<PAGE> 1
Registration Nos. 33-50208
811-7062
As filed with the Securities and Exchange Commission on April 30, 1997
- --------------------------------------------------------------------------------
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. / /
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Post-Effective Amendment No. 5 / x /
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and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 / 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
------------------
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:
Immediately upon filing pursuant to Paragraph (b) of Rule 485
X On May 1, 1997 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 20, 1997.
<PAGE> 3
PACIFIC GLOBAL FUND, INC.
Contents of Registration Statement
The registration statement consists of the following papers and documents:
Facing Sheet
Contents of Registration Statement
Cross Reference Sheet
Supplement to Prospectus
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
<PAGE> 4
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
- ------------------ ---------------------
<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
- ------------------ ----------------------
<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> 5
<TABLE>
<CAPTION>
Caption in Statement of
Form N-1A Item No. Additional Information
- ------------------ ----------------------
<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> 6
PACIFIC ADVISORS FUND INC.
SUPPLEMENT DATED MAY 1, 1997 TO THE
PROSPECTUS DATED MAY 1, 1996
This Supplement updates certain information contained in the above-dated
Prospectus of Pacific Advisors Fund Inc. (the "Company"). You should retain both
the Supplement and Prospectus for future reference. You may obtain an additional
copy of the Prospectus, free of charge, by calling (800) 989-6693.
This Supplement supersedes all prior supplements to the Prospectus.
The following paragraph is inserted after the last paragraph on the first page
of the Prospectus under the caption "About this Prospectus":
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
The following disclosure amends all references to the MMG Money Management
Group, Inc. in the Company's Prospectus:
Effective December 31, 1996, MMG Money Management Group, Inc. (which has
recently changed its name to Expansion Funds of Arizona, Inc.) ceased to
serve as the investment sub-adviser for the Income Fund, a series of the
Company. As provided for in its agreement with the Income Fund, Pacific
Global Investment Management Company ("Pacific Global"), the investment
manager for the Income Fund, assumed full responsibility for making and
implementing all investment decisions for the Income Fund on that date.
George A. Henning and Thomas H. Hanson are primarily responsible for the
day-to-day portfolio management of the Income Fund. Mr. Henning is the
principal stockholder and President and Director of the Manager. Mr. Hanson
is an Executive Vice President of the Manager.
At a meeting held on February 28, 1997, the Board of Directors of the
Company, including a majority of the directors who are not "interested
persons" of the Company, as defined in the Investment Company Act of 1940,
as amended, considered a recommendation by Pacific Global that Hamilton &
Bache, Inc. be appointed as co-manager for the Income Fund. After
considering Pacific Global's recommendation and other information presented
at that meeting, the Board of Directors approved submission of the proposed
co-management agreement ("Co-Management Agreement") to the Income Fund's
shareholders at the Shareholders' Meeting scheduled to take place on or
about April 25, 1997, and determined to recommend that the Income Fund's
shareholders approve the proposed Co-Management Agreement.
1
<PAGE> 7
The following Expense Table replaces the Expense Table beginning on page 4 of
the Prospectus:
EXPENSE TABLE
<TABLE>
<CAPTION>
Government Income Balanced Small Cap
Securities Fund