE> 23
firms. The Distributor pays commissions to broker-dealers selling shares of the
Funds, as discussed below. Sales of shares of the Funds may also be a factor in
selecting broker-dealers to execute portfolio transactions. The Distributor may
act as a broker for the Company in conformity with the securities laws and rules
thereunder. Also see "MORE FACTS ABOUT THE COMPANY: DISTRIBUTION PLAN."
THE TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND ADMINISTRATIVE SERVICES AGENT
Pacific Global Investor Services, Inc. (the "Transfer Agent" or "PGIS"), a
wholly owned subsidiary of the Manager, serves as transfer agent and dividend
disbursing agent to the Funds, pursuant to a Transfer Agency, Dividend
Disbursing Agency and Administrative Service Agreement. PGIS also performs
certain administrative services for the Company and the Funds pursuant to such
agreement. PGIS also provides similar services to the Distributor in connection
with the Eligible Funds.
Shareholder Guide
- --------------------------------------------------------------------------------
HOW TO INVEST
You may invest any amount you choose, as often as you want, in any of the Funds
unless your investment is automatically withdrawn from your bank account (see
"Automatic Investment Plan"). Currently there is no minimum investment
requirement, but this policy could change. You may diversify your own portfolio
by choosing a combination of the Funds for your investment program. You should
be aware that accounts with a share value of less than $1,000 on the last
business day at the end of each calendar year generally are subject to a $10.00
annual fee by the Company.
INITIAL INVESTMENT
You may make your first purchase of any Fund's shares either (1) by ordering the
shares through any dealer or broker that has entered into a Selling Group
Agreement with the Distributor ("Authorized Dealer") or (2) by completing an
Application and mailing it, along with your check payable to Pacific Advisors
Fund Inc., to PGIS, the Transfer Agent. (If no dealer or broker is named in the
Application, the Distributor will act as the dealer for you.)
Fund shares are sold at their offering price, which (as used in this
Prospectus) is the net asset value per share plus an applicable front-end sales
charge. Certain purchases, described below, are not subject to the front-end
sales charge. The sales charge may also be reduced if you meet certain
conditions (see "REDUCING YOUR SALES CHARGES").
SUBSEQUENT INVESTMENTS
You may make subsequent purchases of shares of the Funds through your Authorized
Dealer or by sending it directly to the Distributor.
By Mail. Send your check payable to Pacific Advisors Fund Inc. to PGIS. When you
are making subsequent investments, please enclose your check with the Investment
Form portion of your confirmation. If the Investment Form is not available,
indicate on your check your name, address, Fund name and your account number. If
you are investing in more than one Fund, provide us with information on how you
want your payment applied.
Orders to purchase shares are effective on the business day PGIS receives
your check.
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<PAGE> 24
By Wire. You may make a subsequent investment in the Funds by wiring monies. To
do so:
1. Instruct your bank to wire federal funds to:
Bank Name: Chase NYC
ABA #: 021000021
BBK = United States Trust Company of New York
A/C#: 920-1-073195
Further Credit to: Pacific Advisor Funds A/C #1012258
(Your bank may charge you a fee for this service.)
2. Be sure to specify on the wire: (a) The Fund you are buying and your
account number; and (b) the name listed on the Account.
3. Call PGIS if you have any questions.
Conditions of Your Purchase.
The Company and the Distributor each reserves the right to reject any purchase
for any reason and to cancel any purchase due to nonpayment. Share purchases are
not binding on the Company or the Distributor until they are confirmed by PGIS
as paid. All purchases must be made in U.S. dollars and all checks must be drawn
on U.S. banks. No cash will be accepted. As a condition of this offering, if
your purchase is canceled due to nonpayment or because your check does not clear
(and, therefore, your account is required to be redeemed), you will be charged a
fee of $25.00. In addition, you will be responsible for any related losses the
Fund(s) incurs.
Share Price. Your shares in each Fund will be priced at the net asset value per
share (plus any applicable sales charge, as detailed below) after your purchase
order has been received in proper form by PGIS. When you purchase shares through
an Authorized Dealer, the dealer must receive your order before the close of
business on the New York Stock Exchange ("NYSE") and transmit it to the Company
by 4 p.m. New York time to receive that day's net asset value. Current sales
charges and dealer concessions are:
20
<PAGE> 25
<TABLE>
<CAPTION>
As Percentage of As Percentage of Amount Reallowed
Amount of Purchase Offering Price Net Investment to Dealers*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT SECURITIES FUND AND INCOME FUND
Less than $ 50,000 4.75% 4.98% 4.00%
$ 50,000 - $ 99,999 4.50% 4.71% 3.75%
$ 100,000 - $ 249,999 3.50% 3.63% 2.75%
$ 250,000 - $ 499,999 2.50% 2.56% 2.00%
$ 500,000 - $ 999,999 2.00% 2.04% 1.60%
$ 1 million and over** 0.00% 0.00% **
BALANCED FUND AND SMALL CAP FUND
Less than $ 25,000 5.75% 6.10% 4.75%
$ 25,000 - $ 49,999 5.50% 5.82% 4.75%
$ 50,000 - $ 99,999 4.75% 4.99% 4.00%
$ 100,000 - $ 249,999 3.75% 3.90% 3.00%
$ 250,000 - $ 499,999 2.50% 2.56% 2.00%
$ 500,000 - $ 999,999 2.00% 2.04% 1.60%
$ 1 million and over** 0.00% 0.00% **
</TABLE>
* The amount reallowed to dealers is shown as a percentage of the offering
price. Under certain circumstances, commissions up to the full amount of the
sales charge may be reallowed to Authorized Dealers. Dealers that receive
90% or more of the sales load may be deemed to be underwriters under the
Securities Act of 1933. Additionally the Distributor may use payments under
the Distribution Plan or its own resources to provide additional
compensation in the form of promotional merchandise, marketing support,
travel or other incentive programs. See "Contingent Deferred Sales Charge."
** On purchases by a "Single Purchaser" (defined below in "Right of
Accumulation") aggregating $1 million or more, the Distributor will pay
Authorized Dealers an amount equal to 1% of the first $2 million of such
purchases, plus .50% of the next $1 million, plus .20% of the next $1
million, plus .03% of the portion of such purchases in excess of $4 million.
The Distributor also may, from time to time, enter into arrangements with
specific Authorized Dealers whereby the Distributor may make additional
payments to that dealer, based in part, on that dealer meeting certain sales
criteria.
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<PAGE> 26
REDUCING YOUR SALES CHARGE
The sales charge you pay is affected by the size of your total investment in the
Funds as shown in the table above. There are various methods that qualify to
increase the size of your investment and thereby reduce the applicable sales
charge. Certain categories of Fund purchases also will be made at net asset
value, as described below.
Single Purchaser. The size of investment shown in the above table applies to the
total amount being invested by any "Single Purchaser" in shares of the Funds and
Eligible Funds other than the Reserve Fund Portfolios at any one time. A "Single
Purchaser," eligible for a discount based on combining purchases, includes: (1)
an individual; (2) an individual and the members of his or her family (limited
to the spouse and minor children); or (3) a trustee or other fiduciary
purchasing for a single fiduciary account or trust estate, including employee
benefit plans created under Section 401 of the Internal Revenue Code, as well as
related plans of the same employer. When you invest in the Funds for several
accounts at the same time, you may combine these investments to reduce the
applicable sales charge, provided that PGIS is notified at the time of purchase.
To qualify for a reduced sales charge, you may combine concurrent purchases
of two or more Funds, including Eligible Funds (except direct purchases of the
Reserve Fund Portfolios). For example, if you concurrently invest $25,000 in one
Fund and $25,000 in another, the sales charge would be reduced to reflect a
$50,000 purchase. Remember, PGIS must be notified in writing of your intent to
make a concurrent purchase at the time of purchase.
Right of Accumulation. You may reduce the sales charge by combining the amount
being invested in any Fund with certain previous purchases of shares of any of
the Funds and the Eligible Funds, by any "Single Purchaser" as described above.
However, the cumulative purchase discount does not apply to direct purchases of
shares of the Reserve Fund Portfolios. Your shares in any Fund and any Eligible
Fund (other than the Reserve Fund Portfolios) previously purchased will be taken
into account on a combined basis at the current net asset value per share of
each appropriate Fund in order to establish the aggregate investment amount to
be used in determining the applicable sales charge. Only previous purchases of
the Funds and other Eligible Funds (other than the Reserve Fund Portfolios) that
were sold subject to a sales charge and that are still held in one of the Funds
or Eligible Funds will be included in the calculation. PGIS must be notified at
the time your order is placed, and when each subsequent order is placed, that
such purchases should be combined. When your payment is sent to PGIS, all
accounts to be included under "Right of Accumulation" must be specified by
account number.
Letter of Intent. The Letter of Intent provides an opportunity for you (or any
Single Purchaser as described above) to reduce your sales charge, by permitting
you to aggregate your investments in qualifying accounts to be included over a
thirteen-month period. The initial purchase must be at least 5% of the stated
investment goal. When a Letter of Intent is submitted to PGIS, each investment
made during the thirteen-month period in any Fund or Eligible Fund, other than
the Reserve Fund Portfolios, will receive the sales charge applicable to the
total amount of the investment goal indicated in your Letter of Intent. Shares
equal to the dollar amount of the maximum sales load applicable to the
22
<PAGE> 27
Fund(s) or Eligible Fund(s) invested in will be held in escrow by PGIS until the
total stated investment goal qualifying for a reduced sales load has been
satisfied or it will be applied to pay the applicable sales load. Each payment
sent directly to the transfer agent must indicate that a Letter of Intent is on
file along with all account numbers for each Fund or Eligible Fund associated
with the Letter of Intent. The Letter of Intent may apply to purchases made up
to 90 days before PGIS receives and accepts it. To take advantage of this
opportunity to reduce your sales charge, you must first complete a Letter of
Intent and submit it to PGIS for its approval.
Net Asset Value Purchases. With respect to purchasing the Funds, the sales
charge will not apply to the following categories: (1) shares bought through the
reinvestment of your dividends and capital gains distributions; (2) purchases by
directors, officers, or bonafide employees of the Company, the Manager, the
Advisers, the Distributor, the Transfer Agent, and by members of their immediate
families; (3) purchases by clients of the Manager; (4) purchases by registered
investment advisers for their counsel accounts; (5) purchases by registered
representatives and other employees of Authorized Dealers and by members of
their immediate families; provided, always, that with respect to categories (1)
through (5): (a) any such share order in the Funds shall originate with the
member of the class thus qualified, (b) no sales effort shall be required in
connection with such purchase, (c) the purchaser shall satisfactorily establish
his or her employment or immediate relationship upon request, and (d) the
purchaser shall undertake that any such purchase is for investment purposes only
and the securities purchased will not be resold except to that Fund; and (6)
accounts opened for shareholders by dealers where the amounts invested represent
the redemption proceeds from investment companies distributed by an entity other
than the Distributor, if such redemption has occurred no more than 60 days prior
to the purchase of shares of the Fund and the shareholder paid an initial sales
charge.
In addition, purchases may be made at net asset value by the following
"Other Purchasers:" (1) investment advisers or financial planners who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; (2) clients of such
investment advisers or financial planners who place trades for their own
accounts if their accounts are linked to the master account of such investment
adviser or financial planner on the books and records of the broker or agent;
and (3) retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in Section 401(a), 403(b) or
457 of the Internal Revenue Code and "rabbi trusts." You should be aware that
you may be charged a fee if you effect transactions in Fund shares through a
broker or agent.
Shares are offered at net asset value to such Single Purchasers and Other
Purchasers because of anticipated economies in sales efforts and sales related
expenses. The Company may terminate, or amend the terms of, the offering of
shares of the Funds at net asset value to such Single Purchasers at any time.
Also see "SHAREHOLDER SERVICES."
Shareholder Services
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EXCHANGES OF SHARES
Exchange Privilege. You may exchange shares into other Funds, including the
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Eligible Funds. Exchange redemptions and purchases are processed simultaneously
at the share prices next determined after the exchange order is received in
proper form, as noted below. An exchange may be made by mail or by telephone.
By Mail: Proper form for an exchange by mail requires a written request to PGIS
properly signed by all registered owners indicating the Fund, account number,
and shares or dollar amount to be transferred into which Fund.
By Telephone: If you accepted telephone exchange privileges, you or your dealer
representative may telephone your exchange instructions to PGIS. Proper form for
an exchange by telephone requires identification by shareholder social security
number or other personal identification, the Fund name, account number and
shares or dollar amount to be transferred into which Fund. See "TELEPHONE
EXCHANGES AND REDEMPTIONS," below.
No sales charge applies to exchanges, except certain exchanges involving
the shares of the Reserve Fund. Exchanges of shares from Reserve Fund Portfolios
are subject to applicable sales charges on the Fund being purchased, unless
Reserve Fund Portfolios shares were acquired by an exchange from a Fund for
which a sales charge applied, or by reinvestment of dividends or capital gain
distributions. A $5.00 service fee applies to each exchange.
The following conditions must be met for all exchanges: (1) shares of the
Fund selected for exchange are available for sale in the shareholder's state of
residence; (2) the respective prospectuses of the funds whose shares are to be
exchanged and acquired also offer the Exchange Privilege to the investor; (3)
newly-purchased (by initial or subsequent investment) shares are held in an
account for at least 15 days and all other shares at least one day prior to the
exchange. In addition to the conditions stated above, shares of Eligible Funds
may be exchanged for shares of Reserve Fund Portfolios; shares of Reserve Fund
Portfolios purchased without a sales charge may be exchanged for shares of the
Funds and Eligible Funds offered with a sales charge upon payment of the sales
charge or, if applicable, may be used to purchase shares of Eligible Funds
subject to a contingent deferred sales charge ("CDSC") and shares of the Funds
acquired by reinvestment of dividends or distributions from any Eligible Funds
may be exchanged at net asset value for shares of any Eligible Fund. No CDSC is
imposed on exchanges of shares of a Fund subject to a CDSC for shares of another
Fund or for shares of Eligible Funds except that if the shares acquired by
exchange are redeemed within 18 months of the end of the calendar month of the
initial purchase of the exchanged shares, the CDSC will apply to the acquired
shares being redeemed (see "Contingent Deferred Sales Charge.").
The Fund may modify, suspend or discontinue the exchange privileges at any
time, and will do so on 60 days' notice, if such notice is required by
regulations adopted under the Investment Company Act of 1940. The notice period
may be shorter if applicable law permits. Shareholders who had exchanged into
the Eligible Funds generally would be permitted to reacquire shares of the Funds
without sales charge for at least 60 days after notice of termination. The Fund
reserves the right to reject telephone or written requests submitted in bulk on
behalf of 10 or more accounts. Telephone and written exchange requests must be
received by PGIS by 4:00 p.m., New York time, on a regular business day to take
effect that day.
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The number of shares exchanged may be less than the number requested if the
number requested would include shares subject to a restriction cited above or
shares covered by a certificate that is not tendered with such request. Only the
shares available for exchange without restriction will be exchanged.
Shares to be exchanged are redeemed on the business day PGIS receives an
exchange request in proper form (the "Redemption Date"). Normally, shares of the
Fund to be acquired are purchased on the Redemption Date, but such purchases may
be delayed by either Fund up to five business days if it determines that it
would be disadvantaged by an immediate transfer of the redemption proceeds. A
Fund in its discretion reserves the right to refuse any exchange request that
will disadvantage it, such as an exchange that would cause the Fund to sell
portfolio securities in such quantities and at such time that would result in
significant losses to a Fund.
Exchanges to Eligible Funds. The Distributor has arranged for shares of the
Reserve Fund Portfolios to be available in exchange for shares of the Funds. The
Distributor may arrange for other funds to become Eligible Funds. The exchange
privilege to the Eligible Funds does not constitute an offering or
recommendation of the shares of any Eligible Fund by the Company or the Manager.
Each Eligible Fund's administrator may compensate the Distributor for
administrative services it performs with respect to that Eligible Fund. The
compensation is based on the average daily net asset value of shares of the
Eligible Funds acquired through the exchange privilege. The Transfer Agent may
perform services for the Distributor in connection with exchanges between the
Funds and the Eligible Funds.
The Eligible Funds have different investment objectives and policies. For
more information, including any charges and expenses, a prospectus of the
Eligible Fund into which the exchange is being made should be read prior to an
exchange. Dealers or brokers who process exchange orders on behalf of customers
may charge a fee for their services. Those charges may be avoided by making the
request directly to the Funds to exchange shares. For Federal tax purposes, an
exchange is treated as a redemption and purchase of shares.
ADDITIONAL SERVICES
Automatic Investment Plan. You may make regular monthly investments of $25 or
more through automatic withdrawals from your bank account. Once a plan is
established, your bank account will normally be debited by the 5th or 20th day
of the month.
Automatic Reinvestment. Dividends and capital gain distributions are
automatically reinvested in additional shares, at no sales charge, unless you
indicate otherwise on the account application. You also may elect to have
dividends and/or capital gain distributions paid in cash or reinvested in the
Eligible Funds.
Account Statements. A statement of all account activity will be sent to you
after the end of each calendar quarter. Transactions in your account, such as
additional investments and dividend reinvestments, will be reflected on regular
confirmation statements.
Pacific Advisors FundsPhone. You may check your share balance, the price of your
shares, and your most recent account transaction between 6:00 a.m. and 5:00 p.m.
Pacific time with
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Pacific Advisors FundsPhone. To use this service, call 1-800-282-6693 from a
TouchTone telephone. You will need your Fund number, personal identification
number (the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
Automatic Withdrawal Plans. With a minimum account value of $10,000 you may
establish an Automatic Withdrawal Plan. The proceeds from scheduled redemptions
of shares are automatically transferred to your pre-designated bank account on
either the 15th or the 30th of each month. Payments are in equal dollar amounts
and must be at least $25. All dividends and distributions on shares under an
Automatic Withdrawal Plan must be reinvested in additional Fund shares.
You may establish an Insurance Premium Automatic Withdrawal Plan ("IP
Withdrawal Plan") to fund the scheduled payment of premiums for certain eligible
insurance policies. You must have a minimum account value of $5,000 to establish
an IP Withdrawal Plan. The proceeds from your scheduled redemptions to fund the
premium payments will be transmitted to your insurance company as instructed on
your IP Withdrawal Plan Authorization Form. Your insurance company may establish
other conditions affecting your required investment in the Fund. Applicable
forms and further information regarding the IP Withdrawal Plan are available
from your Authorized Dealer or PGIS.
Generally, it may not be advisable to purchase additional shares and incur
a sales charge when you are participating in a plan. Investors also should
consider that automatic withdrawals from relatively active portfolios entail the
risk that the automatic redemptions may occur at a time when net asset value of
the portfolio has fluctuated downward.
REDEMPTIONS
Standard Procedures. To redeem some or all of your shares in a Fund, generally
you must send the Company a signed written request that specifies the account
number and either the dollar amount or the number of shares to be redeemed, and
include any share certificates. The Company may require additional documentation
for redemptions by business entities and organizations or by a single purchaser
such as a trustee or guardian. Similar procedures apply to exchanges between the
Funds and the Eligible Funds. See "TELEPHONE EXCHANGES AND REDEMPTION" and
"SIGNATURES AND SIGNATURE GUARANTEES," below.
Wire Transfers of Redemption Proceeds. For the protection of shareholders and
the Company, wire transfer instructions must be on file prior to executing any
request for the wire transfer of redemption proceeds. A shareholder may change
the bank account previously designated by written request, which must include
appropriate signature guarantees, a copy of any applicable corporate resolution,
or other relevant documentation.
Contingent Deferred Sales Charge. A contingent deferred sales charge ("CDSC")
will be deducted from your redemption proceeds of shares purchased in amounts
aggregating $1 million or more if they are redeemed within 18 months of the end
of the calendar month of their purchase, in an amount equal to 1% of the lesser
of the aggregate net asset value of the redeemed shares (not including shares
purchased by reinvestment of dividends or distributions) or the original cost of
such shares. However, the total CDSC paid on such shares shall not exceed the
aggregate commissions
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<PAGE> 31
paid to dealers on all shares of the Funds purchased subject to a CDSC by any
"Single Purchaser" (as defined in "REDUCING YOUR SALES CHARGE"). The CDSC does
not apply to purchases described in "Net Asset Value Purchases" and will be
waived in the case of redemptions of shares made for: (1) retirement
distributions (or loans) to participants or beneficiaries from retirement plans
qualified under Section 401(a) of the Internal Revenue Code, or from IRAs, or
other employee benefit plans; (2) returns of excess contributions to such
retirement or employee benefit plans; (3) Automatic Withdrawal Plan payments
limited to no more than 12% of the original account value annually; and (4)
involuntary redemptions of shares by operation of law or under procedures set
forth in the Fund's Articles of Incorporation or as adopted by the Board of
Directors. Shares on which a CDSC was paid at the time of redemption and which
are subsequently reinvested under the "Reinvestment Privilege" will be credited
with payment of the CDSC on such reinvestment if identified by the shareholder
at the time of reinvestment. Additionally, no CDSC is charged on exchanges,
pursuant to the Fund's "Exchanges to Eligible Funds," of Fund shares purchased
subject to a CDSC, except that if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the initial purchase of the
exchanged shares, the CDSC will apply. In determining whether a CDSC is payable,
and the amount of any such CDSC, shares not subject to a CDSC are redeemed
first, including shares purchased by reinvestment of dividends and
distributions, and then other shares are redeemed in the order of purchase.
Reinvestment Privilege. In addition, you may reinvest, in a Fund from which you
redeemed or any Eligible Fund, the proceeds of a full or partial redemption of
your Fund shares without payment of a sales charge upon such reinvestment where
(1) the reinvestment is effected within 60 days of the prior redemption, (2) the
amount reinvested does not exceed your redemption proceeds, (3) such
reinvestment privilege has not been previously utilized by you in the current
calendar year and (4) you notify the Transfer Agent for the applicable Fund that
you are entitled to reinvest your redemption proceeds in the particular Fund at
that Fund's net asset value per share next determined after receipt of such
request. If you qualify for a no sales charge purchase, please contact PGIS for
details and appropriate forms.
SIGNATURES AND SIGNATURE GUARANTEES
The signature on a redemption or exchange request must be exactly as shown on
the Application. In the interest of safety, signature guarantees are required
for certain transactions. If redemption proceeds are in excess of $50,000 or are
to be sent to someone other than the registered shareholder or to other than the
registered address or if the transaction is an exchange of shares, a signature
guarantee is required. A guarantor must be: (i) a bank; (ii) a securities broker
or dealer, including a government or municipal securities broker or dealer, that
is a member of a clearing corporation or has net capital of at least $100,000;
(iii) a credit union having authority to issue signature guarantees; (iv) a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association; or (v) a national securities
exchange, a registered securities exchange or a clearing agency. Notary publics
are not acceptable guarantors.
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TELEPHONE EXCHANGES AND REDEMPTIONS
Exchanges. To place a telephone exchange request, call PGIS at 1-800-282-6693.
Telephone exchange calls may be recorded by PGIS. By exchanging shares by
telephone, the shareholder is acknowledging receipt of a Prospectus of the Fund
or Eligible Fund to which the exchange is made and for full or partial
exchanges, the terms of any special account features. Automatic Withdrawal Plans
and retirement plan contributions will be transferred to the new account unless
PGIS is otherwise instructed. Telephone exchange privileges automatically apply
to each shareholder of record and the dealer representative of record unless and
until PGIS receives written instructions from a shareholder of record canceling
such privileges. PGIS and the Funds will not be responsible for the authenticity
of telephone instructions nor for any loss, damage, cost or expense arising out
of any telephone instructions that PGIS reasonably believes to be authentic
based on its verification procedures. Such procedures may include requiring
certain personal identification information prior to acting on telephone
instructions, tape recording telephone communications, and providing written
confirmation of instructions communicated by telephone. If PGIS does not employ
reasonable verification procedures to confirm that instructions communicated by
telephone are genuine, it may be liable for any losses arising out of any action
on its part or any failure or omission to act as a result of its own negligence,
lack of good faith, or willful misconduct. Shares acquired by telephone exchange
must be registered exactly as the account from which the exchange was made.
Certificated shares are not eligible for telephone exchange. If all telephone
exchange lines are busy (which might occur, for example, during periods of
substantial market fluctuations), shareholders might not be able to request
telephone exchanges and would have to submit written exchange requests.
Redemptions. The Funds permit shareholders or their dealer representatives to
redeem shares by telephone. The proceeds will be mailed to your registered
address or wired to your predesignated bank account. The Company's procedures
and any limitations are designed to minimize unauthorized exercise of the
privilege.
To redeem shares by telephone, call PGIS at 1-800-282-6693. PGIS may record
any calls. Telephone redemptions may not be available if all lines are busy, and
shareholders would have to use the Funds' regular redemption procedures.
Requests received by PGIS prior to 4:00 p.m., New York time, on a regular
business day will be processed at the net asset value per share determined that
day. These privileges are not available for newly purchased shares (within the
prior 15 days), shares for U.S. Trust Co. of New York-sponsored retirement
plans, or for shares represented by share certificates. Telephone redemption
privileges apply automatically to each shareholder and the dealer representative
of record unless PGIS receives cancellation instructions from a shareholder of
record. If an account has multiple owners, PGIS may rely on the instructions of
any one owner. PGIS and the Fund will not be responsible for any loss, damage,
cost or expense arising out of any telephone instructions for an account that
PGIS reasonably believes to be authentic, based on its procedures for
verification.
For redemptions paid by check, amounts up to $25,000 may be redeemed by
telephone, once in each 30-day period. The check must be payable to the
shareholder(s) of record and sent to the address of record for the account. This
privilege is not available
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if the address of record has been changed within 30 days of a telephone
redemption request. Shares held in corporate-type retirement plans for which
U.S. Trust Co. of New York serves as trustee may not be redeemed by telephone,
telex, fax or telegraph.
Retirement Plans
- --------------------------------------------------------------------------------
Fund shares are available in connection with tax benefitted retirement plans
established under Section 401(a) of the Internal Revenue Code ("Code")), IRAs
and SEP-IRAs under Section 408 of the Code, and corporate sponsored
profit-sharing plans. Various initial, annual maintenance and participant fees
may apply to these retirement plans. Applicable forms and information regarding
plan administration, all fees, and other plan provisions are available from your
Authorized Dealer or PGIS.
Other Considerations
- --------------------------------------------------------------------------------
GENERAL
The purchase, exchange, and redemption price for shares is the net asset value
(plus any applicable sales charge) per share next determined after receipt by
the Company of an order and payment in proper form under the Company's Trade
Date Procedures. See "Trade Date Procedures" in the Statement of Additional
Information. Dealers and brokers who process orders for purchases, redemptions,
and exchanges on behalf of their customers may charge a transaction fee for
their services. The Company reserves the right to reject any purchase order or
to suspend or modify the offering of its shares. Requests for the redemption of
shares are considered received when all required information and signature
guarantees have been provided. The right of redemption may be suspended under
unusual circumstances, as permitted by law. If shares were purchased by check,
proceeds may be delayed until the check has been honored, but in no event more
than 15 calendar days from the date of receipt of the check.
CERTIFICATES
In the interest of economy and efficiency, the Company does not issue stock
certificates unless specifically requested in writing by the shareholders or
their dealers. Shareholders of uncertificated shares have the same ownership
rights as if certificates had been issued. Shares are not transferable.
At your written request, the Funds will issue stock certificates. Unless
your shares are purchased with wired funds, a certificate will not be issued
until 30 days have elapsed from the time of purchase, or the Funds have
satisfactory proof of payment, such as a copy of your canceled check.
Certificates will not be issued for fewer than 100 shares.
NET ASSET VALUE
Net asset value is determined by subtracting from the value of the assets of
each Fund the amount of its liabilities, and dividing the remainder by the
number of outstanding shares of that Fund. For valuation purposes, quotations of
foreign securities in a foreign currency are converted to U.S. dollar
equivalents. The Board of Directors has fixed the specific time of day for the
computation of the net asset value of all the Funds to be as of 4:00 p.m., New
York time, once daily on business days. Business days are days when the NYSE is
open for regular trading.
Fund securities are valued based on market quotations or, if such
quotations are not readily available, at fair market value as determined in good
faith under procedures established by the Company's
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<PAGE> 34
Board of Directors. In accordance with guidelines approved by the Board of
Directors, a pricing service, bank, or broker-dealer experienced in such matters
may be used to perform the above-described valuation functions.
DISTRIBUTIONS
Dividends and distributions of each Fund are paid in additional shares of the
Fund unless the Company is notified, in writing, that the shareholder elects to
receive such dividends and distributions in cash.
The Government Securities Fund and the Income Fund will declare and distribute
dividends of their net investment income, if any, quarterly. The Balanced Fund
and Small Cap Fund will declare and distribute dividends of their net investment
income, if any, annually. Each Fund will distribute capital gain net income
annually.
TAXES
The following discussion is only a brief summary of some of the important tax
considerations affecting the Company, its Funds, and its shareholders. For
further tax-related information, see "Taxes" in the Statement of Additional
Information. No attempt is made to present a detailed explanation of all
federal, state, and local income tax considerations, and this discussion and
that in the Statement of Additional Information are not intended as a substitute
for careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisors with specific reference to their own tax situation.
Tax Consequences To The Funds. Each Fund is treated as a separate entity for
federal income tax purposes, and thus the provisions of the Internal Revenue
Code applicable to regulated investment companies generally (subchapter M of the
Code) are applied to each Fund separately, rather than to the Company as a
whole. Each Fund intends to qualify as a regulated investment company under
subchapter M. If so qualified, each Fund is not subject to federal income taxes
with respect to net investment income and net realized capital gains, if any,
that are distributed to its shareholders, provided that the Fund distributes
each year at least 90% of its net investment income, and meets certain other
requirements set forth in the Code. Each Fund would be subject to a 4%
nondeductible excise tax on such Fund's taxable income to the extent such Fund
did not meet certain distribution requirements by the end of each calendar year.
Each Fund intends to make sufficient distributions to avoid application of this
excise tax.
Tax Consequences To The Shareholders. All dividends and distributions are
subject to taxes (except for shareholders exempt from income tax) whether
received in cash or reinvested in additional shares. For federal and state
income tax purposes, an exchange is treated as a sale and may result in a
capital gain or loss, although if the shares exchanged have been held less than
91 days, the sales charge paid on such shares is not included in the tax basis
of the exchanged shares, but is carried over and included in the tax basis of
the shares acquired.
Backup Withholding. Each Fund is required by federal law to withhold 31% of
reportable payments (which payments may include income dividends, capital gains
distributions, and share redemption proceeds) paid to shareholders who have not
complied with IRS regulations. In order to
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<PAGE> 35
avoid this withholding requirement, you must certify on your Application, or on
a separate W-9 Form supplied by PGIS, that your Social Security or Taxpayer
Identification Number is correct (or that you have applied for such a number and
are waiting for it to be issued) and that you are not currently subject to
backup withholding, or you are exempt from backup withholding.
Performance and Yield Information
- --------------------------------------------------------------------------------
From time to time a Fund may publish its yield and/or average annual total
return in its advertising, marketing material and communications to
shareholders. The yield of a Fund will be calculated by dividing the net
investment income per share during a recent 30-day period by the maximum
offering price per share of the Fund on the last day of the period. The results
are compounded on a semi-annual basis and then annualized. A Fund's average
annual total return, which is the rate of growth of a Fund that would be
necessary to achieve the ending value of an investment kept in the Fund for the
period specified, is based on the following assumptions: (1) all dividends and
distributions by the Fund are reinvested in shares of the Fund at net asset
value; (2) all recurring fees are included for applicable periods; and (3) the
maximum current sales load is deducted from the initial investment.
A Fund may also illustrate in advertisements and sales literature its
cumulative total return for several time periods throughout the Fund's life
based on an assumed initial investment of $10,000, for example, after deducting
the maximum sales load at the time of the initial investment. The current
maximum sales charge on an investment of $10,000 is 5.75%. Any such cumulative
total return for a Fund will assume the reinvestment of all capital gains and
dividend income for the indicated periods and include all recurring fees.
Comparative performance information also may be used from time to time in
advertising or marketing a Fund's shares. A Fund's total return may be compared
to that of other mutual funds with similar investment objectives and to bond and
other relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the total return on Fund shares may be compared to data prepared by
Lipper Analytical Services, Inc. and/or Money, Forbes, Business Week and Fortune
magazines, newspapers or other investment performance services. In addition, a
Fund's total return may be compared to an index such as the S&P 500. Such
comparative performance information will be stated in the same terms in which
the comparative data and indices are stated. For these purposes, the performance
of a Fund, as well as the performance of other mutual funds or indices, does not
reflect sales charges, the inclusion of which would reduce performance.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's yield or average annual total return
for any prior period should not be considered as a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period. Because yield calculation methods differ from the methods used
for other purposes, a Fund's yield may not equal the distributions shareholders
receive or the income reported in a Fund's financial statements.
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<PAGE> 36
Risk Factors, Other Investment Practices, and Policies of the Funds
- --------------------------------------------------------------------------------
POLICIES OF THE FUNDS
A number of the investment policies and techniques referred to below are subject
to certain additional risks described more fully in the Statement of Additional
Information.
CASH RESERVES AND REPURCHASE AGREEMENTS
Each of the Funds may use U.S. dollar denominated money market instruments. Such
money market instruments will be limited to high-quality securities rated within
the two highest credit categories by any NRSRO or, if not rated, of comparable
investment quality as determined by the Manager or the Fund's Adviser, as
appropriate. Such domestic money market instruments may include: U.S. Government
Securities; certificates of deposit; banker's acceptances; bank time deposits;
commercial paper; short-term corporate debt securities; and repurchase
agreements with a securities dealer or bank. In these repurchase transactions,
the underlying security, which is held by the custodian through the federal
book-entry system for a Fund as collateral, will be marked to market on a daily
basis to ensure full collateralization of the repurchase agreement. In the event
of a bankruptcy or default of certain sellers of repurchase agreements, a Fund
could experience costs and delays in liquidating the underlying security and
might incur a loss if such collateral held declines in value during this period.
FIXED-INCOME SECURITIES
Fixed-income securities are considered high-grade if they are rated at least A
or its equivalent by any NRSRO or, if unrated, are determined to be of
comparable investment quality by the Manager or the Fund's Adviser, as
appropriate. High-grade fixed-income securities are considered to have a very
strong capacity to pay principal and interest. Fixed-income securities are
considered investment-grade if they are rated, for example, at least Baa or its
equivalent by any NRSRO or, if not rated, are determined to be of comparable
investment quality by the Manager or the Fund's Adviser, as appropriate.
Investment-grade fixed-income securities are regarded as having an adequate
capacity to pay principal and interest, although these securities have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. See the
"Appendix" to the Statement of Additional Information regarding "Description of
Corporate Bond Ratings."
The maturity of fixed-income securities may be considered long (ten or more
years), intermediate (two to ten years), or short-term (thirteen months or
less). In general, the principal values of longer-term securities fluctuate more
widely in response to changes in interest rates than those of shorter-term
securities, providing greater opportunity for capital gain or risk of capital
loss. A decline in interest rates usually produces an increase in the value of
fixed-income securities, while an increase in interest rates generally reduces
their value.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Fund may purchase securities on a when-issued, delayed delivery, or forward
commitment basis. When such transactions are negotiated, the price of such
securities is fixed at the time of the
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commitment, but delivery and payment for the securities may take place up to 90
days after the date of the commitment to purchase. The securities so purchased
are subject to market fluctuation, and no interest accrues to the purchaser
during this period. When-issued securities or forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. The Manager and the Advisers for the Funds do not believe that
the net asset value or income of the Funds will be adversely affected by the
purchase of securities on a when-issued or forward commitment basis. No Fund
will enter into such transactions for leverage (borrowing) purposes.
MORTGAGE-BACKED SECURITIES
The Government Securities Fund, the Income Fund, and the Balanced Fund each may
invest in mortgage-backed securities, which are securities representing
interests in pools of mortgages. Principal and interest payments made on the
mortgages in the pools are passed through to the holder of such securities.
Payment of principal and interest on some mortgage-backed securities (but not
the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
"GNMA"), or guaranteed by agencies or instrumentalities of the U.S. Government
(in the case of securities guaranteed by the FNMA or FHLMC). Mortgage backed
securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers, and other secondary market issuers) may be supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance and letters of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
Unscheduled or early repayment of principal on mortgage-backed securities
(arising from prepayment of principal due to the sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose the Fund to a lower rate of return upon reinvestment of
principal. Like other fixed-income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when
interest rates are declining, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs)
The Government Securities Fund, the Income Fund, and the Balanced Fund each may
invest in CMOs. CMOs are debt securities collateralized by underlying mortgage
loans or pools of mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA
and are generally issued by limited purpose finance subsidiaries of U.S.
Government instrumentalities.
CMOs are not, however, "mortgage pass-through" securities, such as those
described above. Rather they are pay-through securities, i.e., securities backed
by the cash flow from the underlying mortgages. Investors in CMOs are not owners
of the underlying mortgages, which serve as collateral for such debt securities,
but are simply owners of a fixed-income security backed by such pledged assets.
CMOs are typically structured into multiple classes, with each class bearing a
different stated maturity and having different payment streams. Monthly payments
of principal, including prepayments, are first returned to the investors holding
the shortest maturity class; investors holding longer maturity classes
33
<PAGE> 38
receive principal payments only after the shorter class or classes have been
retired.
ASSET-BACKED SECURITIES
The Income Fund and the Balanced Fund each may purchase asset-backed securities
that represent either fractional interests or participation in pools of leases,
retail installment loans, or revolving credit receivables held by a trust or
limited purpose finance subsidiary. Such asset-backed securities may be secured
by the underlying assets (such as Certificates for Automobile Receivables or
"CARS") or may be unsecured (such as Credit Card Receivable Securities
("CARDS")). Depending on the structure of the asset-backed security, monthly or
quarterly payments of principal and interest or interest only are passed-through
(like mortgage-backed securities) or paid through (like CMOs) to certificate
holders. Asset backed securities may be guaranteed up to certain amounts by
guarantees, insurance, or letters of credit issued by a financial institution
affiliated or unaffiliated with the originator of the pool.
Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage
pass-through securities), which may shorten the securities' weighted average
life and reduce their overall return to certificate holders. Certificate holders
may also experience delays in payment if the full amounts due on underlying
loans, leases, or receivables are not realized because of unanticipated legal or
administrative costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain contracts, or
other factors. The value of these securities also may change because of changes
in the market's perception of the creditworthiness of the servicing agent for
the pool, the originator of the pool, or the financial institution providing
credit support enhancement for the pool. If consistent with their respective
investment objectives and investment programs, the Government Securities Fund
and the Income Fund each may invest in other asset-backed securities that may be
developed in the future.
ZERO-COUPON BONDS
The Government Securities Fund and the Income Fund each may invest in zero
coupon bonds. Such bonds may be issued directly by agencies and
instrumentalities of the U.S. Government or by private corporations. Zero-coupon
bonds may originate as such or may be created by stripping an outstanding bond.
Zero-coupon bonds do not make regular interest payments. Instead, they are sold
at a deep discount from their face value.
Because a zero-coupon bond does not pay current income, its price can be
very volatile when interest rates change. In calculating its dividend, the
Income Fund takes into account as income a portion of the difference between a
zero-coupon bond's purchase price and its face value. The Income Fund may also
purchase LYONs which are securities that combine the features of a zero-coupon
bond with those of a convertible security. These securities are also sold at a
deep discount from their face value but, at maturity, the holder of a LYON
receives an equity interest in the issuing company rather than a fixed-income
security.
SECURITIES LENDING
For purposes of realizing additional income, each Fund may lend portfolio
securities with a value of up to 30% of that Fund's total assets to
broker-dealers and other financial institutions approved by the Board of
Directors. Any such loans will be continu-
34
<PAGE> 39
ously secured by collateral, maintained in a segregated account, at least equal
in value to the securities loaned and marked-to-market on a daily basis. During
the time each Fund's securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans by a Fund will only be made to broker-dealers
and other financial institutions deemed to be creditworthy and of good standing
and will not be made unless, in the judgment of the Manager or a Fund's Adviser,
as appropriate the consideration to be earned from such loans would justify the
risk.
FOREIGN SECURITIES
Each of the Funds, as specified in its investment program, may invest in foreign
securities. Investments in foreign securities involve certain risks that are not
typically associated with investing in domestic issuers, including: (i) less
publicly available information about the securities and about the foreign
company or government issuing them; (ii) less comprehensive accounting,
auditing, and financial reporting standards, practices, and requirements; (iii)
stock markets outside the United States may be less developed or efficient than
those in the United States and government supervision and regulation of those
stock markets and brokers and the issuers in those markets is less comprehensive
than that in the United States; (iv) the securities of some foreign issuers may
be less liquid and more volatile than securities of comparable domestic issuers;
(v) settlement of transactions with respect to foreign securities may sometimes
be delayed beyond periods customary in the United States; (vi) fixed brokerage
commissions on certain foreign stock exchanges and custodial costs with respect
to securities of foreign issuers generally exceed domestic costs; (vii) with
respect to some countries, there is the possibility of unfavorable changes in
investment or exchange control regulations, expropriation, or confiscatory
taxation, taxation at the source of the income payment or dividend distribution,
limitations on the removal of funds or other assets of each Fund, political or
social instability, or diplomatic developments that could adversely affect
United States investments in those countries; and (viii) foreign securities
denominated in foreign currencies may be affected favorably or unfavorably by
changes in currency exchange rates and exchange control regulations and each
Fund may incur costs in connection with conversions between various currencies.
Specifically, to facilitate each Fund's purchase of securities denominated in
foreign currencies, the Funds may engage in currency exchange transactions to
convert currencies to or from U.S. dollars. The Funds do not intend to hedge
their foreign currency risks and will engage in currency exchange transactions
on a spot (i.e., cash) basis only at the spot rate prevailing in the foreign
exchange market.
With respect to equity securities, each Fund may purchase American
Depositary Receipts ("ADRs"). ADRs are U.S. dollar-denominated certificates
issued by a United States bank or trust company and represent the right to
receive securities of a foreign issuer deposited in a domestic bank or foreign
branch of a United States bank and traded on a United States exchange or in an
over-the-counter market. Generally,
35
<PAGE> 40
ADRs are in registered form. There are no fees imposed on the purchase or sale
of ADRs when purchased from the issuing bank or trust company in the initial
underwriting, although the issuing bank or trust company may impose charges for
the collection of dividends and the conversion of ADRs into the underlying
securities. Investment in ADRs has certain advantages over direct investment in
the underlying foreign securities since: (i) ADRs are U.S. dollar-denominated
investments that are registered domestically, easily transferable and for which
market quotations are readily available; and (ii) issuers whose securities are
represented by ADRs are subject to the same auditing, accounting, and financial
reporting standards as domestic issuers.
WRITING AND PURCHASING COVERED PUT AND CALL OPTIONS ON SECURITIES
To earn additional income or to minimize anticipated declines in the value of
its securities, the Balanced Fund and the Small Cap Fund each may write (i.e.,
sell) exchange traded covered call and put options on securities. The Balanced
Fund and the Small Cap Fund may also purchase call and put options on
securities. In general, a call option on a security gives the holder (purchaser)
the right to buy and obligates the writer (seller) to sell, in return for a
premium paid, the underlying security at the exercise price during the option
period. Conversely, a put option on a security gives the holder the right to
sell and obligates the writer to purchase, in return for a premium paid, the
underlying security at the exercise price during the option period.
Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement in the
securities subject to the option, they do involve certain risks that are
different in some respects from investment risks associated with similar funds
which do not engage in such activities. These risks include the following:
writing covered call options - the inability to effect closing transactions at
favorable prices and the inability to participate in the appreciation of the
underlying securities above the exercise price; writing covered put options -
the inability to effect closing transactions at favorable prices and the
obligation to purchase the specified securities at prices which may not reflect
current market values; and purchasing call and put options -- possible loss of
the entire premium paid.
CERTAIN POLICIES TO REDUCE RISK
Each Fund has adopted certain fundamental investment policies in managing its
portfolio that are designed to maintain the portfolio's diversity and reduce
risk. Each Fund will not: (i) with respect to 75% of each Fund's total assets,
invest in more than 10% of the outstanding voting securities of any one issuer;
or (ii) borrow money except temporarily from banks to facilitate redemption
requests that might otherwise require untimely disposition of portfolio
securities and in amounts not exceeding 15% of each Fund's total assets.
Limitation (i) does not apply to U.S. Government Securities. These investment
policies are fundamental and may be changed for a Fund only by approval of that
Fund's shareholders.
More Facts About the Company
- --------------------------------------------------------------------------------
ORGANIZATION AND CAPITALIZATION
The Company was established as a Maryland corporation on May 18, 1992. The Board
of Directors is responsible for the overall management and supervision of its
affairs. The Company is authorized to issue
36
<PAGE> 41
one billion shares of common stock, $.01 par value per share. Each share of
capital stock issued with respect to a Fund has a pro-rata interest in the
assets of that Fund and has no interest in the assets of any other Fund. Each
Fund bears its own liabilities and its proportionate share of the general
liabilities of the Company. The Board is empowered by the Company's Articles of
Incorporation and By-Laws to establish additional series or classes of shares.
Pursuant to a Stock Purchase Agreement, the Manager provided the initial
capitalization of each Fund on December 23, 1992.
PORTFOLIO TURNOVER
Although no Fund purchases securities with a view to rapid turnover, there are
no limitations on the length of time that securities must be held by any Fund
and a Fund's annual portfolio turnover rate may vary significantly from year to
year. The portfolio turnover rates for each Fund for the fiscal year ended
December 31, 1995, were: 57.85% for the Government Securities Fund; 33.40% for
the Income Fund; 5.76% for the common stock portion and 85.28% for the
fixed-income portion of the Balanced Fund; and 44.95% for the Small Cap Fund.
DISTRIBUTION PLAN
The Company has adopted a plan of distribution (the "Plan") pursuant to
Rule 12b-1 of the Investment Company Act of 1940 under which the Company may
make certain payments to the Distributor for a portion of its costs incurred in
distributing the Company's shares. However, the Plan only provides for the
payment of shareholder service fees. The Plan has the effect of increasing
annual expenses of the Company by up to .25% of its average daily net assets.
The Distributor is authorized to make quarterly payments to certain securities
dealers or brokers, administrators and others ("Recipients") up to the full
amount of the expense for rendering distribution assistance and administrative
support services in connection with the sale of Company shares. The fee imposed
on each Fund's assets will be used to pay for shareholder services provided by
Recipients to shareholders of that Fund. For the fiscal year ended December 31,
1995, fees paid for shareholder services were $856, $1,758, $261, and $8,334 for
the Government Securities Fund, Income Fund, Balanced Fund and Small Cap Fund,
respectively.
EXPENSES
The Company bears all expenses of its operation, other than those assumed by the
Manager. In addition, the expense of organizing the Company and registering and
qualifying its initial shares under federal and state securities laws will be
charged to the Company's operations, as an expense, and amortized over a period
not to exceed five years.
The Manager has agreed to assume the expenses of each Fund that exceed the
lowest applicable limit actually enforced by any state. The Company may
reimburse the Manager for expenses so assumed as provided in the Expense
Limitation Agreement with respect to each Fund at such time as expenses do not
exceed any state expense limitation and assets of each Fund are $20 million, and
by making such reimbursement a Fund's expenses would not exceed any state
expense limitations. For the fiscal year ended December 31, 1995, the ratios of
operating expenses, net of expense waiver or assumption, to average net assets
for the Government Securities Fund, Income Fund, Balanced Fund, and Small Cap
Fund were 1.65%, 1.86%, 2.24%, and 2.49%, respectively.
37
<PAGE> 42
Meetings and Voting Rights
The Company does not intend to hold annual shareholder meetings. Shareholders
have certain rights, as set forth in the Company's Articles of Incorporation and
By-Laws, including the right to call a special meeting of shareholders, upon the
written request of the holders of at least 10% of the votes entitled to be cast
at such meeting, for the purpose of voting on the removal of one or more
Directors. Such removal may be effected upon the action of a majority of the
outstanding shares of the Company. The Company has an obligation to assist in
such shareholder communications.
Shareholders are entitled to one vote per share. Shares of a Fund will be
voted only with respect to that Fund except for the election of directors and
ratification of independent accountants. Approval by the shareholders of one
Fund is effective as to that Fund. Shares have noncumulative voting rights, do
not have preemptive or subscription rights, and are not transferable. Pursuant
to the Investment Company Act of 1940, shareholders of each Fund are required to
approve the adoption of any investment advisory agreement and distribution plan
relating to such Fund and of any changes in fundamental investment restrictions
or policies of the Fund.
SHAREHOLDER COMMUNICATIONS
Shareholders of the Company will receive annual financial statements examined by
the Company's independent auditors as well as unaudited semi-annual financial
statements. Each report will show the investments owned by the Company and their
respective market values, and will provide other financial information.
Shareholders with inquiries regarding the Company and individual accounts should
contact PGIS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933. Copies of the Registration
Statement may be obtained from the Commission or may be examined at the office
of the Commission in Washington, D.C.
38
<PAGE> 43
(This page intentionally left blank)
39
<PAGE> 44
Fund Service Organizations
- --------------------------------------------------------------------------------
THE MANAGER AND THE ADVISERS
Pacific Global Investment Management Company
206 North Jackson Street
Suite 201
Glendale, CA 91206
Spectrum Asset Management, Inc.
450 Newport Center Drive
Suite 420
Newport Beach, CA 92660
MMG Money Management Group, Inc.
2700 N. Central Avenue
Suite 310
Phoenix, AZ 85004
Hamilton & Bache, Inc.
206 North Jackson Street
Suite 201
Glendale, CA 91206
THE DISTRIBUTOR
Pacific Global Fund Distributors, Inc.
206 North Jackson Street
Suite 201
Glendale, CA 91206
THE CUSTODIAN
United Missouri Bank, N.A.
P.O. Box 419226
Kansas City, MO 64141-6226
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND ADMINISTRATIVE SERVICES AGENT:
Pacific Global Investor Services, Inc.
206 North Jackson Street
Suite 201
Glendale, CA 91206
INDEPENDENT AUDITORS:
Ernst & Young LLP
515 South Flower Street
Los Angeles, California 90071
40
<PAGE> 45
PACIFIC ADVISORS FUND INC.
206 NORTH JACKSON STREET
SUITE 201
GLENDALE, CALIFORNIA 91206
TOLL FREE NUMBER: 1-800-989-6693
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Company's Prospectus dated May 1, 1996.
Copies of the Prospectus may be obtained by calling Pacific Global Investor
Services, Inc., at the telephone number above.
The date of this Statement of Additional Information is May 1, 1996.
<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
The Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Investment Management and Other Services . . . . . . . . . . . . . . . . . . . . . . . . S-3
Management of the Company and Its Funds . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Description of Certain Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
</TABLE>
S-2
<PAGE> 47
THE FUNDS
The Pacific Global Fund, Inc., d/b/a Pacific Advisors Fund Inc. (the
"Company"), incorporated in Maryland, is registered with the Securities and
Exchange Commission as an open-end diversified management investment company.
The Company currently offers four Funds: Government Securities Fund, Income
Fund, Balanced Fund, and Small Cap Fund. Each Fund is a separate investment
portfolio of the Company with a distinct investment objective, investment
program, policies, and restrictions. Also see "EXCHANGES TO ELIGIBLE FUNDS" in
the Prospectus for availability of exchanges at net asset value to and from
certain other eligible mutual funds ("Eligible Funds").
INVESTMENT MANAGEMENT AND OTHER SERVICES
GENERAL
Pacific Global Investment Management Company (the "Manager" or "Pacific
Global") serves as manager pursuant to separate agreements between the Company
on behalf of each Fund and the Manager (the "Agreements"). The Manager and the
Company, on behalf of each Fund other than the Small Cap Fund, have entered into
sub-advisory agreements ("Sub-Advisory Agreements") with registered investment
advisers (the "Adviser(s)"). Spectrum Asset Management, Inc. ("Spectrum")
serves as Adviser to the Government Securities Fund; MMG Money Management Group,
Inc ("MMG Money Management") also doing business as Expansion Funds of Arizona,
Inc. serves as Adviser to the Income Fund; Hamilton & Bache, Inc. ("Hamilton &
Bache") serves as Adviser to the Balanced Fund; Pacific Global serves as Adviser
to the Small Cap Fund. The Agreements and Sub-Advisory Agreements were approved
by the Board of Directors, including a majority of the non-"interested" persons.
The Agreements and the Sub-Advisory Agreements also have been approved by
applicable shareholders.
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY. The directors and principal
executive officers of the Manager are: George A. Henning, Chairman, President
and Director; Thomas H. Hanson, Executive Vice President and Director; Paul W.
Henning, Treasurer; Siegfred S. Kagawa, Marjorie Derby, Manabi Hirasaki,
William H. McCary, and John P. Willoughby (Directors); and Victoria Breen
(Assistant Secretary and Director of the Manager and Pacific Global Investor
Services, Inc.). George Henning is the principal stockholder of the Manager.
Pacific Global Fund Distributors, Inc. (the "Distributor") and the Transfer
Agent, Pacific Global Investor Services, Inc. ("PGIS"), are fully-owned
subsidiaries of the Manager and George A. Henning is Chairman of the
Distributor and the Transfer Agent. Thomas H. Hanson is President of the
Transfer Agent and the Distributor. Paul W. Henning is Treasurer of the
Distributor and the Transfer Agent.
ADVISERS. Spectrum is a California corporation, the majority of shares of
which are owned by R. "Kelly" Kelly and Marc Kelly. MMG Money Management is an
Arizona corporation wholly-owned by Alan E. Rosenfield. Hamilton & Bache is a
California corporation all of the shares of which are owned by Mary N. Hamilton
and Stephen K. Bache.
MANAGER'S RESPONSIBILITIES
In addition to the duties set forth on page 16 of the Prospectus, the
Manager, in furtherance of such duties and responsibilities, is authorized in
its discretion to perform or to cause or permit the Advisers to: (i) buy, sell,
exchange, convert, lend, or otherwise trade in portfolio securities and other
assets; (ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through broker-dealers,
underwriters, or issuers selected by the Manager; (iii) prepare and supervise
the preparation of shareholder reports and other
S-3
<PAGE> 48
shareholder communications; (iv) obtain and evaluate business and financial
information in connection with the exercise of its duties; and (v) formulate
and implement a continuing program for the management of each Fund's assets.
The Manager will also furnish to or place at the disposal of the Funds
such information and reports as requested by or as the Manager believes would
be helpful to the Funds. The Manager has agreed to permit individuals who are
among its officers or employees to serve as officers, directors, and members of
any committees or advisory board of the Board of the Company without cost to
the Company. The Manager has agreed to pay all salaries, expenses, and fees of
the directors and officers of the Company who are affiliated with the Manager,
the Distributor, or the Company; provided, however, that the Company will
reimburse the Manager for expenses incurred, if any, by the Manager in
responding to telephonic inquiries from, and mailing information to,
shareholders and registered representatives requesting shareholder information
concerning the Funds on behalf of shareholders of the Funds. The expenses to
be reimbursed, if any, include a portion of the cost of employee compensation,
telephone charges, office space, office equipment, and office services properly
allocable to the shareholder services described directly above.
TRANSFER AGENT AND ADMINISTRATIVE SERVICES AGENT
The Transfer Agent, PGIS, is responsible for providing transfer agency
and dividend disbursement services to the Company. PGIS is compensated for
these services by the Company. PGIS also provides a number of other services
to the Company pursuant to the Transfer Agency, Dividend Disbursing Agency and
Administrative Service Agreement. These additional services include assisting
the Manager by: maintaining the Company's corporate existence and corporate
records; maintaining the Funds' registration under state law; coordination and
supervision of the financial and accounting functions for the Funds; liaison
with various agents and other parties employed by the Company (i.e., custodian,
auditors, and attorneys); and the preparation and development of shareholder
communications and reports. PGIS is reimbursed by the Fund for any
expenditures on behalf of the Fund and is compensated at the annual rate of
.05% of average daily net assets, but in no event in excess of $25,000 per Fund
per year. PGIS performs certain transfer agent and administrative services for
the Distributor in connection with exchanges to and from the Eligible Funds.
The Distributor compensates PGIS for these services. PGIS may contract with
unaffiliated entities for the provision of these services to the Company and
the Distributor. For the fiscal year ending December 31, 1995, PGIS received
for its services as Transfer Agent, $8,750, $0, $0, and $7,500 from the
Government Securities, Income, Balanced, and Small Cap Funds, respectively.
THE MANAGER'S AND THE ADVISER'S FEES
The Company pays the Manager management fees at the annual rates
described in the Table below. The Manager is responsible for paying the
Advisers the fees also described in the Table. For the fiscal year ending
December 31, 1995, no management or advisory fees were paid by the Funds.
S-4
<PAGE> 49
MANAGEMENT AND ADVISORY FEES
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee Sub-Advisory Fee
- ------------------------ -------------- ----------------
<S> <C> <C>
First $200 million .65 .35
next $100 million .60 .32
next $200 million .55 .29
next $250 million .50 .26
next $250 million .45 .23
over $1 billion .40 .20
</TABLE>
INCOME FUND
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee Sub-Advisory Fee
- ------------------------ -------------- ----------------
<S> <C> <C>
First $100 million .75 .40
next $100 million .70 .37
next $100 million .65 .34
next $100 million .60 .31
next $100 million .55 .28
over $500 million .50 .25
</TABLE>
BALANCED FUND
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee Sub-Advisory Fee
- ------------------------ -------------- ----------------
<S> <C> <C>
First $200 million .75 .40
next $200 million .70 .37
next $200 million .65 .34
next $200 million .60 .31
next $200 million .55 .28
over $1 billion .50 .25
</TABLE>
SMALL CAP FUND
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
- ------------------------ --------------
<S> <C>
First $200 million .75
next $200 million .72
next $200 million .69
over $600 million .66
</TABLE>
S-5
<PAGE> 50
MANAGEMENT OF THE COMPANY AND ITS FUNDS
DIRECTORS AND OFFICERS
Directors and officers of the Company, together with information as to
their principal addresses and business occupations during the last five years,
are shown below. An asterisk next to a name indicates that a Director is
considered an "interested person" of the Company (as defined in the Investment
Company Act of 1940, the "1940 Act"). Unless otherwise indicated the address
for each Director or officer is 206 North Jackson Street, Suite 201, Glendale,
California 91206.
<TABLE>
<S> <C>
*Thomas M. Brinker President, Fringe Benefits, Inc./Financial Foresight, Ltd., d/b/a
Director The Brinker Organization (Financial services companies)
1 North Ormond Avenue
Havertown, Pennsylvania 19083
*Victoria Breen Assistant Secretary and Director, Pacific Global Investment
Director Management Company, Pacific Global Investor Services, Inc.; General
603 West Ojai Avenue Agent, Transamerica Life Companies and Registered Principal,
Ojai, California 93023 Transamerica Financial Resources, Inc.; Branch Manager, Derby &
Derby, Inc./Pacific Asset Group, Inc./Financial West Group
(Financial services companies)
Kathleen M. Fishkin Certified Public Accountant, Murchison & Marek (Public Accounting);
Director Officer, August Financial Corp.; Executive Vice President,
11 Golden Shore University Group, Inc. (Real Estate)
Suite 200
Long Beach, California 90802
L. Michael Haller, III Senior Vice President, THQ Inc.; President, International Media
Director Group, Inc.; Consultant, Asahi Broadcasting Corp. (Entertainment
1724 North Orangegrove companies)
Los Angeles, California 90046
*Thomas H. Hanson Executive Vice President and Director, Pacific Global Investment
Vice President, Secretary, Management Company; President and Director, Pacific Global Fund
and Treasurer Distributors, Inc.; President and Director, Pacific Global Investor
Services, Inc.; Owner, Director, Chairman, President, and CEO of
TriVest Capital Management, Inc.; Executive Vice President,
Investors Research Company; Director, Investors Research Fund,
Inc.; Principal, Unified Holdings, Inc. (Financial services
companies)
*George A. Henning President, Pacific Global Investment Management Company; Chairman,
President and Chairman Pacific Global Fund Distributors, Inc.; Chairman, Pacific Global
Investor Services Inc.; Executive Vice President and Director,
Financial West Group, Inc.
Siegfred S. Kagawa Chairman, Occidental Underwriters of Hawaii, Ltd.; General Agent,
Director Transamerica Life Companies, (Financial services companies)
1163 S. Beretania Street
Honolulu, Hawaii 96814
</TABLE>
S-6
<PAGE> 51
<TABLE>
<S> <C>
Takashi Makinodan, Ph.D. Associate Director of Research, Geriatric Research Education Clinic
Director Center, VA Medical Center; Director, Medical Treatment
107 S. Barrington Place Effectiveness Program (MEDTEP), Center on Asian and Pacific
Los Angeles, California 90049 Islanders; Professor of Medicine, University of California, Los
Angeles; Adjunct Professor of Biology, University of Southern
California (Medical Research)
Gerald E. Miller Consultant for Securities Related Matters; Senior Resident Vice
Director President, Merrill Lynch (Financial services company)
24030 Park Granada
Calabasas, California 91302
Louise K. Taylor, Ph.D. Superintendent, Monrovia Unified School District; Assistant
Director Superintendent, Monrovia Unified School District (Education)
325 East Huntington Drive
Monrovia, California 91016
</TABLE>
The Officers of the Company, and the Directors who are interested persons of
the Company, receive no compensation directly from the Company for performing
the duties of their offices. They may receive remuneration indirectly as a
result of their positions with the Investment Manager or other affiliates. The
Directors who are not interested persons receive fees and expenses for Board
and Committee meetings attended. The aggregate compensation paid by the Company
to each of the Directors who are not interested persons during the fiscal year
ended December 31, 1995, was $6,050. The Company does not maintain any
retirement or pension plans.
INDEPENDENT AUDITORS
Ernst & Young LLP, whose address is 515 South Flower Street, Los
Angeles, California 90071, has been selected as the independent auditors for
the Company. Their selection was approved by the Manager, as sole shareholder
of the Company and by the Company's Board of Directors.
The financial statements for the period February 8, 1993 (commencement
of operations) through December 31, 1993 and for the fiscal years ended
December 31, 1994 and 1995, are included in each Fund's Annual Report, which
are, except for pages 1 through 2 thereof for the Income and Balanced Funds and
pages 1 through 3 thereof for the Small Cap and Government Securities Funds,
incorporated herein by reference and accompany this Statement of Additional
Information.
The financial statements for the period February 8, 1993 (commencement
of operations) through December 31, 1993 and for the fiscal years ended
December 31, 1994 and 1995 that are included in the Prospectus and incorporated
by reference into this Statement of Additional Information have been audited by
Ernst & Young LLP, whose report thereon appears elsewhere herein have been
included herein in reliance upon the report of such firm of accountants, given
upon their authority as experts in accounting and auditing.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and an Executive Committee. The
respective duties and present memberships are:
AUDIT COMMITTEE: The members of the Audit Committee consult with the Company's
independent auditors, if the auditors deem it desirable, and meet with the
Company's independent auditors at least once annually to discuss the
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scope and results of the annual audit of the Funds and such other matters as
the Committee members deem appropriate or desirable. Kathleen M. Fishkin, L.
Michael Haller, Gerald E. Miller, and Louise K. Taylor are members of the Audit
Committee.
EXECUTIVE COMMITTEE: During intervals between Board Meetings, the Executive
Committee possesses and may exercise all of the powers of the Board in the
management of the Company except as to matters when Board action is
specifically required; included within the scope of such powers are matters
relating to valuation of securities held in each Fund's portfolio and the
pricing of each Fund's shares for purchase and redemption. George A. Henning
and Victoria Breen are members of the Executive Committee.
PRINCIPAL HOLDERS OF SECURITIES
The names, addresses, and percentages of ownership of each person who
owns of record or beneficially five percent or more of any Fund's shares as of
April 12, 1996 are listed below:
<TABLE>
<CAPTION>
FUND SHAREHOLDER PERCENTAGE
---- ----------- ----------
<S> <C> <C>
Government Securities Fund Stevens Family Trust 5.94%
32138 Via Buena
San Juan Capistrano, CA 92675
Income Fund Joanne K. Maxwell 16.50%
29723 Stoughton Drive
Strongsville, OH 44136
Burt L. Gutmon 5.99%
P.O. Box 71584
Los Angeles, CA 90071-0584
Versaw Trust 5.02%
2154 Lenore Drive
Glendale, CA 91206
Manabi and Sumi Hirasaki Trustees 5.25%
(Director of Manager)
Manabi Farms Inc.
2292 E. Hueneme Rd.
Oxnard, CA 93033
</TABLE>
As of April 15, 1996, the Directors and Officers of the company, as a group,
owned 2.36% of the outstanding shares of the Small Cap Fund and less than 1.00%
of the outstanding shares of the Government Securities, Income and Balanced
Funds, respectively.
CUSTODIAN
United Missouri Bank, N.A. ("UMB, N.A.") is custodian of the
securities and cash owned by the Funds. UMB, N.A. is responsible for holding
all securities and cash of each Fund, receiving and paying for securities
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purchased, delivering against payment securities sold, receiving and collecting
income from investments, making all payments covering expenses of the Funds,
computing the net asset value of the Funds, calculating each Fund's
standardized performance information, and performing other administrative
duties, all as directed by persons authorized by the Company. UMB, N.A. does
not exercise any supervisory function in such matters as the purchase and sale
of portfolio securities, payment of dividends, or payment of expenses of the
Funds or the Company. Portfolio securities of the Funds purchased in the U.S.
are maintained in the custody of UMB, N.A. and may be entered into the Federal
Reserve Book Entry System, or the security depository system of the Depository
Trust Company or Participants' Trust Company. Pursuant to the Custody
Agreement, portfolio securities purchased outside the U.S. are maintained in
the custody of various foreign branches of UMB, N.A. and such other custodians,
including foreign banks and foreign securities depositories, as are approved by
the Board of Directors, in accordance with regulations under the 1940 Act. The
Funds may invest in obligations of UMB, N.A. and may purchase or sell
securities from or to UMB, N.A.
DISTRIBUTION PLAN
Pursuant to the Company's Plan of Distribution Pursuant to Rule 12b-1
("Rule 12b-1 Plan" or "Plan"), the Company will pay the Distributor quarterly
at a rate not to exceed .0625% of the average daily net assets of the Company
during that quarter and the Distributor, in turn, will pay certain securities
dealers or brokers, administrators and others ("Recipients") based on the
average daily net asset value of shares of the Company owned by that Recipient
or its customers during that quarter. However, no such payments will be made
to any Recipient in any quarter if the aggregate net asset value of all Company
shares held by the Recipient or its customers at the end of such quarter, taken
without regard to the minimum holding period, does not exceed a minimum amount.
The minimum holding period and the minimum level of holdings, if any, will be
determined from time to time by a majority of the Directors who are not
"interested persons" ("independent Directors") of the Company. The services to
be provided by Recipients may include, but are not limited to, distributing
sales literature, answering routine customer inquiries regarding the Company,
assisting in establishing and maintaining accounts or sub-accounts in the
Company and processing purchase and redemption transactions, making the
Company's investment plans and shareholder services options available, and
providing such other information and services as the Distributor or the Company
may reasonably request from time to time.
All of the fees paid to the Distributor pursuant to the Plan will be
used to pay Recipients for shareholder services rendered to shareholders of
the Funds. Any unreimbursed expenses incurred during any quarter by the
Distributor may not be recovered in later periods. The Plan has the effect of
increasing annual expenses of the Company by up to .25% of its average daily
net assets from what its expenses would otherwise be. For the fiscal year
ended December 31, 1995, Rule 12b-1 payments of $856, $1,758, $261 and $8,334
were made from the Government Securities, Income, Balanced and Small Cap Funds,
respectively.
INVESTMENT RESTRICTIONS
In addition to the restrictions set forth in the Prospectus with
respect to each Fund, which are described as fundamental investment policies,
investment restrictions (1), (2), (3), (5), (7), (11), (14), (16) and (17)
described below, have been adopted as fundamental investment policies of each
Fund. Such fundamental investment policies may be changed only with the
consent of a "majority of the outstanding voting securities" of the particular
Fund. As used in the Prospectus and in this Statement of Additional
Information, the term "majority of the outstanding voting securities" means the
lesser of (1) 67% of the voting securities of a Fund present at a meeting where
the holders of more than 50% of the outstanding voting securities of a Fund are
present in person or by proxy, or (2) more than 50% of the outstanding voting
securities of a Fund. Shares of each Fund will be voted separately on matters
affecting only that Fund, including approval of changes in the fundamental
objectives, policies, or restrictions of that Fund.
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The following investment restrictions apply to each Fund except as
indicated to the contrary.
A Fund will not:
(1) MARGIN AND SHORT SALES: Purchase securities on margin or sell
securities short, except each Fund may make margin deposits in connection with
permissible options and futures transactions subject to restrictions (5) and
(8) below and may make short sales against the box. As a matter of operating
policy, no Fund has a current intention, in the foreseeable future (i.e., the
next year), of making margin deposits in connection with futures transactions
or making short sales against the box;
(2) SENIOR SECURITIES AND BORROWING: Issue any class of
securities senior to any other class of securities, although each Fund may
borrow for temporary or emergency purposes. Each Fund may borrow up to 15% of
its total assets. No securities will be purchased for a Fund when borrowed
money exceeds 5% of the Fund's total assets. Each Fund may each enter into
futures contracts subject to restriction (5) below;
(3) REAL ESTATE: Purchase or sell real estate, or invest in real
estate limited partnerships, except each Fund may, as appropriate and
consistent with its respective investment objectives, investment program,
policies and other investment restrictions, buy securities of issuers that
engage in real estate operations and securities that are secured by interests
in real estate (including shares of real estate investment trusts, master
limited partnerships traded on a national securities exchange, mortgage
pass-through securities, mortgage-backed securities, and collateralized
mortgage obligations) and may hold and sell real estate acquired as a result of
ownership of such securities. In order to comply with the securities laws of
several states, the Balanced Fund and Small Cap Fund (as a matter of operating
policy) will not invest in securities of real estate investment trusts, if by
reason thereof the value of each Fund's aggregate investment in such securities
would exceed 10% of its total costs.
(4) CONTROL OF PORTFOLIO COMPANIES: Invest in portfolio companies
for the purpose of acquiring or exercising control of such companies;
(5) COMMODITIES: Purchase or sell commodities and invest in
commodities futures contracts, except that each Fund may enter into only those
futures contracts and options thereon that are listed on a national securities
or commodities exchange where, as a result thereof, no more than 5% of the
total assets for that Fund (taken at market value at the time of entering into
the futures contracts) would be committed to margin deposits on such future
contracts and premiums paid for unexpired options on such futures contracts;
provided that, in the case of an option that is "in-the-money" at the time of
purchase, the "in-the-money" amount, as defined under Commodity Futures Trading
Commission regulations, may be excluded in computing the 5% limit. As a matter
of operating policy, no Fund has any current intention, in the foreseeable
future (i.e., the next year), of entering into futures contracts or options
thereon;
(6) INVESTMENT COMPANIES: Invest in the securities of other
investment companies, except that each Fund, other than Income Fund, may
purchase securities of other investment companies only in those circumstances
in which each Fund (i) owns no more than 3% of the total outstanding voting
securities of any other investment company, (ii) invests no more than 5% of its
total assets in the securities of any one investment company, and (iii) invests
no more than 10% of its total assets in the securities of all other investment
companies in the aggregate;
(7) UNDERWRITING: Underwrite securities issued by other persons,
except to the extent that a Fund may be deemed to be an underwriter, within the
meaning of the Securities Act of 1933, in connection with the purchase of
securities directly from an issuer in accordance with that Fund's investment
objectives, investment program, policies, and restrictions;
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(8) OPTIONS, STRADDLES, AND SPREADS: Invest in puts, calls,
straddles, spreads or any combination thereof, except that each Fund may
invest in and commit its assets to writing and purchasing only those put and
call options that are listed on a national securities exchange and issued by
the Options Clearing Corporation to the extent permitted by the Prospectus and
this Statement of Additional Information. The Fund will write only those put
or call options that are considered to be appropriately covered. In order to
comply with the securities laws of several states, no Fund (as a matter of
operating policy) will write a covered call option if, as a result, the
aggregate market value of all portfolio securities covering call options or
subject to put options for that Fund exceeds 25% of the market value of that
Fund's net assets. The Government Securities Fund and the Income Fund have no
current intention, in the foreseeable future (i.e., the next year), of
investing in options, straddles, spreads, or any combination thereof;
(9) OIL AND GAS PROGRAMS: Invest in interests in oil, gas, or
other mineral exploration or development programs or oil, gas and mineral
leases, although investments may be made in the securities of issuers engaged
in any such businesses;
(10) OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS:
Purchase or retain the securities of any issuer if to the knowledge of the
Company, those officers and directors of the Company, the Manager or the
Advisers who individually own more than 1/2 of 1% of the securities of such
issuer collectively own more than 5% of the securities of such issuer;
(11) LOANS: Make loans, except that each Fund in accordance with
that Fund's investment objectives, investment program, policies, and
restrictions may (i) make loans of portfolio securities with a value of up to
30% of that Fund's total assets, (ii) invest in a portion of an issue of
publicly issued or privately placed bonds, debentures, notes, and other debt
securities for investment purposes, and (iii) purchase money market securities
and enter into repurchase agreements, provided such instruments are fully
collateralized and marked to market daily;
(12) UNSEASONED ISSUERS: The Balanced Fund and Small Cap Fund will
not invest more than 5% of each of its total assets in securities of issuers,
including their predecessors and unconditional guarantors, which, at the time
of purchase, have been in operation for less than three years, other than
obligations issued or guaranteed by the United States Government, its agencies,
and instrumentalities;
(13) ILLIQUID SECURITIES AND SECURITIES NOT READILY MARKETABLE:
Knowingly purchase or otherwise acquire any security or invest in a repurchase
agreement if, as a result, more than 15% of a Fund's net assets would be
invested in securities that are illiquid or not readily marketable, including
repurchase agreements maturing in more than seven days and foreign issuers
whose securities are not listed on a recognized domestic or foreign exchange.
Some investments may be determined by the Funds to be illiquid. Illiquid
securities are securities which each Fund cannot sell or dispose of in the
ordinary course of business at an acceptable price, securities which are
subject to legal or contractual restrictions on disposition, other securities
for which no readily available market exists, and repurchase agreements and
time deposits with a maturity of more than seven days. Difficulty in selling
securities may result in a loss and may be costly to a Fund. As a matter of
operating policy, in compliance with certain state securities regulations, no
more than 5% of any Fund's net assets will be invested in restricted
securities;
(14) MORTGAGING: Mortgage, pledge, or hypothecate in any other
manner, or transfer as security for indebtedness any security owned by a Fund,
except (i) as may be necessary in connection with permissible borrowings (in
which event such mortgaging, pledging, and hypothecating may not exceed 15% of
each Fund's total assets) and (ii) as may be necessary in connection with each
Fund's use of permissible options and futures transactions, subject to
restrictions (5) and (8) above;
(15) WARRANTS: Invest more than 5% of a Fund's net assets in
warrants, and will further limit its investment in unlisted warrants to no more
than 2% of its net assets;
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(16) DIVERSIFICATION: Make an investment unless 75% of the value
of that Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other investment companies and other securities. For
purposes of this restriction, the purchase of "other securities" is limited so
that no more than 5% of the value of the Fund's total assets would be invested
in any one issuer. As a matter of operating policy, each Fund will not
consider repurchase agreements to be subject to the above-stated 5% limitation
if all the collateral underlying the repurchase agreements are securities
issued by the U.S. Government, its agencies and instrumentalities, and such
repurchase agreements are fully collateralized by such securities; and
(17) CONCENTRATION: Except for the Government Securities Fund,
purchase the securities of issuers conducting their principal business activity
in the same industry if, immediately after the purchase and as a result
thereof, the value of the investments of a Fund in that industry would exceed
25% of the current value of the total assets of that Fund. In those instances
in which the Government Securities Fund invests more than 25% of its total
assets in dividend-paying common stocks, the Government Securities Fund will
concentrate its investments in securities of issuers in the public utilities
industry.
The Government Securities Fund may invest more than 25% of its total
assets in dividend-paying common stocks when Spectrum anticipates that interest
rates will decline. Thus, investments in dividend-paying common stocks of
issuers in the public utility industry will serve as substitutes for investment
in long-term bonds. Concentration in securities in the public utility industry
will occur when utilizing such securities as substitutes for long-term bonds is
consistent with managing the Fund to increase the Fund's total rate of return.
Thus, concentration of investments in this area are made when the current yield
on U.S. Government 30-year bonds declines 60 basis points (6/10 of 1%) from
previous yield peaks for the period of the last 50 trading days. The Fund would
reverse its concentration of investments when the current yield on U.S.
Government bonds rises 60 basis points (6/10 of 1%) from previous yield lows for
the period of the last 50 trading days.
DESCRIPTION OF CERTAIN INVESTMENTS
The following is a description of certain types of investments which
may be made by the Funds.
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, each Fund may invest in high-quality
money market instruments. The money market instruments that may be used by
each Fund may include:
UNITED STATES GOVERNMENT OBLIGATIONS. These consist of various types
of marketable securities issued by the United States Treasury, i.e., bills,
notes and bonds. Such securities are direct obligations of the United States
Government and differ mainly in the length of their maturity. Treasury bills,
the most frequently issued marketable government security, have a maturity of
up to one year and are issued on a discount basis.
UNITED STATES GOVERNMENT AGENCY SECURITIES. These consist of debt
securities issued by agencies and instrumentalities of the United States
Government, including the various types of instruments currently outstanding or
which may be offered in the future. Agencies include, among others, the
Federal Housing Administration, Government National Mortgage Association,
Farmer's Home Administration, Export-Import Bank of the United States, Maritime
Administration, and General Services Administration. Instrumentalities include,
for example, each of the Federal Home Loan Banks, the National Bank for
Cooperatives, the Federal Home Loan Mortgage Corporation, the Farm Credit
Banks, the Federal National Mortgage Association, and the United States Postal
Service. These securities are either; (i) backed by the full faith and credit
of the United States Government (e.g., United States Treasury Bills); (ii)
guaranteed by the United States Treasury (e.g., Government National Mortgage
Association mortgage-backed securities); (iii) supported by the issuing
agency's or instrumentality's right to borrow
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from the United States Treasury (e.g., Federal National Mortgage Association
Discount Notes); or (iv) supported only by the issuing agency's or
instrumentality's own credit (e.g., securities issued by the Farmer's Home
Administration).
BANK AND SAVINGS AND LOAN OBLIGATIONS. These include certificates of
deposit, bankers' acceptances, and time deposits. Certificates of deposit
generally are short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in
the issuing institution. Bankers' acceptances are time drafts drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction (e.g., to finance the import, export, transfer, or
storage of goods). With a bankers' acceptance, the borrower is liable for
payment as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most bankers' acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are generally short-term, interest-bearing negotiable
obligations issued by commercial banks against funds deposited in the issuing
institutions. The Funds will not invest in any security issued by a commercial
bank or a savings and loan association unless the bank or savings and loan
association is organized and operating in the United States, has total assets
of at least one billion dollars, and is a member of the Federal Deposit
Insurance Corporation ("FDIC"), in the case of banks, or insured by the FDIC in
the case of savings and loan associations; provided, however, that such
limitation will not prohibit investments in foreign branches of domestic banks
which meet the foregoing requirements. The Funds will not invest in
time-deposits maturing in more than seven days.
SHORT-TERM CORPORATE DEBT INSTRUMENTS. These include commercial paper
(i.e., short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs). Commercial paper is usually sold on a discount basis
and has a maturity at the time of issuance not exceeding nine months. Also
included are non-convertible corporate debt securities (e.g., bonds and
debentures). Corporate debt securities with a remaining maturity of less than
13 months are liquid (and tend to become more liquid as their maturities
lessen) and are traded as money market securities. Each Fund may purchase
corporate debt securities having greater maturities.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements.
A repurchase agreement is an instrument under which the investor (such as a
Fund) acquires ownership of a security (known as the "underlying security") and
the seller (i.e., a bank or primary dealer) agrees, at the time of the sale, to
repurchase the underlying security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period,
unless the seller defaults on its repurchase obligations. The underlying
securities will consist only of high-grade money market instruments, including
securities issued by the U.S. Government, its agencies or instrumentalities
("U.S. Government Securities"). Repurchase agreements are, in effect,
collateralized by such underlying securities, and, during the term of a
repurchase agreement, the seller will be required to mark-to-market such
securities every business day and to provide such additional collateral as is
necessary to maintain the value of all collateral at a level at least equal to
the repurchase price. Repurchase agreements usually are for short periods,
often under one week, and will not be entered into by a Fund for a duration of
more than seven days if, as a result, more than 15% of the total value of that
Fund's total assets would be invested in such agreements or other securities
which are not readily marketable.
The Funds will seek to assure that the amount of collateral with
respect to any repurchase agreement is adequate. As with a true extension of
credit, however, there is risk of delay in recovery or the possibility of
inadequacy of the collateral should the seller of the repurchase agreement fall
financially. In addition, a Fund could incur costs in connection with
disposition of the collateral if the seller were to default. The Funds will
enter into repurchase agreements only with sellers deemed to be creditworthy by
the Company's Board of Directors and only when the economic benefit to the
Funds is believed to justify the attendant risks. The Funds have adopted
standards for the sellers with whom they will enter into repurchase agreements.
The Board of Directors believes these standards are designed to reasonably
assure that such sellers present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
agreement. The Funds may enter into
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repurchase agreements only with member banks of the Federal Reserve System or
primary dealers in U.S. Government Securities.
ADJUSTABLE RATE AND FLOATING RATE SECURITIES. Adjustable rate
securities (i.e., variable rate and floating rate instruments) are securities
that have interest rates that are adjusted periodically, according to a set
formula. The maturity of some adjustable rate securities may be shortened under
certain special conditions described more fully below.
Variable rate instruments are obligations (usually certificates of
deposit) that provide for the adjustment of their interest rates on
predetermined dates or whenever a specific interest rate changes. A variable
rate instrument subject to a demand feature is considered to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.
Floating rate instruments (generally corporate notes, bank notes, or
Eurodollar certificates of deposit) have interest rate reset provisions similar
to those for variable rate instruments and may be subject to demand features
like those for variable rate instruments. The interest rate is adjusted,
periodically (e.g., daily, monthly, semi-annually), to the prevailing interest
rate in the marketplace. The interest rate on floating rate securities is
ordinarily determined by reference to, or is a percentage of, a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure. The maturity of a floating rate instrument is
considered to be the period remaining until the principal amount can be
recovered through demand.
FIXED-INCOME SECURITIES
As noted in the Prospectus, in accordance with each Fund's investment
objectives and investment program, each Fund may invest to varying degrees in
high and medium quality fixed-income securities. (See the Appendix for a
description of each rating category.) Certain of these fixed-income securities
are described below.
MORTGAGE-BACKED SECURITIES. Interests in pools of mortgage-backed
securities differ from other forms of debt securities (which normally provide
for periodic payments of interest in fixed amounts and the payment of principal
in a lump sum at maturity or on specified call dates). Instead,
mortgage-backed securities provide monthly payments consisting of both interest
and principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on the underlying residential
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Unscheduled payments of principal may be made if the underlying
mortgage loans are repaid, refinanced or the underlying properties are
foreclosed, thereby shortening the securities' weighted average life. Some
mortgage-backed securities, such as securities guaranteed by the Government
National Mortgage Association ("GNMA"), are described as "modified pass-through
securities." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, on the
scheduled payment dates regardless of whether the mortgagor actually makes the
payment.
The principal governmental guarantor of mortgage-backed securities is
GNMA. GNMA is authorized to guarantee, with the full faith and credit of the
U.S. Government, the timely payment of principal and interest on securities
issued by lending institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
mortgage loans. These mortgage loans are either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. A "pool" or group
of such mortgage loans is assembled and, after being approved by GNMA, is
offered to investors through securities dealers.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
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("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the Secretary of
Housing and Urban Development. FNMA purchases conventional (i.e., not insured
or guaranteed by any government agency) residential mortgages from a list of
approved seller/services which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Mortgage-backed securities issued by FNMA are guaranteed
as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the U.S. Government.
FHLMC was created by Congress in 1970 for the purpose of increasing
the availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues
Participation Certificates ("PCs") which represent interests in conventional
mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal, but PCs are not backed by the
full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-backed securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. Timely payment of interest and principal of these pools may be supported
by various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. The insurance and guarantees
are issued by governmental entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the issuers thereof
will be considered in determining whether a mortgage-backed security meets each
Fund's investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. Each Fund may buy mortgage-backed securities
without insurance or guarantees if its Adviser determines that the securities
meet that Fund's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable. Each Fund will limit its
investment in mortgage-backed securities or other securities which may be
considered illiquid or not readily marketable to no more than 15% of that
Fund's total assets.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). Collateralized mortgage
obligations ("CMOs") are debt securities collateralized by underlying whole
mortgage loans or, more typically, by pools of mortgage-backed securities
guaranteed by GNMA, FHLMC, or FNMA and their income streams. CMOs are
generally structured into multiple classes or tranches, each bearing a
different stated maturity. The actual maturity and average life of a CMO will
depend upon the prepayment experience of the collateral. CMOs provide for a
modified form of call protection through a de facto breakdown of the underlying
pool of mortgages according to how quickly the loans are repaid. Monthly
payment of principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity
class. Investors holding the longer maturity classes receive principal only
after the first class has been retired. An investor is partially guarded
against a sooner than desired return of principal because of the sequential
payments.
In a typical CMO transaction, a corporation issues multiple series of
CMO bonds (e.g., Series A, B, C, and Z bonds). Proceeds of the CMO bond
offering are used to purchase mortgages or mortgage-backed certificates which
are used as collateral for the loan ("Collateral"). The Collateral is
generally pledged to a third party trustee as security for the CMO bond.
Principal and interest payments from the Collateral are used to pay principal
on the CMO bonds. The Series A, B, and C bonds all bear current interest.
Interest on the Series Z bond is accrued and added to principal and a like
amount is paid as principal on the Series A, B, or C bond currently being paid
off. When the Series A, B, and C bonds are paid in full, interest and
principal on the Series Z bond begins to be paid
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currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
ASSET-BACKED SECURITIES. The Income Fund and the Balanced Fund each
may invest in asset-backed securities including interests in pools of
receivables, such as motor vehicle installment purchase obligations (such as
Certificates for Automobile Receivables or "CARs") and credit card receivables
(such as Credit Card Receivable Securities or "CARDS"). Such securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. However,
such securities may also be issued on a pay-through basis (like CMOs) and, in
such case, are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such asset and issuing such
pay-through security. Asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. The payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) affiliated or
unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises considerations
concerning the credit support for such securities due to the financing of the
instruments underlying such securities. For example, most organizations that
issue asset-backed securities relating to motor vehicle installment purchase
obligations perfect their interests in their respective obligations only by
filing a financing statement and by having the servicer of the obligations,
which is usually the originator, take custody thereof. In such circumstances,
if the servicer were to sell the same obligations to another party, in
violation of its duty not to do so, there is a risk that such party could
acquire an interest in the obligations superior to that of the holders of the
asset-backed securities. Also, although most such obligations grant a security
interest in the motor vehicle being financed, in most states the security
interest in a motor vehicle must be noted on the certificate of title to
perfect such security interest against competing claims of other parties. Due
to the large number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed
securities. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on those
securities. In addition, various state and federal laws give the motor vehicle
owner the right to assert against the holder of the owner's obligation certain
defenses such owner would have against the seller of the motor vehicle. The
assertion of such defenses could reduce payments on the related asset-backed
securities.
Insofar as credit card receivables are concerned, credit card holders
are entitled to the protection of a number of state and federal consumer credit
laws, many of which give such holders the right to set off certain amounts
against balances owed on the credit card, thereby reducing the amounts paid on
such receivables. In addition, unlike most other asset-backed securities,
credit card receivables are unsecured obligations of the cardholder.
The development of asset-backed securities is at an early stage
compared to mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for such securities is
not as well developed as that for mortgage-backed securities guaranteed by
government agencies or instrumentalities. The
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Income Fund intends to limit its purchases of asset-backed securities to
securities that are readily marketable at the time of purchase.
ZERO COUPON BONDS. The Government Securities Fund and Income Fund
each may invest in "zero coupon" bonds. Zero coupon bonds do not entitle the
holder to any periodic payments of interest prior to their maturity.
Accordingly, such securities usually trade at a deep discount from their face
value. An investor, such as the Government Securities Fund or Income Fund,
acquires a zero coupon bond at a price that is generally an amount based upon
its present value, and which, depending upon the time remaining until maturity,
may be significantly less than the bond's face value (sometimes referred to as
a "deep discount" price). Upon maturity of the zero coupon bond, the investor
receives the face value of the bond. The Funds may also invest up to 5% of its
net assets in "pay-in-kind" securities (i.e., debt obligations the interest on
which may be paid in the form of additional obligations of the same type rather
than cash) which have characteristics similar to zero coupon securities.
Zero coupon bond and "pay-in-kind" securities may be more speculative
and subject to greater fluctuations in their market value in response to
changing interest rates than debt obligations that make period distributions of
interest. On the other hand, because there are no periodic interest payments
to be reinvested prior to maturity, zero coupon bonds eliminate any
reinvestment risk and lock in a rate of return to maturity.
For federal tax purposes, the holder of a zero coupon bond is required
to accrue a portion of the discount at which the security was purchased (or, in
the case of a "pay-in-kind" security, the difference between the issue price
and the sum of all the amounts payable on redemption) as income each year even
though the holder of such a security receives no interest payment on such
security during the year. Since each Fund is a regulated investment company,
under the Internal Revenue Code of 1986 (the "Code"), and must distribute each
year to its shareholders substantially all of its income (including that which
it must accrue and recognize with respect to any zero coupon bonds and "pay-
in-kind" securities in which it invests) in order to comply with certain Code
provisions, such distributions could reduce the amount of cash available for
investment by each Fund.
PERCS. The Income Fund may invest up to 5% of its net assets in
Preference Equity Redemption Cumulative Stock, more commonly known as PERCS. A
PERCS is a preferred stock with an "out-of-the-money" call option written by
the purchaser of the PERCS to the issuer of the PERCS. Most PERCS expire three
years from the date of issue, at which time they are exchangeable for the
issuer's common stock or cash, at the option of the issuer. Under a typical
arrangement, if after three years the issuer's common stock is below the call
price established by the PERCS, each PERCS would convert to one share of common
stock. If however, the issuer's common stock is trading above the call price,
the holder of the PERCS would receive less than one full share of common stock.
The amount of that fractional share of common stock received by the PERCS'
holder is determined by dividing the call price of the PERCS by the market
price of the issuer's common stock. Some PERCS provide that they can be called
immediately if the issuer's common stock is trading at a specified level or
better. Investors, such as the Income Fund, that seek current income find
PERCS attractive because a PERCS provides a higher dividend income than that
paid with respect to a company's common stock.
LYONS. The Income Fund may invest up to 5% of its net assets in
Liquid Yield Option Notes or LYONS. LYONS combine features commonly associated
with convertible bonds with those of zero coupon bonds. LYONS are debt
securities issued in zero coupon form (they are issued at a discount from par
and pay interest only at maturity). Like convertible bonds, LYONS may be
converted, upon payment of a conversion premium, into a fixed number of shares
of common stock at any time. LYONS also have a put feature which allows the
holder to redeem the LYONS at the initial offering price plus accredit interest
on specified dates, usually three to five years after a LYONS has been issued.
Upon exercise of a put, the holder of the LYONS may receive cash, common stock,
subordinated debt, or a combination thereof depending upon the type of LYONS.
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LYONS, if held to maturity (usually 15 to 20 years), provide a fixed
rate of return. If the conversion option is exercised, they offer the holder
of the LYONS the ability to participate in the potential growth of the value of
the underlying common stock. The put option feature of a LYON offers holders a
degree of liquidity. In addition, LYONS are also listed on national securities
exchanges, but there is no assurance that a secondary market for the LYONS will
exist.
WHEN-ISSUED SECURITIES
Each Fund may, from time to time, purchase securities on a
"when-issued" basis. The price of such securities, which may be expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase, but may
take up to four months. During the period between purchase and settlement, no
payment is made by a Fund to the issuer and no interest accrues to a Fund.
While when-issued securities may be sold prior to the settlement date, each
Fund intends to purchase such securities with the purpose of actually acquiring
them, unless a sale appears to be desirable for investment reasons. At the
time a Fund makes the commitment to purchase a security on a when-issued basis,
it will record the transaction and reflect the value of the security in
determining its net asset value. Each Fund will maintain, in a segregated
account with the custodian, cash and liquid high-quality debt securities equal
in value to commitments for when-issued securities.
WARRANTS
Warrants are securities that give the holder the right to purchase
equity securities from the issuer at a specific price (the "strike price") for
a limited period of time. The strike price of warrants typically is higher
than the prevailing market price of the underlying security at the time the
warrant is issued, while the market value of the warrant is typically much
lower than the current market price of the underlying securities. Warrants are
generally considered to be more risky investments than the underlying
securities, but may offer greater potential for capital appreciation than the
underlying securities.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to the expiration date.
These factors can make warrants more speculative than other types of
investments. Each Fund will limit its investment in warrants to no more than
5% of its net assets, valued at the lower of cost or market value, and will
further limit its investment in unlisted warrants to no more than 2% of its net
assets.
SECURITIES LOANS
For purposes of realizing additional income, each Fund may make
secured loans of its portfolio securities amounting to no more than 30% of the
value of that Fund's total assets. Securities loans are made to broker-dealers
and other financial institutions approved by the Board of Directors of the
Company. Loans of securities by the Funds are made pursuant to agreements
requiring that the loans be continuously secured by collateral equal in value
at all times to the securities loaned, as marked-to-market on a daily basis.
The collateral received will consist of cash, U.S. Government Securities,
letters of credit or such other collateral as permitted by interpretations or
rules of the Securities and Exchange Commission ("SEC") and approved by the
Company's Board of Directors. While the securities are on loan, the Funds will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower.
Any loan of portfolio securities by any Fund will be allowable at any
time by the lending Fund upon notice of five business days. When voting or
consent rights which accompany loaned securities pass to the borrower, the
lending Fund will call the loan, in whole or in part as appropriate, to permit
the exercise of such rights if the matters
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involved would have a material effect on that Fund's investment in the
securities being loaned. If the borrower fails to maintain the requisite
amount of collateral, the loan will automatically terminate, and the lending
Fund will be permitted to use the collateral to replace the securities while
holding the borrower liable for any excess of replacement cost over collateral.
As with any extensions of credit, there are risks of delay in receiving
additional collateral or in the recovery of the securities or, in some cases,
even loss of rights in the collateral should the borrower of the securities
fail financially. However, these loans of portfolio securities will be made
only when the Company's Board of Directors considers the borrowing
broker-dealers or financial institutions to be creditworthy and of good
standing and when the Manager or a Fund's Adviser believes that the interest
earned from such loans justifies the attendant risks. On termination of the
loan, the borrower will be required to return the securities lent to the
lending Fund. Any gain or loss in the market price during the loan would inure
to the lending Fund. The lending Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Government Securities Fund, the Balanced Fund and the Small Cap
Fund may each invest in other investment companies. Each Fund's investment in
other investment companies is limited in amount by the 1940 Act, so that each
Fund may purchase shares in another investment company unless (i) such a
purchase would cause the Fund to own, in the aggregate, more than 3% of the
total outstanding voting stock of the acquired company, (ii) such a purchase
would cause the Fund to have more than 5% of its total assets invested in one
investment company, (iii) such a purchase would cause the Fund to have more
than 10% of its total assets invested in all other investment companies in the
aggregate, or (iv) all Funds in the Company would own more than 10% of the
total outstanding voting stock of such registered investment company. Such
investments may involve the payment of substantial premiums above the value of
such investment companies' portfolio securities. In addition, the return from
such an investment will be reduced by the operating expenses and fees of such
other investment companies, including applicable advisory fees. Although each
Fund, other than the Income Fund, is permitted to invest in other investment
companies, each Fund has no current intention (i.e., in the next year) of so
doing.
DEPOSITORY RECEIPTS AND FOREIGN SECURITIES
Each of the Funds, as specified in its investment program, may invest
in foreign securities. Investments in foreign equity securities will be made
primarily through the purchase of American Depository Receipts ("ADRs").
Certain Funds may also utilize European Depository Receipts ("EDRs") and may
make direct market purchases of equity and fixed-income securities of foreign
issuers. ADRs are certificates issued by a U.S. bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a U.S. bank and traded on a U.S. exchange or
in the over-the-counter ("OTC") securities market. EDRs are receipts issued in
Europe generally by a foreign bank or trust company that evidence ownership of
foreign or domestic securities. Generally, ADRs are in registered form and
EDRs are in bearer form. There are no fees imposed on the purchase or sale of
ADRs or EDRs during an initial public offering, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs or EDRs into the underlying securities. Investment in ADRs
has certain advantages over direct investment in the underlying foreign
securities since (i) ADRs are U.S. dollar-denominated investments which are
easily transferable and for which market quotations are readily available, and
(in) issuers whose securities are represented by ADRs are subject to the same
auditing, accounting and financial reporting standards as domestic issuers.
EDRs are not necessarily denominated in the currency of the underlying
security.
Because the Funds may invest directly in certain foreign securities,
the Funds may be subject to risks that are different, in some respects, from
the risks associated with an investment in a mutual fund that invests only in
securities of domestic issuers. These risks include, among others, potential
adverse changes in currency exchange
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rates and exchange control regulations, as well as potential social, economic,
or political instability. In addition, certain foreign securities and stock
markets outside the U.S. are not as liquid as their U.S. counterparts. Issuers
of foreign securities are also subject to different accounting, reporting, and
disclosure requirements than those applicable to domestic issuers and less
reliable public information may be available about such foreign securities.
Further, foreign brokerage commissions and custodian fees are generally higher
than in the United States. In addition, government restrictions in certain
countries and other limitations on investment may affect the maximum percentage
of equity ownership in any one company by a Fund. Moreover, in some countries,
only special classes of securities may be purchased by external investors and
the price, liquidity, and rights with respect to such securities may differ
from those relating to shares owned by nationals. In addition, there may also
be the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property. As
a result, the selection of securities of foreign issuers may be more difficult
and subject to greater risks than investment in domestic issuers.
OPTIONS ON SECURITIES
The Balanced Fund and Small Cap Fund each may write covered put and
call options on securities and may purchase put and call options on
securities. Each Fund will only utilize options on securities that are
exchange traded.
A call option is a contract that gives the purchaser thereof, during
the term of the option, the right to buy a specified amount of the security
underlying the call option at a fixed price (called the exercise or "strike"
price) upon exercise of the option. Conversely, a put option is a contract
that gives the purchaser thereof, during the term of the option, the right to
sell a specified amount of the security underlying the put option at the
exercise price upon exercise of the option.
Through the writing of a covered call option, a Fund will receive
premium income but will also thereby obligate itself during the term of the
option, upon the exercise thereof, to sell to the purchaser of such option the
security underlying the option regardless of the market value of the security
during the option period. Through the writing of a covered put option, a Fund
will receive premium income but will also thereby obligate itself during the
term of the option, upon the exercise thereof, to purchase from the holder of
the put option the security underlying the option regardless of the market
value of the security during the option period.
To "cover" a call option written, a Fund may, for example, identify
and make available for sale the specific portfolio security to which the option
relates or may establish a segregated asset account with the Company's
custodian, containing cash or liquid assets that, when added to amounts, if
any, deposited with its broker as margin, equal the market value of the
securities underlying the call option written. To cover a put option written,
a Fund may, for example, establish a segregated asset account with the
Company's custodian containing cash or liquid assets that, when added to
amounts, if any, deposited with its broker as margin, equal the market value of
the securities underlying the put option written.
Each Fund may purchase put options on securities for defensive
purposes in order to hedge against an anticipated decline in the value of its
portfolio securities. Each Fund may purchase call options on securities to
take advantage of anticipated increases in the value of its portfolio
securities. In addition, each Fund may write put or call options on securities,
for the purpose of generating additional income, which may partially offset the
effects of adverse changes in the value of that Fund's portfolio securities.
Although these investment practices will be used to generate
additional income and to attempt to reduce the effect of any adverse price
movement in the securities subject to the option, they do involve certain risks
that are different, in some respects, from the investment risks associated with
similar funds that do not engage in such
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activities. These risks include the following: writing covered call options
- -- the inability to effect closing transactions at favorable prices and the
inability to participate in the appreciation of the underlying securities above
the exercise price, adjusted for premiums received; writing covered put options
- -- the inability to effect closing transactions at favorable prices and the
obligation to purchase the specified securities at prices which may not reflect
their current market values; and purchasing put and call options -- possible
loss of the entire premium paid if the option expires unexercised.
TAXES
Each Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Code. As such, it must meet the requirements of
Subchapter M of the Code, including the requirements regarding the source and
distribution of investment income and the diversification of investments.
In general, to qualify as a RIC, at least 90% of the gross income of
each Fund for the taxable year must be derived from dividends, interest, and
gains from the sale or other disposition of securities, and less than 30% of
its gross income for the taxable year can be attributable to gains (without
deductions for losses) from the sale or other disposition of securities held
for less than three months.
A RIC must distribute to its shareholders 90% of its ordinary income
and net short-term capital gains. Moreover, undistributed net income must be
subject to tax at the RIC level.
In addition, each Fund must declare and distribute dividends each year
equal to at least 98% of its ordinary income (as of the twelve months ended
December 31) and distributions of at least 98% of its capital gains net income
(as of the twelve months ended October 31), in order to avoid a 4% federal
excise tax. Each Fund intends to make the required distributions, but it
cannot guarantee that it will do so. Dividends attributable to a Fund's
ordinary income are taxable as such to shareholders in the year in which they
are received.
A corporate shareholder may be entitled to take a deduction for income
dividends received from a domestic corporation, provided that both the
corporate shareholder retains its shares in the applicable Fund for more than
45 days and the Fund retains its shares in the issuer from whom it received the
income dividends for more than 45 days. A dividend of capital gains net income
reflects the Fund's excess of net long-term gains over its net short-term
losses. Each Fund must designate which dividends are dividends of capital
gains net income and must notify shareholders of this designation within 60
days after the close of the Fund's taxable year. A corporate shareholder of a
Fund cannot use a dividends-received deduction for these dividends.
If, in any taxable year, a Fund should not qualify as a RIC under the
Code: (1) that Fund would be taxed at normal corporate rates on the entire
amount of its taxable income without deduction for dividends or other
distributions to its shareholders, and (2) that Fund's distributions to the
extent made out of that Fund's current or accumulated earnings and profits
would be taxable to its shareholders (other than shareholders in tax-deferred
accounts) as ordinary dividends (regardless of whether they would otherwise
have been considered capital gains dividends), and may qualify for the partial
deduction for dividends received by corporations.
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OTHER CONSIDERATIONS
TRADE DATE PROCEDURES
PURCHASING. If a purchase order is telephoned to PGIS before 4:00 pm.,
New York time, the purchase order becomes effective as of 4:00 p.m., New York
time. If the purchase order is telephoned to PGIS after 4:00 p.m., New York
time, the purchase order becomes effective as of 4:00 p.m., New York time, on
the next business day.
REDEEMING. If a request to sell shares (redemption) is received in
proper form prior to the determination of net asset value on any day, the
redemption is effective as of 4:00 p.m., New York time. If the request is
received after the net asset value is determined, the redemption is effective
as of 4:00 p.m., New York time, on the next business day.
EXCHANGING. Shares are exchanged for shares of other Funds at net
asset value next determined following receipt of the request in proper form
either by mail or telephone.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. Dividends and
distributions of each Fund are made on the payment date, the record date, or
such other date as the Board may determine. On the "ex-dividend" date, the net
asset value per share excludes the dividend (i.e., is reduced by the amount of
the dividend).
REDEMPTIONS
Each Fund intends to pay all redemptions of its shares in cash. However, each
Fund may make full or partial payment to shareholders of portfolio securities
of the applicable Fund (i.e., by redemption-in-kind), at the value of such
securities used in determining the redemption price. The Company,
nevertheless, pursuant to Rule 18f-1 under the 1940 Act, has filed a
notification of election under which each Fund is committed to pay in cash to
any shareholder of record, all requests for redemption made by such shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the applicable
Fund's net asset value at the beginning of such period. The securities to be
paid in-kind to any shareholders will be readily marketable securities selected
in such manner as the Company's Board deems fair and equitable. If
shareholders were to receive redemptions-in-kind, they would incur brokerage
costs should they wish to liquidate the portfolio securities received in such
payment of their redemption request. The Company does not anticipate making
redemptions-in-kind.
SUSPENSION OF REDEMPTIONS
The right to redeem shares or to receive payment with respect to any
redemption of shares of the Funds may only be suspended (i) for any period
during which trading on the New York Stock Exchange ("NYSE") is restricted or
the NYSE is closed, other than customary weekend and holiday closings, (ii) for
any period during which an emergency exists as a result of which disposal of
securities or determination of the net asset value of the Funds is not
reasonably practicable, or (iii) for such other periods as the SEC may by order
permit for protection of shareholders of the Funds.
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PACIFIC GLOBAL FUND DISTRIBUTORS, INC. COMMISSIONS
<TABLE>
<CAPTION>
1993 1994
FUND UNDERWRITING BROKERAGE TOTAL UNDERWRITING BROKERAGE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Small Cap $11,346 $0 $11,346 $11,359 $20,878 $32,237
Balanced 132 316 448 480 279 759
Income 658 0 658 3,774 0 3,774
Government 153
Securities 1,303 0 1,303 153 0
</TABLE>
<TABLE>
<CAPTION>
1995
FUND UNDERWRITING BROKERAGE TOTAL
<S> <C> <C> <C>
Small Cap $7,151 $42,690 $49,841
Balanced 494 422 916
Income 372 0 372
Government
Securities 2,249 0 2,249
</TABLE>
PORTFOLIO TRANSACTIONS
The Company has no obligation to do business with any broker-dealer or
group of broker-dealers in executing transactions in securities. In placing
orders, the Advisers are subject to the Company's policy to seek the best
available price and most favorable execution taking into account such factors
as price (including the applicable commission or dealer spread), size, type,
and difficulty of the transaction, and the firm's general execution and
operating facilities. The Company has authorized the Advisers to pay higher
commissions in recognition of brokerage services which, in an Adviser's
opinion, are necessary to achieve best execution, provided the Adviser believes
this to be in the best interest of the Fund. The Advisers may also rank
broker-dealers based on the value of their research services and include such
ranking as a selection factor.
Each Adviser, subject to seeking best price and execution, is
authorized to cause a Fund to pay broker-dealers that furnish brokerage and
research services (as deemed by Section 28(e) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) a higher commission than that charged by
another broker-dealer that does not furnish such brokerage and research
services. The Adviser must regard such higher commissions as reasonable in
relation to the brokerage and research services provided, viewed in terms of
the Adviser's responsibilities to the Fund or other accounts, if any, as to
which it exercises investment discretion.
Certain of the Advisers' other accounts have investment objectives and
programs that are similar to those of the Funds they advise. Accordingly,
occasions may arise when an Adviser engages in simultaneous purchase and sale
transactions of securities that are consistent with the investment objectives
and programs of the Fund it advises and other accounts. On those occasions,
the Advisers will allocate purchase and sale transactions in an equitable
manner according to written procedures approved by the Board of Directors.
Such procedures may, in particular instances, be either advantageous or
disadvantageous to a Fund.
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The Distributor, a registered broker-dealer, may act as broker for the
Company, in conformity with the securities laws and rules thereunder. The
Distributor is a fully owned subsidiary of the Manager. In order for the
Distributor to effect any portfolio transactions for the Company on an exchange
or board of trade, the commissions received by it must be reasonable and fair
compared to the commissions paid to other brokers in connection with comparable
transactions involving similar securities or futures being purchased or sold on
an exchange or board of trade during a comparable period of time. This
standard would allow the Distributor to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. The Company's Board of Directors has
approved procedures for evaluating the reasonableness of commissions paid to
the Distributor and periodically reviews these procedures. The Distributor
will not act as principal in effecting any portfolio transactions for the
Company.
For the period February 8, 1993 (commencement of operations) through
December 31, 1993, and for fiscal years ending December 31, 1994 and 1995, the
total brokerage commissions paid by each Fund were, respectively, as follows:
Government Securities Fund, $323, $1,659 and $4,682; Income Fund, $280, $890
and $1,649; Balanced Fund, $946, $2,050 and $5,730; and Small Cap Fund,
$25,426, $44,653 and $60,048. Of these amounts, no amounts were paid to
brokers that provided research and brokerage services.
VALUATION OF SECURITIES
The assets of the Fund are valued as follows:
COMMON STOCKS, PREFERRED STOCKS, AND CONVERTIBLE PREFERRED STOCKS of
domestic issuers listed on national securities exchanges and certain
over-the-counter ("OTC") issues traded on the NASDAQ national market system are
valued at the last quoted sale price at the close of the NYSE. OTC issues not
quoted on the NASDAQ system and other equity securities for which no sale price
is available, are valued at the last bid price as obtained from published
sources (including Quotron), where available, and otherwise from brokers who
are market makers for such securities.
SHORT-TERM DEBT INSTRUMENTS WITH A REMAINING MATURITY OF 60 DAYS OR
LESS are valued on a amortized cost basis. When a security is valued at
amortized cost, it is valued at its cost when purchased and thereafter by
assuming a constant amortization to maturity of any discount or premium.
SHORT-TERM DEBT INSTRUMENTS WITH A REMAINING MATURITY OF MORE THAN 60
DAYS, BONDS, CONVERTIBLE BONDS, AND OTHER DEBT SECURITIES are generally valued
at prices obtained from a bond pricing service. Where such prices are not
available, valuations will be obtained from brokers who are market makers for
such securities. However, in circumstances where the Manager deems it
appropriate to do so, the mean of the bid and asked prices for OTC securities
or the last available sale price for exchange traded debt securities may be
used. Where no last sale price for exchange traded debt securities is
available, the mean of the bid and asked prices may be used.
FOREIGN SECURITIES primarily traded on foreign securities exchanges
are generally valued at the preceding closing value of such security on the
exchange where they are primarily traded. A foreign security that is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security by the Board of Directors
or its delegates. If no closing price is available, then such security is
valued first by using the mean between the last current bid and asked prices
or, second, by using the last available closing price. All foreign securities
traded in the OTC securities market are valued at the last sales quote, if
market quotations are available, or the last closing bid price, if there is no
active trading in a particular security for a given day. Where market
quotations are not readily available for such foreign OTC securities, then such
securities will be valued in good faith by a method that the Board of
Directors, or its delegates, believes accurately reflects fair value.
S-24
<PAGE> 69
OPTIONS are valued at the last sale price on the market where any such
option is principally traded, or, if no sale occurs on the applicable exchange
on a given day, the option will be valued at the average of the quoted bid and
asked prices as of the close of the applicable exchange.
OTHER SECURITIES AND ASSETS for which market quotations are not
readily available or for which valuation cannot be provided, as described
above, are valued at fair value in good faith by the Company's Board of
Directors using its best judgment.
The net asset value of shares of each Fund is normally calculated as
of the close of regular trading on the NYSE, currently 4:00 pm., New York time,
on every day the NYSE is open for trading, except on days where both (i) the
degree of trading in a Fund's portfolio securities would not materially affect
the net asset value of that Fund's shares and (ii) no shares of a Fund were
tendered for redemption or no purchase order was received. The NYSE is open
Monday through Friday except on the following national holidays: New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
S-25
<PAGE> 70
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The ratings of certain debt instruments in which the Funds may invest
are described below.
MOODY'S INVESTORS SERVICE, INC. - BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of 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
not likely to impair the fundamentally strong position of such issues.
Aa--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, 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.
A--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.
Baa--Bonds which are rated Baa are considered to be 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.
Ba--Bonds which are rated Ba are judged to have speculative elements,
and 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.
B--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.
STANDARD & POOR'S CORPORATION - BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
S-26
<PAGE> 71
are more likely to lead to weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher-rated categories.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's 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. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
S-27
<PAGE> 72
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements filed as part of Prospectus:
Condensed Financial Information for the Government
Securities Fund, Income Fund, Balanced Fund, and
Small Cap Fund ("Funds") for the period February 8,
1993 (commencement of operations) through December
31, 1995.
Financial Statements incorporated by reference into the
Statement of Additional Information from the Funds' Annual
Reports dated February 28, 1996.
Report of Independent Auditors
Statement of Assets and Liabilities as of December 31,
1995
Schedule of Investments as of December 31, 1995
Statement of Operations for the year ended December
31, 1995
Statement of Changes in Net Assets for the period
February 8, 1993 (commencement of operations) through
December 31, 1993 and for the years ended December
31, 1994 and December 31, 1995
Notes to Financial Statements
(b) Exhibits:
* 1(a) Articles of Incorporation.
** 1(b) Amendment One to Articles of Incorporation
** 2 Amended and Restated By-Laws.
3 Not applicable.
** 4(a) Form of Specimen Certificate of Stock of the
Government Securities Fund.
** 4(b) Form of Specimen Certificate of Stock of the
Income Fund.
** 4(c) Form of Specimen Certificate of Stock of the
Balanced Fund.
<PAGE> 73
** 4(d) Form of Specimen Certificate of Stock of the
Small Cap Fund.
** 5(a) Investment Management Agreement by and
between Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc., on behalf of the
Government Securities Fund, and Pacific
Global Investment Management Company.
** 5(b) Sub-Advisory Agreement by and among Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund
Inc., on behalf of the Government Securities
Fund, Pacific Global Investment Management
Company, and Spectrum Asset Management, Inc.
** 5(c) Investment Management Agreement by and
between Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc., on behalf of the
Income Fund, and Pacific Global Investment
Management Company.
*** 5(d)(2) Sub-Advisory Agreement by and among Pacific
Global Fund, Inc. d/b/a Pacific Advisers Fund
Inc., on behalf of the Income Fund, Pacific
Global Investment Management Company, and MMG
Money Management Group, Inc.
** 5(e) Investment Management Agreement by and
between Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc., on behalf of the
Balanced Fund, and Pacific Global Investment
Management Company.
**** 5(e)(1) Sub-Advisory Agreement by and among Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund
Inc., on behalf of Balanced Fund, Pacific
Global Investment Management Company, and
Hamilton & Bache, Inc.
** 5(f) Investment Management Agreement by and
between Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc., on behalf of the
Small Cap Fund, and Pacific Global Investment
Management Company.
** 6 Distribution Agreement between Pacific Global
Fund, Inc. d/b/a Pacific Advisors Fund Inc.
and Pacific Global Fund Distributors, Inc.
7 Not applicable.
C-2
<PAGE> 74
8 Custody Agreement by and between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund
Inc. and UMB Bank, N.A.
*** 9(a) Transfer Agency, Dividend Disbursing Agency,
and Administrative Service Agreement by and
between Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc. and Pacific Global
Investors Services, Inc.
9(b) Accounting Services Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc. and Pacific Global
Investors Services, Inc.
** 9(c) Expense Limitation Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc., on behalf of the
Government Securities Fund, and Pacific
Global Investment Management Company.
** 9(d) Expense Limitation Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc., on behalf of the Income
Fund, and Pacific Global Investment
Management Company.
** 9(e) Expense Limitation Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc., on behalf of the Balanced
Fund, and Pacific Global Investment
Management Company.
** 9(f) Expense Limitation Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc., on behalf of the Small
Cap Fund, and Pacific Global Investment
Management Company.
** 10 Opinion and Consent of Counsel regarding the
legality of the securities being registered.
11 Consent of Ernst & Young LLP, Independent
Auditors.
12 Not applicable.
* 13 Stock Subscription Agreement by and between
Pacific Global Investment Management Company
and Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc.
14 Not applicable.
C-3
<PAGE> 75
** 15(a) Plan of Distribution Pursuant to Rule 12b-1.
** 15(b) Agreement Pursuant to Plan of Distribution.
16 Not applicable.
17 Financial Data Schedule.
18 Specimen Price Make-Up Sheet.
__________________________
* Incorporated herein by reference to initial filing, July 29, 1992, of
Registrant's Form N-1A Registration Statement (File No. 33- 50208).
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-1A Registration Statement (File No. 33-50208).
*** Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Form N-1A Registration Statement (File No. 33- 50208).
**** Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Form N-1A Registration Statement (File No. 33- 50208).
Item 25. Persons Controlled by or under Common Control with the Company
Pacific Global Fund Distributors, Inc. ("Pacific Distributors"), the
Company's distributor, is a wholly-owned subsidiary of Pacific Management.
Pacific Global Investor Services, Inc., the Company's transfer agent, also is a
wholly-owned subsidiary of Pacific Management. In addition to this response,
please see Exhibit 17 of Post-Effective Amendment No. 2 to Registrant's Form
N-1A Registration Statement (File No. 33-50208).
C-4
<PAGE> 76
Item 26. Number of Holders of Securities
As of December 31, 1995:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Government Securities Fund 184
Income Fund 100
Balanced Fund 1,051
Small Cap Fund 1,084
</TABLE>
Item 27. Indemnification
(a) General. The Company will indemnify any individual
("Indemnitee") who is a present or former director, officer,
employee, or agent of the Company, or who is or has been
serving at the request of the Company as a director, officer,
partner, trustee, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, who, by
reason of his service in that capacity, was, is, or is
threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (hereinafter
collectively referred to as a "Proceeding") against any
judgments, penalties, fines, settlements, and reasonable
expenses (including attorney's fees) incurred by such
Indemnitee in connection with any Proceeding, to the fullest
extent that such indemnification may be lawful under the
Maryland General Corporation Law. Except as otherwise set
forth in the Company's Articles of Incorporation and By-Laws,
any payment of indemnification or advance of expenses will be
made in accordance with the procedures set forth in the
Maryland General Corporation Law. [By-Laws, Article 10,
Section 10.01]
(b) Disabling Conduct. The Company will not indemnify any
Indemnitee against any liability to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in
the conduct of his office (such conduct hereinafter referred
to as "Disabling Conduct").
Accordingly, the Company will make no indemnification
of any Indemnitee unless: (1) there is a final decision on the merits by a
court or other body before whom the Proceeding was brought that the Indemnitee
was not liable by reason of Disabling Conduct; or (2) in the absence of such a
decision, there is a reasonable determination, based upon a review of the
facts, that the Indemnitee was not liable by reason of Disabling Conduct,
C-5
<PAGE> 77
referred to as "disinterested non-party directors") or (b)
independent legal counsel in a written opinion. [By-Laws,
Article 10, Section 10.01]
(c) Standard of Conduct. Under Maryland General Corporation Law,
a corporation may indemnify any director made a party to a
Proceeding by reason of service in that capacity unless it is
proved that: (1) the act or omission of the director was
material to the cause of action adjudicated in the proceeding
and (a) was committed in bad faith, or (b) was the result of
active and deliberate dishonesty; or (2) the director actually
received an improper personal benefit in money, property, or
services; or (3) in the case of any criminal proceeding, the
director had reasonable cause to believe that the act or
omission was unlawful. [MGCL Section 2-418(b)]
Under Maryland General Corporation Law, the
termination of any proceeding by judgment, order, or
settlement does not create a presumption that the director did
not meet the requisite standard of conduct; however, the
termination of any proceeding by conviction, or plea of nolo
contendere or its equivalent, or an entry of an order of
probation prior to judgment, will create a rebuttable
presumption that the director did not meet the requisite
standard of conduct. No indemnification may be made under
Maryland General Corporation Law unless authorized for a
specific proceeding after a determination has been made that
indemnification of the director is permissible in the
circumstances because he has met the applicable standard of
conduct required. [MGCL Section 2-418 (b) and (c)]
(d) Required Indemnification. The Maryland General Corporation
Law requires that a director who is successful, on the merits
or otherwise, in the defense of any Proceeding be indemnified
against reasonable expenses incurred by the director in
connection therewith. In addition, under Maryland General
Corporation Law, a court of appropriate jurisdiction may order
indemnification under certain circumstances. [MGCL Section
2-418(d)]
(e) Advance Payment. The Company will pay any reasonable expenses
so incurred by an Indemnitee in defending a Proceeding in
advance of the final disposition thereof to the fullest extent
that such advance payment may be lawful under the Maryland
General Corporation Law. However, any advance of expenses by
the Corporation to any Indemnitee will be made only upon
receipt of: (1) a written affirmation by the Indemnitee of his
good faith belief that the requisite standard of conduct
necessary for indemnification under the Maryland General
Corporation Law has been met, and (2) a written undertaking by
the Indemnitee to repay such advance if it is ultimately
determined that such standard of conduct has not been met;
provided that either (a) the Indemnitee provides a security
for his undertaking, or (b) the Company is insured against
losses arising by reason of any such lawful advances, or (c) a
majority of a quorum of the disinterested non-party
C-6
<PAGE> 78
directors, or independent legal counsel in a written opinion,
determines, based on a review of readily available facts, that
there is reason to believe that the Indemnitee ultimately will
be found entitled to indemnification. [By-Laws, Article 10,
Section 10.02]
(f) Non-Exclusive Right. The indemnification and advancement of
expenses provided or authorized by Maryland General
Corporation Law is not deemed exclusive of any other rights to
which a director may be entitled under any articles of
incorporation, by-law, resolution of stockholders or
directors, agreement, or otherwise, both as to action in an
official capacity and as to action in another capacity while
holding such office. [MGCL Section 2-418(g)]
(g) Insurance. The Company may purchase and maintain insurance on
its behalf and on behalf of any director, officer, employee,
or agent of the Company, or who is or was serving at the
request of the Company as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other
enterprise against any liability asserted against him and
incurred by him in or arising out of his position, whether or
not the Company would have the power to indemnify him against
such liability. [By-Laws, Article 10, Section 10.03]
(h) Public Policy Presumption under the Securities Act of 1933
(the "1933 Act") and Undertaking Pursuant to Rule 484(b)(1)
under the 1933 Act. Insofar as indemnification for
liabilities arising under the 1933 Act may be permitted to
directors, officers, and controlling persons of the Company
pursuant to the Company's By-Laws or otherwise, the Company
has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer,
or controlling person of the Company in the successful defense
of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with
the securities being registered, then the Company will, unless
in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether indemnification by it is
against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue. [1933 Act,
Rule 484(b)]
C-7
<PAGE> 79
Item 28. Business and Other Connections of Investment Adviser
Certain information pertaining to business and other connections of
the Company's investment manager, Pacific Management, and each of the Company's
sub-advisers, namely, Spectrum Asset Management, Inc., MMG Money Management
Group, Inc., and Hamilton & Bache, Inc., is hereby incorporated herein by
reference to the section of the Prospectus captioned "FUND MANAGEMENT
ORGANIZATIONS" and to the section of the Statement of Additional Information
captioned "INVESTMENT MANAGEMENT AND OTHER SERVICES." Set forth below is a
list of each director and officer of Pacific Management and each director,
officer, or partner of each sub-adviser, indicating each business, profession,
vocation, or employment of a substantial nature in which each such person has
been, at any time during the past two fiscal years, engaged for his own account
or in the capacity of director, officer, partner, or trustee.
<TABLE>
<CAPTION>
Name and Position
Adviser with Adviser Position During Past Two Fiscal Years
------- ----------------- -------------------------------------
<S> <C> <C>
Pacific Management George A. Henning 206 North Jackson Street, Suite 201
President, Director, Glendale, CA 91206
Secretary
Marjorie Derby Registered Representative (Retired)
Director Financial West Group
600 Hampshire Road
Thousand Oaks, CA
William Hubbard McCary Agent, Representative, Financial Planner
Director Sun Financial Group
21800 Oxnard
Woodland Hills, CA 91367
Independent Contractor
Mel Nachman & Associates, Inc. d/b/a Professional
Planning
16133 Ventura Boulevard, #1140
Encino, CA 91436
Victoria Breen Branch Manager
Director Derby & Derby Inc.
Assistant Secretary 603 West Ojai Avenue
Ojai, CA 93023
General Agent
Transamerica Life Companies
603 West Ojai Avenue
Ojai, CA 93023
</TABLE>
C-8
<PAGE> 80
<TABLE>
<S> <C> <C>
Registered Principal
Transamerica Financial Resources, Inc.
603 West Ojai Avenue
Ojai, CA 93023
Registered Principal
Financial West Group
600 Hampshire Road
Thousand Oaks, CA
John Perry Willoughby Chairman, Registered Representative
Director Financial West Group
600 Hampshire Road
Thousand Oaks, CA
Thomas H. Hanson Owner, Chairman, President, and CEO
Executive Vice President, TriVest Capital Management, Inc.
Director P.O. Box 30
Santa Barbara, CA 93102
Executive Vice President
Investors Research Company
104 West Anapamu Street, Suite H
Santa Barbara, CA 93101
Paul H. Henning, Accountant & Treasurer
Treasurer Pacific Management
206 North Jackson Street, Suite 201
Glendale, CA 91206
Assistant Controller
AdminaStar Defense Services
701 North Marr Road
Columbus, IN 47201
Siegfred Kagawa, Chairman
Director Occidental Underwriters of Hawaii, Ltd.
1163 South Beretania Street
Honolulu, HI 96814
Manabi Hirasaki, Owner
Director Manabi Farms, Inc.
2292 East Hueneme Road
Oxnard, CA 93033
Spectrum Management Roland D. Kelly 450 Newport Center Drive, Suite 420
Chairman of the Board and Newport Beach, CA 92660
Director
</TABLE>
C-9
<PAGE> 81
<TABLE>
<S> <C> <C>
Marc D. Kelly
President and Director
Ryan L. Kelly
Vice President Sales Representative
Resource Dynamics
30100 Town Center Dr., Suite 354
Laguna Hills, CA 92677
Maralyn M. Clyburn
Secretary
MMG Money Alan C. Rosenfield 2700 N. Central Avenue
Management, Inc. President Suite 310
Phoenix, AZ 85004
Hamilton & Bache, Inc. Mary Hamilton 206 North Jackson Avenue, Suite 201
Chairman Glendale, CA 91206
Steven Bache
Chief Investment Officer
</TABLE>
Item 29. Principal Underwriters
(a) Pacific Distributors acts as principal underwriter and
distributor of the Company's shares on a best-efforts basis.
Pacific Distributors does not serve as principal underwriter
or distributor for any other investment company.
(b) Set forth below is information concerning each director and
officer of Pacific Distributors.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with Underwriter Offices with the Company
-------------------- --------------------- ------------------------
<S> <C> <C>
George A. Henning Chairman of the President and Chairman of the Board
Board, Secretary
Thomas H. Hanson President and Vice President, Secretary, and Treasurer
Director
Paul H. Henning Treasurer Treasurer
</TABLE>
__________________
* The principal business address of each person listed in the table is 206
North Jackson Avenue, Suite 201 Glendale, CA 91206.
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<PAGE> 82
Item 30. Location of Accounts and Records
The following entities prepare, maintain, and preserve the records
required by Section 31(a) of the Investment Company Act of 1940 (the "1940
Act") for the Company. These services are provided to the Company through
written agreements between the parties to the effect that such services will be
provided to the Company for such periods prescribed by the rules and
regulations of the Securities and Exchange Commission under the 1940 Act and
such records are the property of the entity required to maintain and preserve
such records and will be surrendered promptly on request.
UMB Bank, N.A. serves as custodian for the Company and in such capacity
keeps records regarding securities and other assets in custody and in transfer,
bank statements, cancelled checks, financial books and records, and other
records relating to its duties in its capacity as custodian and accounting
services agent. Pacific Global Investor Services, Inc. ("PGIS") serves as the
transfer agent, dividend disbursing agent, and administrative services agent
for the Company and in such capacity is responsible for records regarding each
shareholder's account and all disbursements made to shareholders. PGIS also
serves as accounting services agent for the Company pursuant to an Accounting
Services Agreement and maintains all records required pursuant to such
agreement. Pacific Management, pursuant to its Investment Management
Agreements with respect to each Fund, maintains all records required pursuant
to such agreements. Pacific Distributors, as principal underwriter for the
Company, maintains all records required pursuant to the Distribution Agreement
with the Company.
Item 31. Management Services
Pacific Management, pursuant to its Investment Management Agreements
with the Company, performs certain administrative services for the Company.
Pacific Global Investor Services, Inc., pursuant to the Transfer Agency,
Dividend Disbursing Agency, and Administrative Service Agreement with the
Company, assists Pacific Management in performing certain administrative
services for the Company.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The Company undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Company's latest
annual report to Shareholders upon request and without charge.
C-11
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc. certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment No. 4 to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Glendale and State of
California, on the 29th day of April, 1996.
PACIFIC GLOBAL FUND, INC.
d/b/a PACIFIC ADVISORS FUND INC.
(Registrant)
By: /s/ George A. Henning
-------------------------
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Victoria Breen Director April 29, 1996
- --------------------------------------
Victoria Breen
/s/ Thomas M. Brinker, Sr. Director April 29, 1996
- ----------------------------------
Thomas M. Brinker, Sr.
/s/ Kathleen M. Fishkin Director April 29, 1996
- ------------------------------------
Kathleen M. Fishkin
/s/ L. Michael Haller, III Director April 29, 1996
- -------------------------------------
L. Michael Haller, III
/s/ Thomas H. Hanson Vice President, Secretary, April 29, 1996
- ----------------------------------- and Treasurer (Principal
Thomas H. Hanson Financial and Accounting
Officer)
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ George A. Henning President and Chairman of April 29, 1996
- ------------------------------------ the Board (Principal
George A. Henning Executive Officer)
/s/ Siegfred Kagawa Director April 29, 1996
- -------------------------------------
Siegfred Kagawa
/s/ Takashi Makinodan Director April 29, 1996
- ------------------------------------
Takashi Makinodan
/s/ Gerald E. Miller Director April 29, 1996
- --------------------------------------
Gerald E. Miller
/s/ Louise K. Taylor Director April 29, 1996
- --------------------------------------
Louise K. Taylor
</TABLE>
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- -----------
<S> <C> <C>
8 Custody Agreement by and between Pacific Global Fund, Inc. d/b/a Pacific Advisors Fund Inc.
and UMB Bank, N.A.
9(b) Accounting Services Agreement by and between Pacific Global Fund, Inc. d/b/a Pacific Advisers
Fund Inc. and Pacific Global Investors Services, Inc.
11 Consent of Ernst & Young LLP, Independent Auditors
17 Financial Data Schedule
18 Specimen Price Make-Up Sheet
</TABLE>
______________________
<PAGE> 1
EXHIBIT 8
CUSTODY AGREEMENT
DATED OCTOBER 11, 1995
BETWEEN
UMB BANK, N.A.
AND
PACIFIC ADVISORS
Prototype Custody Agreement
for
Registered Investment Companies
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. Appointment of Custodian 1
2. DEFINITIONS 1
(a) Securities 1
(b) Assets 2
(c) Instructions and Special Instructions 2
3. DELIVERY OF CORPORATE DOCUMENTS 2
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN 3
(a) Safekeeping 3
(b) Manner of Holding Securities 4
(c) Free Delivery of Assets 5
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 7
(h) Futures Contracts 8
(i) Segregated Accounts 8
(j) Depositary Receipts 9
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 9
(l) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions 10
(n) Pledges or Loans of Securities 11
(o) Stock Dividends, Rights, Etc. 12
(p) Routine Dealings 12
(q) Collections 12
(r) Bank Accounts 12
(s) Dividends, Distributions and Redemptions 13
(t) Proceeds from Shares Sold 13
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 13
(v) Books and Records 14
(w) Opinion of Fund's Independent Certified Public
Accountants 14
(x) Reports by Independent Certified Public Accountants 14
(y) Bills and Others Disbursements 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5. SUBCUSTODIANS 14
(a) Domestic Subcustodians 15
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 16
(d) Special Subcustodians 16
(e) Termination of a Subcustodian 17
(f) Certification Regarding Foreign Subcustodians 17
6. STANDARD OF CARE 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Armed Conflict, Sovereign Risk, Etc. 18
(c) Liability for Past Records 18
(d) Advice of Counsel 18
(e) Advice of the Fund and Others 18
(f) Instructions Appearing to be Genuine 18
(g) Exceptions from Liability 19
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS 19
(a) Domestic Subcustodians 19
(b) Liability for Acts and Omissions of Foreign Subcustodians 19
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
Securities Depositories and Clearing Agencies 19
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 20
(e) Reimbursement of Expenses 20
8. INDEMNIFICATION 20
(a) Indemnification by Fund 20
(b) Indemnification by Custodian 20
9. ADVANCES 21
10. SECURITY FOR OBLIGATIONS TO CUSTODIAN 21
11. COMPENSATION 22
12. POWERS OF ATTORNEY 22
13. TERMINATION AND ASSIGNMENT 22
14. ADDITIONAL FUNDS 23
15. NOTICES 23
16. MISCELLANEOUS 24
</TABLE>
<PAGE> 4
CUSTODY AGREEMENT
This agreement made as of this 11th day of October, 1995, between UMB
Bank, n.a., a national banking association with its principal place of business
located at Kansas City, Missouri (hereinafter "Custodian"), and each of the
Funds which have executed the signature page hereof together with such
additional Funds which shall be made parties to this Agreement by the execution
of a separate signature page hereto (individually, a "Fund" and collectively,
the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for
the custody of Assets (as hereinafter defined) owned by such Fund which Assets
are to be held in such accounts as such Fund may establish from time to time;
and
WHEREAS, Custodian is willing to accept such appointment on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant
and agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian
of Assets belonging to each such Fund which have been or may be from time to
time deposited with the Custodian. Custodian accepts such appointment as a
custodian and agrees to perform the duties and responsibilities of Custodian as
set forth herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds,
bills, rights, script, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities and other instruments or
obligations.
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<PAGE> 5
(b) "Assets" shall mean Securities, monies and other
property held by the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a
tested telex, a written (including, without limitation, facsimile transmission)
request, direction, instruction or certification signed or initialed by or on
behalf of a Fund by an Authorized Person; (ii) a telephonic or other oral
communication from a person the Custodian reasonably believes to be an
Authorized Person; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) on behalf of a Fund. Instructions in the form of oral
communications shall be confirmed by the appropriate Fund by tested telex or in
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the Custodian in
reliance upon such oral Instructions prior to the Custodian's receipt of such
confirmation. Each Fund authorizes the Custodian to record any and all
telephonic or other oral Instructions communicated to the Custodian.
(2) "Special Instructions", as used herein, shall mean
Instructions countersigned or confirmed in writing by the Treasurer or any
Assistant Treasurer of a Fund or any other person designated by the Treasurer
of such Fund in writing, which countersignature or confirmation shall be
included on the same instrument containing the Instructions or on a separate
instrument relating thereto.
(3) Instructions and Special Instructions shall be
delivered to the Custodian at the address and/or telephone, facsimile
transmission or telex number agreed upon from time to time by the Custodian and
each Find.
(4) Where appropriate, Instructions and Special
Instructions shall be continuing instructions, except not until confirmed.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution
does not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been
taken.
Each Fund has furnished the Custodian with copies, properly certified
or authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document)
of the Fund as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
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<PAGE> 6
(c) Resolutions of the Board of Directors of the Fund
appointing the Custodian and approving the form of
this Agreement; and
(d) The Fund's current prospectus and statements of
additional information.
Each Fund shall promptly furnish the Custodian with copies of any updates,
amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees
and all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give
Instructions or any other notice, request, direction, instruction, certificate
or instrument on behalf of each Fund, and (b) the names, titles and signatures
of those persons authorized to countersign or confirm Special Instructions on
behalf of each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may
be accepted and relied upon by the Custodian as conclusive evidence of the
facts set forth therein and shall be considered to be in full force and effect
until delivery to the Custodian of a similar Resolution or certificate to the
contrary, unless Custodian has reason to believe that such persons are not
authorized persons. Upon delivery of a certificate which deletes or does not
include the name(s) of a person previously authorized to give Instructions or
to countersign or confirm Special Instructions, such persons shall no longer be
considered an Authorized Person authorized to give Instructions or to
countersign or confirm Special Instructions. Unless the certificate
specifically requires that the approval of anyone else will first have been
obtained, the Custodian will be under no obligation to inquire into the right
of the person giving such Instructions or Special Instructions to do so.
Notwithstanding any of the foregoing, no Instructions or Special Instructions
received by the Custodian from a Fund will be deemed to authorize or permit any
director, trustee, officer, employee, or agent of such Fund to withdraw any of
the Assets of such Fund upon the mere receipt of such authorization, Special
Instructions or Instructions from such director, trustee, officer, employee or
agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to
Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and
perform the powers and duties hereinafter set forth in this Section 4. For
purposes of this Section 4 all references to powers and duties of the
"Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to
Section 5(a).
(a) Safekeeping.
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<PAGE> 7
The Custodian will keep safely the Assets of each Fund which
are delivered to it from time to time. The Custodian shall not be responsible
for any property of a Fund held or received by such Fund and not delivered to
the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of
each Fund either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio
Securities which have been delivered to it in physical form, by registering the
same in the name of the appropriate Fund or its nominee, or in the name of the
Custodian or its nominee, for whose actions such Fund and Custodian,
respectively, shall be fully responsible. Upon the receipt of Instructions,
the Custodian shall hold such Securities in street certificate form, so called,
with or without any indication of fiduciary capacity. However, unless it
receives Instructions to the contrary, the Custodian will register all such
portfolio Securities in the name of the Custodian's authorized nominee. All
such Securities shall be held in an account of the Custodian containing only
assets of the appropriate Fund or only assets held by the Custodian as a
fiduciary, provided that the records of the Custodian shall indicate at all
times the Fund or other customer for which such Securities are held in such
accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic
Securities owned by a Fund in, and each Fund hereby approves use of: (a) The
Depository Trust Company; (b) The Participants Trust Company; and (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76,
31 CFR 350.2, or (iii) the book-entry regulations of federal agencies
substantially in the form of 31 CFR 306.115. Upon the receipt of Special
Instructions, the Custodian may deposit and/or maintain domestic Securities
owned by a Fund in any other domestic clearing agency registered with the
Securities and Exchange Commission ("SEC") under Section 17A of the Securities
Exchange Act of 1934 (or as may otherwise be authorized by the SEC to serve in
the capacity of depository or clearing agent for the Securities or other assets
of investment companies) which acts as a Securities depository. Each of the
foregoing shall be referred to in this Agreement as a "Securities System", and
all such Securities Systems shall be listed on the attached Appendix A. Use of
a Securities System shall be in accordance with applicable Federal Reserve
Board and SEC rules and regulations, if any, and subject to the following
provisions:
(i) The Custodian may deposit the Securities directly or
through one or more agents or Subcustodians which are
also qualified to act as custodians for investment
companies.
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<PAGE> 8
(ii) The Custodian shall deposit and/or maintain the
Securities in a Securities System, provided that such
Securities are represented in an account ("Account")
of the Custodian in the Securities System that
includes only assets held by the Custodian as a
fiduciary, custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all
times identify those Securities belonging to any one
or more Funds which are maintained in a Securities
System.
(iv) The Custodian shall pay for Securities purchased for
the account of a Fund only upon (a) receipt of advice
from the Securities, System that such Securities have
been transferred to the Account of the Custodian in
accordance with the rules of the Securities System,
and (b) the making of an entry on the records of the
Custodian to reflect such payment and transfer for
the account of such Fund. The Custodian shall
transfer Securities sold for the account of a Fund
only upon (a) receipt of advice from the Securities
System that payment for such Securities has been
transferred to the Account of the Custodian in
accordance with the rules of the Securities System,
and (b) the making of an entry on the records of the
Custodian to reflect such transfer and payment for
the account of such Fund. Copies of all advices from
the Securities System relating to transfers of
Securities for the account of a Fund shall be
maintained for such Fund by the Custodian. The
Custodian shall deliver to a Fund on the next
succeeding business day daily transaction reports
which shall include each day's transactions in the
Securities System for the account of such Fund. Such
transaction reports shall be delivered to such Fund
or any agent designated by such Fund pursuant to
Instructions, by computer or in such other manner as
such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant
to Instructions, provide such Fund with reports
obtained by the Custodian or any Subcustodian with
respect to a Securities System's accounting system,
internal accounting control and procedures for
safeguarding Securities deposited in the Securities
System.
(vi) Upon receipt of Special Instructions, the Custodian
shall terminate the use of any Securities System on
behalf of a Fund as promptly as practicable and shall
take all actions reasonably practicable to safeguard
the Securities of such Fund maintained with such
Securities System.
(c) Free Delivery of Assets.
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<PAGE> 9
Notwithstanding any other provision of this Agreement and
except as provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange
portfolio Securities held by it for a Fund for other Securities or cash paid in
connection with any reorganization, recapitalization, merger, consolidation, or
conversion of convertible Securities, and will deposit any such Securities in
accordance with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive form, to
surrender Securities for transfer into a name or nominee name as permitted in
Section 4(b)(2), to effect an exchange of shares in a stock split or when the
par value of the stock is changed, to sell any fractional shares, and, upon
receiving payment therefor, to surrender bonds or other Securities held by it
at maturity or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with
Instructions, the Custodian shall, with respect to a purchase of Securities,
pay for such Securities out of monies held for a Fund's account for which the
purchase was made, but only insofar as monies are available therein for such
purpose, and receive the portfolio Securities so purchased. Unless the
Custodian has received Special Instructions to the contrary, such payment will
be made only upon receipt of Securities by the Custodian, a clearing
corporation of a national Securities exchange of which the Custodian is a
member, or a Securities System in accordance with the provisions of Section
4(b)(3) hereof. Notwithstanding the foregoing, upon receipt of Instructions:
(i) in connection with a repurchase agreement, the Custodian may release funds
to a Securities System prior to the receipt of advice from the Securities
System that the Securities underlying such repurchase agreement have been
transferred by book-entry into the Account maintained with such Securities
System by the Custodian, provided that the Custodian's instructions to the
Securities System require that the Securities System may make payment of such
funds to the other party to the repurchase agreement only upon transfer by
book-entry of the Securities underlying the repurchase agreement into such
Account; (ii) in the case of Interest Bearing Deposits, currency deposits, and
other deposits, foreign exchange transactions, futures contracts or options,
pursuant to Sections 4(g), 4(h), 4(l), and 4(m) hereof, the Custodian may make
payment therefor before receipt of an advice of transaction; and (iii) in the
case of Securities as to which payment for the Security and receipt of the
instrument evidencing the Security are under generally accepted trade practice
or the terms of the instrument representing the Security expected to take place
in different
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<PAGE> 10
locations or through separate parties, such as commercial paper which is
indexed to foreign currency exchange rates, derivatives and similar Securities,
the Custodian may make payment for such Securities prior to delivery thereof in
accordance with such generally accepted trade practice or the terms of the
instrument representing such Security.
(2) Other Assets Purchased. Upon receipt of Instructions
and except as otherwise provided herein, the Custodian shall pay for and
receive other Assets for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions,
the Custodian will, with respect to a sale, deliver or cause to be delivered
the Securities thus designated as sold to the broker or other person specified
in the Instructions relating to such sale. Unless the Custodian has received
Special Instructions to the contrary, such delivery shall be made only upon
receipt of payment therefor in the form of: (a) cash, certified check, bank
cashier's check, bank credit, or bank wire transfer; (b) credit to the account
of the Custodian with a clearing corporation of a national Securities exchange
of which the Custodian is a member; or (c) credit to the Account of the
Custodian with a Securities System, in accordance with the provisions of
Section 4(b)(3) hereof. Notwithstanding the foregoing, Securities held in
physical form may be delivered and paid for in accordance with "street delivery
custom" to a broker or its clearing agent, against delivery to the Custodian of
a receipt for such Securities, provided that the Custodian shall have taken
reasonable steps to ensure prompt collection of the payment for, or return of,
such Securities by the broker or its clearing agent, and provided further that
the Custodian shall not be responsible for the selection of or the failure or
inability to perform of such broker or its clearing agent or for any related
loss arising from delivery or custody of such Securities prior to receiving
payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and
except as otherwise provided herein, the Custodian shall receive payment for
and deliver other Assets for the account of a Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase
of an option or sale of a covered call option, the Custodian shall: (a) receive
and retain confirmations or other documents, if any, evidencing the purchase or
writing of the option by a Fund; (b) if the transaction involves the sale of a
covered call option, deposit and maintain in a segregated account the
Securities (either physically or by book-entry in a Securities System) subject
to the covered call option written on behalf of such Fund; and (c) pay, release
and/or transfer such Securities, cash or other Assets in accordance with any
notices or other communications evidencing the expiration, termination or
exercise of such options which are furnished to the Custodian by the Options
Clearing Corporation (the "OCC"), the securities or
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<PAGE> 11
options exchanges on which such options were traded, or such other organization
as may be responsible for handling such option transactions.
(2) Upon receipt of Instructions relating to the sale of
a naked option (including stock index and commodity options), the Custodian,
the appropriate Fund and the broker-dealer shall enter into an agreement to
comply with the rules of the OCC or of any registered national securities
exchange or similar organizations(s). Pursuant to that agreement and such
Fund's Instructions, the Custodian shall: (a) receive and retain confirmations
or other documents, if any, evidencing the writing of the option; (b) deposit
and maintain in a segregated account, Securities (either physically or by
book-entry in a Securities System), cash and/or other Assets; and (c) pay,
release and/or transfer such Securities, cash or other Assets in accordance
with any such agreement and with any notices or other communications evidencing
the expiration, termination or exercise of such option which are furnished to
the Custodian by the OCC, the securities or options exchanges on which such
options were traded, or such other organization as may be responsible for
handling such option transactions. The appropriate Fund and the broker-dealer
shall be responsible for determining the quality and quantity of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a
futures margin procedural agreement among the appropriate Fund, the Custodian
and the designated futures commission merchant (a "Procedural Agreement").
Under the Procedural Agreement the Custodian shall: (a) receive and retain
confirmations, if any, evidencing the purchase or sale of a futures contract or
an option on a futures contract by such Fund; (b) deposit and maintain in a
segregated account cash, Securities and/or other Assets designated as initial,
maintenance or variation "margin" deposits intended to secure such Fund's
performance of its obligations under any futures contracts purchased or sold,
or any options on futures contracts written by such Fund, in accordance with
the provisions of any Procedural Agreement designed to comply with the
provisions of the Commodity Futures Trading Commission and/or any commodity
exchange or contract market (such as the Chicago Board of Trade), or any
similar organization(s), regarding such margin deposits; and (c) release Assets
from and/or transfer Assets into such margin accounts only in accordance with
any such Procedural Agreements. The appropriate Fund and such futures
commission merchant shall be responsible for determining the type and amount of
Assets held in the segregated account or paid to the broker-dealer in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms.
(i) Segregated Accounts.
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<PAGE> 12
Upon receipt of Instructions, the Custodian shall establish
and maintain on its books a segregated account or accounts for and on behalf of
a Fund, into which account or accounts may be transferred Assets of such Fund,
including Securities maintained by the Custodian in a Securities System
pursuant to Paragraph (b)(3) of this Section 4, said account or accounts to be
maintained (i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and
(ii) for the purpose of compliance by such Fund with the procedures required by
the SEC Investment Company Act Release Number 10666 or any subsequent release
or releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth,
from time to time, in Special Instructions. The Custodian shall not be
responsible for the determination of the type or amount of Assets to be held in
any segregated account referred to in this paragraph, or for compliance by the
Fund with required procedures noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered Securities to the depositary used for such Securities by an
issuer of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence
satisfactory to the organization surrendering the same that the depositary has
acknowledged receipt of instructions to issue ADRs with respect to such
Securities in the name of the Custodian or a nominee of the Custodian, for
delivery in accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered ADRs to the issuer thereof, against a written receipt
therefor adequately describing the ADRs surrendered and written evidence
satisfactory to the organization surrendering the same that the issuer of the
ADRs has acknowledged receipt of instructions to cause its depository to
deliver the Securities underlying such ADRs in accordance with such
instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer or trustee
thereof (or to the agent of such issuer or trustee) for the purpose of exercise
or sale, provided that the new Securities, cash or other Assets, if any,
acquired as a result of such actions are to be delivered to the Custodian; and
(b) deposit Securities upon invitations for tenders thereof, provided that the
consideration for such Securities is to be paid or delivered to the Custodian,
or the tendered Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply
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<PAGE> 13
with the terms of all mandatory or compulsory exchanges, calls, tenders,
redemptions, or similar rights of security ownership, and shall notify the
appropriate Fund of such action in writing by facsimile transmission or in such
other manner as such Fund and Custodian may agree in writing.
The Fund agrees that if it gives an Instruction for the performance of
an act on the last permissible date of a period established by any optional
offer or on the last permissible date for the performance of such act, the Fund
shall hold the Bank harmless from any adverse consequences in connection with
acting upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for the account of a Fund, the
Custodian shall purchase such Interest Bearing Deposits in the name of such
Fund with such banks or trust companies, including the Custodian, any
Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter
referred to as "Banking Institutions"), and in such amounts as such Fund may
direct pursuant to Instructions. Such Interest Bearing Deposits may be
denominated in U.S. dollars or other currencies, as such Fund may determine
and direct pursuant to Instructions. The responsibilities of the Custodian to
a Fund for Interest Bearing Deposits issued by the Custodian shall be that of a
U.S. bank for a similar deposit. With respect to Interest Bearing Deposits
other than those issued by the Custodian, (a) the Custodian shall be
responsible for the collection of income and the transmission of cash to and
from such accounts; and (b) the Custodian shall have no duty with respect to
the selection of the Banking Institution or for the failure of such Banking
Institution to pay upon demand.
(m) Foreign Exchange Transactions.
(1) Each Fund hereby appoints the Custodian as
its agent in the execution of all currency exchange transactions. The
Custodian agrees to provide exchange rate and U.S. Dollar information, in
writing, to the Funds. Such information shall be supplied by the Custodian at
least by the business day prior to the value date of the foreign exchange
transaction, provided that the Custodian receives the request for such
information at least two business days prior to the value date of the
transaction.
(2) Upon receipt of Instructions, the Custodian
shall settle foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf of and for the account of a
Fund with such currency brokers or Banking Institutions as such Fund may
determine and direct pursuant to Instructions. If, in its Instructions, a Fund
does not direct the Custodian to utilize a particular currency broker or
Banking Institution, the Custodian is authorized to select such currency broker
or Banking Institution as it deems appropriate to execute the Fund's foreign
currency transaction.
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(3) Each Fund accepts full responsibility for its
use of third party foreign exchange brokers and for execution of said foreign
exchange contracts and understands that the Fund shall be responsible for any
and all costs and interest charges which may be incurred as a result of the
failure or delay of its third party broker to deliver foreign exchange. The
Custodian shall have no responsibility or liability with respect to the
selection of the currency brokers or Banking Institutions with which a Fund
deals or the performance of such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary
contained herein, upon receipt of Instructions the Custodian may, in connection
with a foreign exchange contract, make free outgoing payments of cash in the
form of U.S. Dollars or foreign currency prior to receipt of confirmation of
such foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
(5) The Custodian shall not be obligated to enter
into foreign exchange transactions as principal. However, if the Custodian has
made available to a Fund its services as a principal in foreign exchange
transactions and subject to any separate agreement between the parties relating
to such transactions, the Custodian shall enter into foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
on behalf of and for the account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the
Custodian will release or cause to be released Securities held in custody to
the pledgees; designated in such Instructions by way of pledge or hypothecation
to secure loans incurred by such Fund With various lenders including but not
limited to UMB Bank, n.a.; provided, however, that the Securities shall be
released only upon payment to the Custodian of the monies borrowed, except that
in cases where additional collateral is required to secure existing borrowings,
further Securities may be released or delivered, or caused to be released or
delivered for that purpose upon receipt of Instructions. Upon receipt of
Instructions, the Custodian will pay, but only from funds available for such
purpose, any such loan upon re-delivery to it of the Securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing such
loan. In lieu of delivering collateral to a pledgee, the Custodian, on the
receipt of Instructions, shall transfer the pledged Securities to a segregated
account for the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution
of a separate Securities Lending Agreement, the Custodian will release
Securities held in custody to the borrower designated in such Instructions and
may, except as otherwise provided below, deliver such Securities prior to the
receipt of collateral, if any, for such borrowing, provided that, in case of
loans of Securities held by a Securities System that are secured by cash
collateral, the Custodian's instructions to the Securities System shall require
that the Securities System deliver the Securities of the appropriate Fund to
the borrower thereof only
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upon receipt of the collateral for such borrowing. The Custodian shall have no
responsibility or liability for any loss arising from the delivery of
Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends,
rights, and other items of like nature and, upon receipt of Instructions, take
action with respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and
mechanical matters in accordance with industry standards in connection with the
sale, exchange, substitution, purchase, transfer, or other dealings with
Securities or other property of each Fund except as may be otherwise provided
in this Agreement or directed from time to time by Instructions from any
particular Fund. The Custodian may also make payments to itself or others from
the Assets for disbursements and out-of-pocket expenses incidental to handling
Securities or other similar items relating to its duties under this Agreement,
provided that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to
each Fund with respect to portfolio Securities and other Assets; (b) promptly
credit to the account of each Fund all income and other payments relating to
portfolio Securities and other Assets held by the Custodian hereunder upon
Custodian's receipt of such income or payments or as otherwise agreed in
writing by the Custodian and any particular Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or
physical Securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to any such Fund. The
Custodian shall notify a Fund in writing by facsimile transmission or in such
other manner as such Fund and Custodian may agree in writing if any amount
payable with respect to portfolio Securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio Securities or
other Assets that are in default.
(r) Bank Accounts.
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Upon Instructions, the Custodian shall open and operate a bank
account or accounts on the books of the Custodian; provided that such bank
account(s) shall be in the name of the Custodian or a nominee thereof, for the
account of one or more Funds, and shall be subject only to draft or order of
the Custodian. The responsibilities of the Custodian to any one or more such
Funds for deposits accepted on the Custodian's books shall be that of a U.S.
bank for a similar deposit.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall release cash or Securities
insofar as available. In the case of cash, the Custodian shall, upon the
receipt of Instructions, transfer such funds by check or wire transfer to any
account at any bank or trust company designated by each such Fund in such
Instructions. In the case of Securities, the Custodian shall, upon the receipt
of Special Instructions, make such transfer to any entity or account designated
by each such Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing cash payments
received for shares issued or sold from time to time by each Fund, and shall
credit such funds to the account of the appropriate Fund. The Custodian shall
notify the appropriate Fund of Custodian's receipt of cash in payment for
shares issued by such Fund by facsimile transmission or in such other manner as
such Fund and the Custodian shall agree. Upon receipt of Instructions, the
Custodian shall: (a) deliver all federal funds received by the Custodian in
payment for shares as may be set forth in such Instructions and at a time
agreed upon between the Custodian and such Fund; and (b) make federal funds
available to a Fund as of specified times agreed upon from time to time by such
Fund and the Custodian, in the amount of checks received in payment for shares
which are deposited to the accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985.
The Custodian shall deliver or cause to be delivered to the
appropriate Fund all forms of proxies, all notices of meetings, and any other
notices or announcements affecting or relating to Securities owned by such Fund
that are received by the Custodian, any Subcustodian, or any nominee of either
of them, and, upon receipt of Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed
pursuant to Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such Securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto.
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<PAGE> 17
The Custodian will not release the identity of any Fund to an
issuer which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct communications
between such issuer and any such Fund unless a particular Fund directs the
Custodian otherwise in writing.
(v) Books and Records
The Custodian shall maintain such records relating to its
activities under this Agreement as are required to be maintained by Rule 31a-1
under the Investment Company Act of 1940 ("the 1940 Act") and to preserve them
for the periods prescribed in Rule 31a-2 under the 1940 Act. These records
shall be open for inspection by duly authorized officers, employees or agents
(including independent public accountants) of the appropriate Fund during
normal business hours of the Custodian.
The Custodian shall provide accountings relating to its
activities under this Agreement as shall be agreed upon by each Fund and the
Custodian.
(w) Opinion of Fund's Independent Certified Public
Accountants.
The Custodian shall take all reasonable action as each Fund
may request to obtain from year to year favorable opinions from each such
Fund's independent certified public accountants with respect to the Custodian's
activities hereunder and in connection with the preparation of each such Fund's
periodic reports to the SEC and with respect to any other requirements of the
SEC.
(x) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such
Fund a written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities
and other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or
cause to be paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
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From time to time, in accordance with the relevant provisions
of this Agreement, the Custodian may appoint one or more Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, or Interim
Subcustodians (as each are hereinafter defined) as its agent to act on behalf
of any one or more Funds. A Domestic Subcustodian, in accordance with the
provisions of this Agreement, may also appoint a Foreign Subcustodian, Special
Subcustodian, or Interim Subcustodian to act on behalf of any one or more
Funds. For purposes of this Agreement, all Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians and Interim Subcustodians shall be
referred to collectively as "Subcustodians". Custodian agrees to inform the
Fund(s) of any material change in the condition of a Subcustodian as to which
the Custodian has actual knowledge.
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint
any bank as defined in Section 2(a)(5) of the 1940 Act or any trust company or
other entity, any of which meet the requirements of a custodian under Section
17(f) of the 1940 Act and the rules and regulations thereunder, to act for the
Custodian on behalf of any one or more Funds as a subcustodian for purposes of
holding Assets of such Fund(s) and performing other functions of the Custodian
within the United States (a "Domestic Subcustodian"). Each Fund shall approve
in writing the appointment of the proposed Domestic Subcustodian; and the
Custodian's appointment of any such Domestic Subcustodian shall not be
effective without such prior written approval of the Fund(s). Each such duly
approved Domestic Subcustodian shall be listed on Appendix A attached hereto,
as it may be amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a Domestic
Subcustodian to appoint, any bank, trust company or other entity meeting the
requirements of an "eligible foreign custodian" under Section 17(f) of the 1940
Act and the rules and regulations thereunder to act for the Custodian on behalf
of any one or more Funds as a subcustodian or sub-subcustodian (if appointed by
a Domestic Subcustodian) for purposes of holding Assets of the Fund(s) and
performing other functions of the Custodian in countries other than the United
States of America (hereinafter referred to as a "Foreign Subcustodian" in the
context of either a subcustodian or a sub-subcustodian); provided that the
Custodian shall have obtained written confirmation from each Fund of the
approval of the Board of Director's or other governing body of each such Fund
(which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the identity
of any proposed Foreign Subcustodian (including branch designation), (ii) the
country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, the Custodian or any proposed Foreign Subcustodian is authorized
to hold Securities and other Assets of each such Fund, and (iii) the form and
terms of the subcustodian agreement to be entered into with such proposed
Foreign Subcustodian. Each such duly approved Foreign
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Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold Securities and other Assets of
the Fund(s) shall be listed on Appendix A attached hereto, as it may be
amended, from time to time. Each Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Foreign Subcustodian is authorized to act, in order
that there shall be sufficient time for the Custodian, or any Domestic
Subcustodian, to effect the appropriate arrangements with a proposed Foreign
Subcustodian, including obtaining approval as provided in this Section 5(b).
In connection with the appointment of any Foreign Subcustodian, the Custodian
shall, or shall cause the Domestic Subcustodian to, enter into a subcustodian
agreement with the Foreign Subcustodian in form and substance approved by each
such Fund. The Custodian shall not consent to the amendment of, and shall
cause any Domestic Subcustodian not to consent to the amendment of, any
agreement entered into with a Foreign Subcustodian, which materially affects
any Fund's rights under such agreement, except upon prior written approval of
such Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that a Fund shall
invest in an Asset to be held in a country in which no Foreign Subcustodian is
authorized to act, the Custodian shall notify such Fund in writing by facsimile
transmission or in such other manner as such Fund and the Custodian shall agree
in writing of the unavailability of an approved Foreign Subcustodian in such
country; and upon the receipt of Special Instructions from such Fund, the
Custodian shall, or shall cause its Domestic Subcustodian to, appoint or
approve an entity (referred to herein as an "Interim Subcustodian") designated
in such Special Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on
behalf of a Fund, appoint one or more banks, trust companies or other entities
designated in such Special Instructions to act for the Custodian on behalf of
such Fund as a subcustodian for purposes of: (i) effecting third-party
repurchase transactions with banks, brokers, dealers or other entities through
the use of a common custodian or subcustodian; (ii) providing depository and
clearing agency services with respect to certain variable rate demand note
Securities, (iii) providing depository and clearing agency services with
respect to dollar denominated Securities, and (iv) effecting any other
transactions designated by such Fund in such Special Instructions. Each such
designated subcustodian (hereinafter referred to as a "Special Subcustodian")
shall be listed on Appendix A attached hereto, as it may be amended from time
to time. In connection with the appointment of any Special Subcustodian, the
Custodian shall enter into a subcustodian agreement with the Special
Subcustodian in form and substance approved by the appropriate Fund in Special
Instructions. The Custodian shall not amend any subcustodian agreement entered
into with a Special Subcustodian, or
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<PAGE> 20
waive any rights under such agreement, except upon prior approval pursuant to
Special Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon
notification to the appropriate Fund(s), terminate any Subcustodian of such
Fund(s) in accordance with the termination provisions under the applicable
subcustodian agreement, and upon the receipt of Special Instructions from the
Fund(s), the Custodian will terminate any Subcustodian in accordance with the
termination provisions under the applicable subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to a Fund for all losses,
damages and reasonable costs and expenses suffered or incurred by such Fund
resulting from the negligence or willful misfeasance of the Custodian;
provided, however, in no event shall the Custodian be liable for special,
indirect or consequential damages arising under or in connection with this
Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian
incur liability hereunder (i) if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities System, Securities
Depository or Clearing Agency utilized by the Custodian or any such
Subcustodian, or any nominee of the Custodian or any Subcustodian
(individually, a "Person") is prevented, forbidden or delayed from performing,
or omits to perform, any act or thing which this Agreement provides shall be
performed or omitted to be performed, by reason of: (a) any provision of any
present or future law or regulation or order of the United States of America,
or any state thereof, or of any foreign country, or political subdivision
thereof or of any court of competent jurisdiction (and neither the Custodian
nor any other Person shall be obligated to take any action contrary thereto);
or (b) any event
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beyond the control of the Custodian or other Person such as armed conflict,
dots, strikes, lockouts, labor disputes, equipment or transmission failures,
natural disasters, or failure of the mails, transportation, communications or
power supply; or (ii) for any loss, damage, cost or expense resulting from
"Sovereign Risk." A "Sovereign Risk" shall mean nationalization, expropriation,
currency devaluation, revaluation or fluctuation, confiscation, seizure,
cancellation, destruction or similar action by any governmental authority, de
facto or de jure; or enactment, promulgation, imposition or enforcement by any
such governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have
any liability in respect of any loss, damage or expense suffered by a Fund,
insofar as such loss, damage or expense arises from the performance of the
Custodian or any Domestic Subcustodian in reliance upon records that were
maintained for such Fund by entities other than the Custodian or any Domestic
Subcustodian prior to the Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled
to receive and act upon advice of counsel of its own choosing on all matters.
The Custodian and all Domestic Subcustodians shall be without liability for any
actions taken or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the
advice of any Fund and upon statements of such Fund's accountants and other
persons believed by it in good faith to be expert in matters upon which they
are consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions taken or omitted, in good faith, pursuant to such advice
or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully
protected and indemnified in acting as a custodian hereunder upon any
Resolutions of the Board of Directors or Trustees, Instructions, Special
Instructions, advice, notice, request, consent, certificate, instrument or
paper reasonably with due care appearing to it to be genuine and to have been
properly executed and shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained from any Fund hereunder a certificate signed by any officer of such
Fund authorized to countersign or confirm Special Instructions.
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(g) Exceptions from Liability.
Without limiting the generality of any other provisions
hereof, neither the Custodian nor any Domestic Subcustodian shall be under any
duty or obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased
by or for any Fund, the legality of the purchase
thereof or evidence of ownership required to be
received by any such Fund, or the propriety of the
decision to purchase or amount paid therefor;
(ii) the legality of the sale of any Securities by or for
any Fund, or the propriety of the amount for which
the same were sold; or
(iii) any other expenditures, encumbrances of Securities,
borrowings or similar actions with respect to any
Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or director's of any such Fund, or any such
Fund's currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable to the Fund for any loss or
damage to the Fund caused by or resulting from the acts or omissions of any
Domestic Subcustodian to the same extent as if such actions or omissions were
performed by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign
Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage
to such Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that any such loss, liability or expense results
from the negligence or willful misconduct of the Custodian or any Foreign
Subcustodian.
(c) Securities Systems, Interim Subcustodians, Special
Subcustodians, Securities Depositories and Clearing Agencies.
The Custodian shall not be liable to any Fund for any loss,
damage or expense suffered or incurred by such Fund resulting from or
occasioned by the actions or omissions of a Securities System, Interim
Subcustodian, Special Subcustodian, or Securities
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Depository and Clearing Agency unless such loss, damage or expense is caused
by, or results from, the gross negligence or willful misfeasance of the
Custodian.
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or
expense suffered or incurred by any Fund resulting from or occasioned by the
actions, omissions, neglects, defaults or insolvency of any broker, bank, trust
company or any other person with whom the Custodian may deal (other than any of
such entities acting as a Subcustodian, Securities System or Securities
Depository and Clearing Agency, for whose actions the liability of the
Custodian is set out elsewhere in this Agreement) unless such loss, damage or
expense is caused by, or results from, the gross negligence or willful
misfeasance of the Custodian.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian for all
out-of-pocket expenses incurred by the Custodian in connection with this
Agreement, but excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each
Fund agrees to indemnify and hold harmless the Custodian and its nominees from
all losses, damages and expenses (including attorneys' fees) suffered or
incurred by the Custodian or its nominee caused by or arising from actions
taken by the Custodian, its employees or agents in the performance of its
duties and obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with
respect to Securities, which action involves the payment of money or which may,
in the opinion of the Custodian, result in the Custodian or its nominee
assigned to such Fund being liable for the payment of money or incurring
liability of some other form, such Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in
addition to the obligations provided in Sections 6 and 7, the Custodian agrees
to indemnify and hold
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harmless each Fund from all losses, damages and expenses suffered or incurred
by each such Fund caused by the negligence or willful misfeasance of the
Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or
any Subcustodian, Securities System, or Securities Depository or Clearing
Agency acting either directly or indirectly under agreement with the Custodian
(each of which for purposes of this Section 9 shall be referred to as
"Custodian"), makes any payment or transfer of funds on behalf of any Fund as
to which there would be, at the close of business on the date of such payment
or transfer, insufficient funds held by the Custodian on behalf of any such
Fund, the Custodian may, in its discretion without further Instructions,
provide an advance ("Advance") to any such Fund in an amount sufficient to
allow the completion of the transaction by reason of which such payment or
transfer of funds is to be made. In addition, in the event the Custodian is
directed by Instructions to make any payment or transfer of funds on behalf of
any Fund as to which it is subsequently determined that such Fund has overdrawn
its cash account with the Custodian as of the close of business on the date of
such payment or transfer, said overdraft shall constitute an Advance. Any
Advance shall be payable by the Fund on behalf of which the Advance was made on
demand by Custodian, unless otherwise agreed by such Fund and the Custodian,
and shall accrue interest from the date of the Advance to the date of payment
by such Fund to the Custodian at a rate agreed upon in writing from time to
time by the Custodian and such Fund. It is understood that any transaction in
respect of which the Custodian shall have made an Advance, including but not
limited to a foreign exchange contract or transaction in respect of which the
Custodian is not acting as a principal, is for the account of and at the risk
of the Fund on behalf of which the Advance was made, and not, by reason of such
Advance, deemed to be a transaction undertaken by the Custodian for its own
account and risk. The Custodian and each of the Funds which are parties to
this Agreement acknowledge that the purpose of Advances is to finance
temporarily the purchase or sale of Securities for prompt delivery in
accordance with the settlement terms of such transactions or to meet emergency
expenses not reasonably foreseeable by a Fund. The Custodian shall promptly
notify the appropriate Fund of any Advance. Such notification shall be sent by
facsimile transmission or in such other manner as such Fund and the Custodian
may agree.
10. SECURITY FOR OBLIGATIONS TO CUSTODIAN.
If the Custodian or any Subcustodian, Securities System, or
Securities Depository or Clearing Agency acting either directly or indirectly
under agreement with the Custodian, or any nominee of any of the foregoing,
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement (collectively
"Liability"), except such as may arise from its or its nominee's breach of the
relevant standard of care set forth in this Agreement, or if the Custodian, or
any such Subcustodian, Securities System, or Securities Depository or Clearing
Agency or
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the nominee of any of the foregoing, shall make any advance to any Fund, then
such Advance shall be deemed a loan from the Custodian to the Fund.
The appropriate Fund shall reimburse the Custodian promptly
for any Liability and shall pay any Advances on demand after notice from the
Custodian to the Fund of the existence of the Advance. If, after notification,
such Fund shall fail to promptly pay such Advance or interest when due or shall
fail to reimburse the Custodian promptly in respect of a Liability, the
Custodian or any such Subcustodian, Securities System, or Securities Depository
or Clearing Agency shall have, to the extent of any loan, and only to the
extent, a continuing lien on and security interest in, and right of offset
against, any Fund Assets at any time held by them for the benefit of the Fund
or in which the Fund may have an interest which is then in the possession or
control of the Custodian, or any Subcustodian, Securities System, or Securities
Depository or Clearing Agency. The Fund represents and warrants that the
Custodian, or any Subcustodian, Securities System, or Securities Depository or
Clearing Agency shall have a first and prior lien on such Fund Assets. The
Fund understands and agrees that the title of any account which is created
under this Agreement shall not impair or affect in any manner the lien on and
security interest in, and the right of offset against, any Fund Assets held in
accounts with the Custodian, or any Subcustodian, Securities System, or
Securities Depository or Clearing Agency.
11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is
agreed to in writing by the Custodian and each such Fund from time to time.
Such compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian following Instructions by an Authorized
Person of the Fund.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such
proxies, powers of attorney or other instruments as may be reasonable and
necessary or desirable in connection with the performance by the Custodian or
any Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by
notice in writing, delivered or mailed, postage prepaid (certified mail, return
receipt requested) to the other not less than 60 days prior to the date upon
which such termination shall take effect. Upon termination of this Agreement,
the appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets and copies of
Fund asset listings and
22
<PAGE> 26
transaction reports held by it hereunder to a successor custodian appointed by
the Fund, or if no successor custodian is appointed, to a bank having and
aggregate capital, surplus and undivided profits of not less than $25,000,000
as indicated in its last published report, to be held and disposed of pursuant
to the provisions of this Agreement or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective
date of termination.
This Agreement may not be assigned by the Custodian or any Fund
without the respective consent of the other, duly authorized by a resolution by
its Board of Directors or Trustees.
14. ADDITIONAL FUNDS. An additional Fund or Funds may become a
party to this Agreement after the date hereof by an instrument in writing to
such effect signed by such Fund or Funds and the Custodian. If this Agreement
is terminated as to one or more of the Funds (but less than all of the Funds)
or if an additional Fund or Funds shall become a party to this Agreement, there
shall be delivered to each party an Appendix B or an amended Appendix B, signed
by each of the additional Funds (if any) and each of the remaining Funds as
well as the Custodian, deleting or adding such Fund or Funds, as the case may
be. The termination of this Agreement as to less than all of the Funds shall
not affect the obligations of the Custodian and the remaining Funds hereunder
as set forth on the signature page hereto and in Appendix B as revised from
time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other
writings delivered to President, Pacific Advisors Fund Inc., 206 N. Jackson
St., Suite 201, Glendale, CA 91206 postage prepaid, or to such other address as
any particular Fund may have designated to the Custodian in writing, shall be
deemed to have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered
to the Securities Administration Department of the Custodian at its office at
928 Grand Avenue, Kansas City, Missouri, or mailed postage prepaid, to the
Custodian's Securities Administration Department, Post Office Box 419226,
Kansas City, Missouri 64141, or to such other addresses as the Custodian may
have designated to each Fund in writing, shall be deemed to have been properly
delivered or given to the Custodian hereunder; provided, however, that
procedures for the delivery of Instructions and Special Instructions shall be
governed by Section 2(c) hereof.
23
<PAGE> 27
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State
of Missouri and shall be governed by the laws of such state.
(b) ALL of the terms and provisions of this Agreement
shall be binding upon, and inure to the benefit of, and be enforceable by the
respective successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended,
modified or waived, in any manner except in writing, properly executed by both
parties hereto; provided, however, Appendix A may be amended from time to time
as Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, and
Securities Depositories and Clearing Agencies are approved or terminated
according to the terms of this Agreement.
(d) The captions in this Agreement are included for
convenience of reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of
execution hereof.
(f) This Agreement may be executed simultaneously in two
or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
(g) The following terms are defined terms within the
meaning of this Agreement, and the definitions thereof are found in the
following sections of the Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liability 10
OCC 4(g) (2)
Person 6(b)
</TABLE>
24
<PAGE> 28
<TABLE>
<S> <C>
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
</TABLE>
(h) If any part, term or provision of this Agreement is
held to be illegal, in conflict with any law or otherwise invalid by any court
of competent jurisdiction, the remaining portion or portions shall be
considered severable and shall not be affected, and the rights and obligations
of the parties shall be construed and enforced as if this Agreement did not
contain the particular part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof,
and accordingly supersedes, as of the effective date of this Agreement, any
custodian agreement heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody
Agreement to be executed by their respective duly authorized officers.
PACIFIC ADVISORS
ATTEST:
GEORGE A. HENNIG By: THOMAS H. HANSON
- ----------------------------- -----------------------------
Name: Thomas H. Hanson
---------------------------
Title: Vice President
--------------------------
Date: 10/17/95
---------------------------
UMB BANK, N.A.
ATTEST:
By: DAVID SWAN
-----------------------------
Name: David Swan
---------------------------
Title: SVP
--------------------------
Date: 10/11/95
- ----------------------------- ---------------------------
25
<PAGE> 29
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
<TABLE>
<CAPTION>
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
<S> <C> <C>
Euroclear
</TABLE>
Pacific Advisors UMB Bank, n.a.
By: THOMAS H. HANSON By: DAVID D. SWAN
------------------------ ----------------------------
Name: Thomas H. Hanson Name: David D. Swan
---------------------- --------------------------
Title: Vice President Title: SVP
--------------------- -------------------------
Date: 10/17/95 Date: 10/11/95
---------------------- --------------------------
26
<PAGE> 30
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are
hereby made parties to the Custody Agreement dated October 11, 1995 with UMB
Bank, n.a. ("Custodian") and Pacific Advisors Fund Inc. and agree to be bound
by all the terms and conditions contained in said Agreement:
LIST THE FUNDS
Pacific Advisors Fund, Inc.- Government Securities Fund
- Income Fund
- Balanced Fund
- Small Cap Fund
ATTEST:
GEORGE A. HENNIG By: THOMAS H. HANSON
- ----------------------------- -----------------------------
Name: Thomas H. Hanson
---------------------------
Title: Vice President
--------------------------
Date: 10/17/95
---------------------------
UMB BANK, N.A.
ATTEST:
By: DAVID SWAN
-----------------------------
Name: David Swan
---------------------------
Title: SVP
--------------------------
Date: 10/11/95
- ----------------------------- ---------------------------
27
<PAGE> 31
APPENDIX C
Pacific Advisors
UMB Bank, n.a.
Institutional Custody Services - U.S. Domestic
Schedule of Fees
Net Asset Value Charges
A fee to be computed as of month end and payable on the last day of
each month of the portfolios' fiscal year, at the annual rate of:
1.00 basis point on the combined net assets up to $250,000,000;
.75 basis points on the next $250,000,000 of combined net assets;
.50 basis points on the combined net assets in excess of $500,000,000
subject to a $500.00 per month minimum per portfolio.
<TABLE>
<CAPTION>
Portfolio Transaction Fees
- --------------------------
<S> <C>
DTC* $5.00
PTC* 12.00
Fed Book Entry* 8.00
Physical* 20.00
Third Party (Bank Book Entry)* 15.00
Principal & Interest Payments 5.00
Options/Futures 25.00
Corporate Actions/Calls/Reorgs 25.00
UMB Repurchase Agreements 5.00
Checks Issued 10.00
</TABLE>
*A transaction includes buys, sells, maturities, or free security movements.
Out-of-Pocket Expenses
Includes, but is not limited to, security transfer fees, certificate
fees, shipping/courier fees or charges, FDIC insurance premiums, and
remote system access charges.
This fee schedule pertains to custody of U.S. Domestic assets only.
UMB Bank will provide it's fee schedule for Euroclear and international custody
upon request.
<PAGE> 1
EXHIBIT 9(B)
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, dated as of the 1st day of October, 1995 between
PACIFIC GLOBAL FUND, INC., d/b/a PACIFIC ADVISORS FUND INC., a California
corporation with its principal place of business at 206 N. Jackson Street,
Suite 201, Glendale, California 91206 ("Fund"), and PACIFIC GLOBAL INVESTORS
SERVICES, INC., with its principal place of business at 206 N. Jackson Street,
Suite 201, Glendale, California ("PGIS").
WHEREAS, Fund desires to appoint PGIS as its accounting services agent
to maintain the accounting records relating to the business of each separate
portfolio of the Fund (each, a "Portfolio"), now or hereafter created, and to
perform certain daily functions as more fully set forth below;
WHEREAS, PGIS is willing to perform such functions upon the terms and
conditions set forth below; and
WHEREAS, Fund will cause certain information to be provided to PGIS as
set forth below.
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. APPOINTMENT.
Fund hereby appoints PGIS as accounting services agent for each
Portfolio and PGIS hereby accepts such appointment, all in accordance with the
terms and conditions of this Agreement.
SECTION 2. EXISTING ACCOUNTS AND RECORDS.
Fund shall promptly provide to PGIS those accounts and records
previously maintained by it or for it as are necessary for PGIS to perform its
functions under this Agreement. Fund authorizes PGIS to rely on such accounts
and records provided to it and hereby indemnifies and will hold PGIS, its
successors and assigns, harmless of and from any and all expenses (including
attorney's fees), damages, claims, suits, liabilities, actions, demands and
losses whatsoever (hereinafter "Liabilities") arising out of or in connection
with any error, omission, inaccuracy or other deficiency of such accounts and
records or in the failure of Fund to provide any portion of such or to provide
any information needed by PGIS to knowledgeably perform its functions under
this Agreement.
SECTION 3. MAINTENANCE OF ACCOUNTS AND RECORDS.
(a) To the extent it receives the necessary
information from Fund or its agents by Written or Oral Instructions (as
described herein), PGIS shall maintain in accordance with Rules 31a-1 and 31a-2
under the Investment Company Act of 1940, as amended (the "1940 Act"), the
accounts and records relating to each Portfolio's business as described on
Exhibit A attached hereto.
(b) Fund or its agents will, prior to or by
4:00 p.m. Eastern time, furnish PGIS with Written or Oral Instructions
containing all necessary information (exclusive of portfolio prices which are
provided for in Section 5) to perform the above functions and to calculate the
net asset value of each Portfolio of Fund, as provided below. Fund shall
indemnify and hold harmless PGIS from and against any Liabilities arising from
any discrepancy between information received by PGIS and used in such
calculations and any subsequent information received from Fund or its agents.
(c) Fund or its agents will furnish PGIS
with the declaration, record, payment dates and amounts of any dividends or
income and any other special actions required on or concerning each of its
portfolio securities.
<PAGE> 2
SECTION 4. CALCULATION OF NET ASSET VALUE.
PGIS shall perform the ministerial calculations necessary to calculate
each Portfolio's net asset value daily, in accordance with Section 5, except
where Fund has given or caused to be given specific Written or Oral
Instructions to utilize a different method of calculation. PGIS shall have no
responsibility or liability for the accuracy of prices obtained in the manner
set forth in Section 5; for the accuracy of information supplied by Fund or its
agents; or for any loss, liability, damage or cost arising out of any
inaccuracy of such data. PGIS shall have no responsibility or duty to include
information or valuations to be provided by Fund or its agents in any
computation unless and until it is timely supplied to PGIS in usable form.
Unless the necessary information to calculate the net asset value daily is
furnished by Written of Oral Instructions from Fund or its agents, PGIS shall
incur no liability, and Fund shall indemnify and hold harmless PGIS from and
against any Liabilities, arising from any failure to provide complete
information or from any discrepancy between the information received by PGIS
and used in such calculations and any subsequent information received from Fund
or its agents.
SECTION 5. VALUATION OF SECURITIES.
(a) PGIS will value the securities of each Portfolio in accordance
with the specific provisions of the Portfolio's then current registration
statement, as filed with the Securities and Exchange Commission and provided to
PGIS by Fund ("Registration Statement").
(b) Except as otherwise specified in the Registration Statement, PGIS
will value the assets of the Fund as follows:
Securities listed on national securities exchanges and certain
over-the-counter ("OTC") issues traded on the NASDAQ national market system
will be valued at the last quoted sale price at the close of the New York Stock
Exchange. OTC issues not quoted on the NASDAQ system and other equity
securities for which no sale price is available, will be valued at the last bid
price as obtained from published sources (including Quotron), where available,
and otherwise from brokers who are market makers for such securities.
Short-term debt instruments with a remaining maturity of 60 days or
less will be valued on an amortized cost basis. When a security is valued at
amortized cost, it will be valued at its cost when purchased and thereafter by
assuming a constant amortization to maturity of any discount or premium.
Short-term debt instruments with a remaining maturity of more than 60
days, bonds, convertible bonds, and other debt securities will be generally
valued at prices obtained from a bond pricing service. Where such prices are
not available, valuations will be obtained from brokers who are market makers
for such securities.
Notwithstanding the foregoing, upon Written or Oral Instructions of
Fund received by PGIS prior to 4:00 p.m. Eastern time, the mean of the bid and
asked prices for OTC securities or the last available sale price for
exchange-traded debt securities may be used. Where no last sale price for
exchange traded debt securities is available, the mean of the bid and asked
prices may be used.
Options will be valued at the last sale price on the exchange where
any such option is principally traded, or, if no sale occurs on the applicable
exchange on a given day, the option will be valued at the average of the quoted
bid and asked prices as of the close of the applicable exchange.
Other securities and assets for which market quotations are not
readily available or for which valuations cannot be provided, as described
above, will be valued in good faith by the Fund's Board of Directors using its
best judgment and indicated in Written or Oral Instructions of Fund received by
PGIS prior to 4:00 p.m. Eastern time.
PGIS may use one or more external pricing services provided that Fund
is notified in advance of such use. PGIS shall have no liability for the
accuracy of prices provided by any pricing service or for the accuracy of the
2
<PAGE> 3
information provided by Fund, or for any Liabilities incurred by Fund or any
other person arising out of any inaccuracy of such data, or any failure to
timely provide such data.
SECTION 6. PERIODIC REPORTS.
PGIS has in place a system for providing customers with daily and
periodic reports for each Portfolio, which reports are described on the
attached Exhibit B.
SECTION 7. MONTHLY STATEMENTS.
At the end of each month, Fund shall cause the Custodian of Fund to
forward to PGIS a monthly statement of each Portfolio, which will be reconciled
with PGIS's accounts and records maintained for each Portfolio. PGIS will
report any discrepancies to the Custodian, and report any unreconciled items to
Fund.
SECTION 8. SHARE INFORMATION.
Fund or its agents shall provide PGIS, by 10:00 a.m. Eastern time the
following business day, all data and the information regarding each Portfolio
as of the close of the prior business day necessary for PGIS to maintain Fund's
accounts and records, and PGIS may conclusively assume that the information it
receives is complete and accurate and may rely on all such information. Among
the information to be received by PGIS from Fund or its agents are reports of
share purchases, redemptions and total shares outstanding after each net asset
valuation provided by PGIS on the prior business day. All such information
shall be supplied by Written or Oral Instructions. Fund shall indemnify and
hold harmless PGIS from and against any Liability arising from any discrepancy
between information provided by Fund or its agents and used by PGIS in
maintaining the accounts and records of each Portfolio and any subsequent
information provided by Fund or its agents to PGIS.
SECTION 9. WRITTEN AND ORAL INSTRUCTIONS.
PGIS shall not be liable for any action taken or omitted in good faith
reliance on any Written or Oral Instruction. Written Instructions shall mean a
writing signed by one or more persons as the Fund shall have from time to time
authorized and listed on the attached Exhibit C, all of whom shall be
authorized to give such instructions by resolutions of the Fund's Board of
Directors, a copy of which shall be provided to PGIS ("Authorized Persons").
Each Written Instruction shall set forth the specific statement of or type of
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral Instructions shall mean oral instructions for
which the person giving such instructions uses the proper method of
identification for such instructions, as Fund and PGIS may agree upon, from
time to time, and that PGIS reasonably believes have been given by an
Authorized Person.
SECTION 10. RELIANCE ON INSTRUCTIONS.
For all purposed under this Agreement, PGIS is authorized to act upon
receipt of the first of any Written or Oral Instruction it receives from Fund
or its agents. In cases where the first instruction is an Oral Instruction, a
confirmatory Written Instruction shall be delivered. In the event Oral
Instructions are not promptly confirmed in writing, Fund agrees to hold PGIS
harmless and without liability for acting upon Oral Instructions which PGIS
reasonably believes it has received from an Authorized Person. In cases where
PGIS receives a Written or Oral Instruction to enter a portfolio transaction on
the records of a Portfolio, Fund shall cause the broker-dealer to send a
written confirmation to PGIS.
SECTION 11. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
Except as otherwise provided in this Agreement, Fund assumes full
responsibility for the preparation, contents and distribution of each
prospectus and statement of additional information contained in each
Portfolio's
3
<PAGE> 4
Registration Statement, and for compliance with all applicable requirements of
the 1940 Act, the Securities Act and any laws, rules and regulations of any
governmental authorities having jurisdiction over Fund and its Portfolios.
SECTION 12. AVAILABILITY OF ACCOUNTS AND RECORDS.
The accounts and records, in the agreed-upon format as described
herein, maintained by PGIS shall be the property of and under the control of
Fund, and shall be made available to Fund promptly upon request and shall be
maintained for the periods and in the manner prescribed in Rule 31a-2 under the
1940 Act. PGIS shall assist Fund's independent auditors, or upon approval of
the Fund, or upon demand, any regulatory body, in any requested review of
Fund's accounts and records, but PGIS shall be reimbursed for all expenses and
employee time invested in such review outside of routine and normal periodic
reviews. Upon receipt from Fund of the necessary information, PGIS shall
employ reasonable efforts to supply the necessary data in such form as may be
required by the Securities and Exchange Commission or other regulatory body, at
Fund's expense, for Fund's or Fund's independent auditor's completion of
necessary tax returns, questionnaires, periodic reports to shareholders and
such other reports and information requests as Fund and PGIS shall agree upon
from time to time.
SECTION 13. OTHER PROCEDURES.
PGIS and Fund may from time to time adopt such procedures as they
agree upon in writing, and PGIS may conclusively rely on a determination by
Fund that any procedure approved by Fund or directed by Fund, does not conflict
with or violate any requirements of the Registration Statement of each
Portfolio, the Fund's charter or by-laws or any rule or regulations of any
regulatory body or governmental agency applicable to Fund. Fund shall be
responsible for notifying PGIS of any changes in regulations or rules which
might necessitate changes in such adopted procedures and for working out such
changes with PGIS.
SECTION 14. REFERENCES TO PGIS.
Fund shall not circulate any printed matter which contains any
reference to PGIS without the prior written approval of PGIS, except solely
such printed matter as merely identifies PGIS as accounting services agent or
as acting in other capacities for Fund pursuant to this Agreement. Fund will
submit printed matter requiring approval to PGIS and its counsel prior to any
deadline for printing.
SECTION 15. FORCE MAJEURE; EQUIPMENT FAILURES.
(a) PGIS shall not be liable if PGIS shall be delayed in its
performance of services or prevented entirely or in part from performing
services because of causes or events beyond its control, including and without
limitation, acts of God, interruption of power or other utility, transportation
or communication services acts of civil or military authority, sabotage,
national emergencies, explosion, flood, accident, earthquake or other
catastrophe, fire, strike or other labor problems, legal action, present or
future law, parts, materials, labor or transportation.
(b) In the event of equipment failures beyond PGIS's control, PGIS
shall take all reasonable steps necessary to minimize service interruptions but
shall have no liability with respect thereto.
SECTION 16. STANDARD OF CARE AND INDEMNIFICATION.
PGIS, its directors, officers, employees and agents shall incur no
liability for any action taken or omitted in good faith except for losses
suffered by Fund as a result of willful malfeasance, bad faith or gross
negligence on the part of PGIS, its directors, officers, employees or agents,
respectively, in the performance of PGIS's obligations and duties under this
Agreement. In the event of any loss to Fund by reason of the failure of PGIS
to exercise the standard of care set forth in this section in the performance
of its duties, PGIS shall be liable to Fund to the extent of Fund's damages,
without reference to any special or consequential damages.
4
<PAGE> 5
Fund hereby agrees to indemnify and hold PGIS, its directors,
officers, employees and agents harmless from any and all Liabilities arising
out of any act or omission by PGIS or Fund or Fund's agents, except such
Liabilities resulting from willful malfeasance, bad faith or gross negligence
on the part of PGIS, its directors, officers, employees or agents,
respectively, in the performance of PGIS's obligations and duties under this
Agreement.
Without limitation of the foregoing:
(i) PGIS shall be entitled to apply for and obtain the advice of
Fund or of counsel, who may be counsel for Fund, on all matters at the expense
of Fund, and PGIS may rely and act on such advice and upon statements of
accountants, brokers and other persons reasonably believed by it in good faith
to be expert in the matters upon which they are consulted, and PGIS shall not
be liable to anyone for any actions taken in good faith upon such advice or
statements.
(ii) PGIS may act upon any Oral Instruction which it receives and
which it reasonably believes in good faith was transmitted by an Authorized
Person. PGIS shall have no duty or obligation to make inquiry or verification
of such Oral Instructions other than to ensure that the person giving such
instructions has used the proper method of identification for such instructions
as described in Section 9.
(iii) PGIS shall not be liable for any action taken in good faith
reliance on any Written Instruction and PGIS may rely on the genuineness of any
such document or any copy thereof reasonably believed in good faith by PGIS to
have been validly executed.
(iv) PGIS may rely and shall be protected in acting on any signature,
instruction, request, letter or transmittal, certificate, opinion of counsel,
statement, instrument, report, notice, consent, order or other document
reasonably believed in good faith by it to be genuine and to have been signed
or presented by Fund or other party or parties.
SECTION 17. UNITED STATES CURRENCY.
All financial data provided to, processed by, and reported by PGIS
under this Agreement shall be stated in United States dollars or currency.
PGIS shall have no obligation to convert to, equate, or deal in foreign
currencies or values, and expressly assumes no liability for any currency
conversion or equation or computations relating to the affairs of Fund.
SECTION 18. COMPENSATION.
PGIS's compensation shall be set forth in Exhibit D attached hereto,
or as shall be set forth in amendments to such Schedule approved in writing by
Fund and PGIS.
SECTION 19. DAYS OF SERVICE.
Nothing contained in this Agreement is intended to or shall require
PGIS to perform any functions or duties on any day on which PGIS or the New
York Stock Exchange is closed. Functions or duties normally scheduled to be
performed on such business days shall be performed on, and as of, the next
business day on which both the New York Stock Exchange and PGIS are open.
Notwithstanding the foregoing, PGIS shall compute the net asset value of Fund
on each day required pursuant to Rule 22c-1 under the 1940 Act.
SECTION 20. TERMINATION.
Fund or PGIS may give written notice to the other of the termination
of this Agreement, such termination to take effect at the time specified in the
notice not less than sixty (60) days after the giving of notice. Section 16
shall survive termination of this Agreement.
5
<PAGE> 6
The records of Fund are the sole property of Fund and, on the
termination date, PGIS shall surrender to Fund or its designated recordkeeping
successor all of the records of Fund maintained under this Agreement then in
PGIS's possession, free from any claim or retention of rights by PGIS;
provided, however, that PGIS shall have a lien, security interest and right of
setoff with respect to any and all other property held by PGIS for the benefit
of Fund or in which Fund may have an interest which is then in the possession
or control of PGIS, to the extent of any amounts due and owing by Fund to PGIS
under this Agreement upon such termination hereunder.
SECTION 21. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent PGIS or its affiliates from
providing services for any other person, firm or corporation (including other
investment companies).
SECTION 22. NOTICES.
Any notice or demands given in connection with this Agreement shall be
deemed to have been sufficiently given or served for all purposes if sent by
hand or by certified or registered mail, postage and charges prepaid to the
following address:
If to Fund: President
Pacific Advisors Fund, Inc.
206 N. Jackson Street, Suite 201
Glendale, CA 91206
If to PGIS: President
Pacific Investors Services, Inc.
206 N. Jackson Street, Suite 201
Glendale, CA 91206
SECTION 23. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of such counterparts shall together
constitute one and the same instrument.
SECTION 24. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the state of California, without regard to principles of conflict
of laws, and the applicable provisions of the 1940 Act and the rules
thereunder. To the extent that any provision of this Agreement conflicts with
the applicable provisions of the 1940 Act or the rules thereunder, the
provisions of the 1940 Act or the rules thereunder shall control.
SECTION 25. SUCCESSORS AND ASSIGNS.
This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that
this Agreement shall not be assigned by either party without the written
consent of the other party, and any attempted assignment in contravention
hereof shall be null and void.
SECTION 26. CONFIDENTIALITY.
PGIS shall make every reasonable effort to keep confidential any
non-public information obtained in connection with its duties hereunder and
shall disclose such information only if Fund has authorized such disclosure or
if such disclosure is expressly required by applicable law, independent
auditors or federal or state regulatory authorities, or under circumstances
where PGIS may be exposed to civil or criminal proceedings for failure to
comply.
6
<PAGE> 7
SECTION 27. STATUTORY COMPLIANCE.
PGIS shall perform its obligations hereunder in accordance with Rules
31a-1 and 31a-2 under the 1940 Act as expressly referenced in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and the year first above written.
PACIFIC GLOBAL FUND, INC. D/b/a PACIFIC
ADVISORS FUND INC.
By: GEORGE A. HENNIG
-----------------------------------
Title: President
-----------------------------------
PACIFIC GLOBAL INVESTORS SERVICES, INC.
By: THOMAS H. HANSON
-----------------------------------
Title: President
-----------------------------------
7
<PAGE> 8
EXHIBIT A
Maintenance of Accounts and Records
(a) Cash Receipts Journal
(b) Cash Disbursements Journal
(c) Dividends Paid Record
(d) Purchase and Sale Journal -- Portfolio Securities
(e) Subscription and Redemption Journals
(f) Securities Ledgers
(g) Broker-Dealer Ledger
(h) General Ledger
(i) Daily Expense Accruals
(j) Daily Interest Accruals
(k) Securities and Moneys Borrowed or Loaned and Collateral Therefor
(l) Daily Trial Balances
(m) Investment Income Journal
8
<PAGE> 9
EXHIBIT B
Reports
The following reports will be provided to the Fund on a regular basis
with availability as indicated:
A. Daily
1. Trial Balance
2. Net Asset Value Worksheet
3. Cash Forecast
4. Rate/Yield Computation, if applicable
B. Weekly -- Tax Lot Ledgers
C. Monthly
1. Tax Lot Ledgers as of month-end
2. Working Appraisals as of month-end
3. Purchase and Sale Journal for the month
4. Summary of Gains and Losses on Securities for the month-end
and earned
5. Dividend Ledger for the month (receivable as of month-end
and earned)
6. Interest Income Analysis for the month (receivable as of
month-end and earned)
7. Trial Balance as of month-end
8. Net Asset Value Worksheet as of month-end
9. Open Trades (payable and receivables for unsettled
securities transactions)
D. Annually
1. Purchase and Sale Journal for the Year
2. Summary of Gains and Losses on Securities for the year
3. Broker Allocation Report for the Year
9
<PAGE> 10
EXHIBIT C
Authorized Persons of Fund
George A. Henning
Thomas H. Hanson
Paul W. Henning
10
<PAGE> 11
EXHIBIT D
PGIS Compensation Schedule
<TABLE>
<S> <C>
ANNUAL FEE FOR EACH PORTFOLIO
(BASED ON NET ASSETS) FEE RATE
First $100 Million Net Assets 3 Basis Points
Balance of Net Assets 1 Basis Point
MINIMUM MONTHLY ACCOUNT FEE
FOR EACH PORTFOLIO $1,250
</TABLE>
All costs incurred by PGIS on behalf of a Portfolio in the use of external
pricing services and telecommunication services shall be charged to the
Portfolio. All out-of-pocket expenses incurred by PGIS on behalf of a
Portfolio and authorized by the Fund shall be charged to the Portfolio.
This fee will remain in effect for a one year period commencing October 1,
1995.
11
<PAGE> 1
EXHIBIT 11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
January 29, 1996, in Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A and related Statement of Additional Information of
Pacific Advisors Fund, Inc.
ERNST & YOUNG LLP
Los Angeles, California
April 26, 1996
<PAGE> 1
EXHIBIT 18
PRICE MAKE-UP SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Value of Registrant's
Portfolio Securities Total Offering
and Other Assets Outstanding Securities Price Per Share
--------------------- ---------------------- ---------------
<S> <C> <C>
GOVERNMENT SECURITIES FUND
$5,836,975 574,402 $10.16
INCOME FUND
$1,071,153 110,752 $ 9.67
BALANCED FUND
$2,129,486 228,804 $ 9.31
SMALL CAP FUND
$4,279,159 362,008 $11.82
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> SMALL CAP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 3,832,650
<INVESTMENTS-AT-VALUE> 4,233,584
<RECEIVABLES> 7,071
<ASSETS-OTHER> 38,529
<OTHER-ITEMS-ASSETS> 23,984
<TOTAL-ASSETS> 4,303,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,009
<TOTAL-LIABILITIES> 24,009
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,920,596
<SHARES-COMMON-STOCK> 362,008
<SHARES-COMMON-PRIOR> 306,329
<ACCUMULATED-NII-CURRENT> (43,523)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,152
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 400,934
<NET-ASSETS> 4,279,159
<DIVIDEND-INCOME> 56,884
<INTEREST-INCOME> 11,893
<OTHER-INCOME> 0
<EXPENSES-NET> 97,098
<NET-INVESTMENT-INCOME> (28,321)
<REALIZED-GAINS-CURRENT> 56,056
<APPREC-INCREASE-CURRENT> 522,452
<NET-CHANGE-FROM-OPS> 550,187
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 123,374
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 91,918
<NUMBER-OF-SHARES-REDEEMED> 44,778
<SHARES-REINVESTED> 8,539
<NET-CHANGE-IN-ASSETS> 1,109,736
<ACCUMULATED-NII-PRIOR> (15,202)
<ACCUMULATED-GAINS-PRIOR> 68,470
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,132
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 142,035
<AVERAGE-NET-ASSETS> 3,988,873
<PER-SHARE-NAV-BEGIN> 10.35
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 1.89
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.82
<EXPENSE-RATIO> 2.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> BALANCED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2,003,284
<INVESTMENTS-AT-VALUE> 2,100,741
<RECEIVABLES> 17,435
<ASSETS-OTHER> 21,492
<OTHER-ITEMS-ASSETS> 23,984
<TOTAL-ASSETS> 2,163,652
<PAYABLE-FOR-SECURITIES> 10,162
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,004
<TOTAL-LIABILITIES> 34,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,031,390
<SHARES-COMMON-STOCK> 228,804
<SHARES-COMMON-PRIOR> 153,220
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 177
<ACCUMULATED-NET-GAINS> 816
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 97,457
<NET-ASSETS> 2,129,486
<DIVIDEND-INCOME> 11,832
<INTEREST-INCOME> 68,470
<OTHER-INCOME> 0
<EXPENSES-NET> 38,215
<NET-INVESTMENT-INCOME> 42,087
<REALIZED-GAINS-CURRENT> 9,197
<APPREC-INCREASE-CURRENT> 92,703
<NET-CHANGE-FROM-OPS> 143,987
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 42,319
<DISTRIBUTIONS-OF-GAINS> 1,632
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,720
<NUMBER-OF-SHARES-REDEEMED> 12,572
<SHARES-REINVESTED> 4,436
<NET-CHANGE-IN-ASSETS> 788,547
<ACCUMULATED-NII-PRIOR> 55
<ACCUMULATED-GAINS-PRIOR> (6,749)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 90,828
<AVERAGE-NET-ASSETS> 1,710,854
<PER-SHARE-NAV-BEGIN> 8.75
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.57
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0.18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.31
<EXPENSE-RATIO> 2.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> INCOME
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 991,937
<INVESTMENTS-AT-VALUE> 1,043,833
<RECEIVABLES> 10,975
<ASSETS-OTHER> 16,375
<OTHER-ITEMS-ASSETS> 23,984
<TOTAL-ASSETS> 1,095,167
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,014
<TOTAL-LIABILITIES> 24,014
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,018,977
<SHARES-COMMON-STOCK> 110,752
<SHARES-COMMON-PRIOR> 70,392
<ACCUMULATED-NII-CURRENT> 236
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 44
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51,896
<NET-ASSETS> 1,071,153
<DIVIDEND-INCOME> 6,967
<INTEREST-INCOME> 42,815
<OTHER-INCOME> 0
<EXPENSES-NET> 15,646
<NET-INVESTMENT-INCOME> 34,136
<REALIZED-GAINS-CURRENT> 8,147
<APPREC-INCREASE-CURRENT> 55,627
<NET-CHANGE-FROM-OPS> 97,910
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 34,111
<DISTRIBUTIONS-OF-GAINS> 3,016
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,504
<NUMBER-OF-SHARES-REDEEMED> 1,210
<SHARES-REINVESTED> 3,066
<NET-CHANGE-IN-ASSETS> 438,964
<ACCUMULATED-NII-PRIOR> 211
<ACCUMULATED-GAINS-PRIOR> (5,087)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,344
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 69,295
<AVERAGE-NET-ASSETS> 840,788
<PER-SHARE-NAV-BEGIN> 8.98
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.72
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.31
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.67
<EXPENSE-RATIO> 1.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> GOVERNMENT SECURITIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 5,276,240
<INVESTMENTS-AT-VALUE> 5,903,792
<RECEIVABLES> 90,876
<ASSETS-OTHER> 40,413
<OTHER-ITEMS-ASSETS> 23,984
<TOTAL-ASSETS> 6,059,065
<PAYABLE-FOR-SECURITIES> 198,076
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,014
<TOTAL-LIABILITIES> 222,090
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,208,039
<SHARES-COMMON-STOCK> 547,402
<SHARES-COMMON-PRIOR> 361,167
<ACCUMULATED-NII-CURRENT> 920
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 464
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 627,552
<NET-ASSETS> 5,836,975
<DIVIDEND-INCOME> 36,567
<INTEREST-INCOME> 220,200
<OTHER-INCOME> 0
<EXPENSES-NET> 78,526
<NET-INVESTMENT-INCOME> 178,241
<REALIZED-GAINS-CURRENT> 148,343
<APPREC-INCREASE-CURRENT> 614,059
<NET-CHANGE-FROM-OPS> 940,643
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 177,183
<DISTRIBUTIONS-OF-GAINS> 110,450
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 244,351
<NUMBER-OF-SHARES-REDEEMED> 57,650
<SHARES-REINVESTED> 26,534
<NET-CHANGE-IN-ASSETS> 2,651,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (37,429)
<OVERDISTRIB-NII-PRIOR> 138
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,937
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 133,309
<AVERAGE-NET-ASSETS> 4,753,093
<PER-SHARE-NAV-BEGIN> 8.82
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 1.53
<PER-SHARE-DIVIDEND> 0.19
<PER-SHARE-DISTRIBUTIONS> 0.31
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.16
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
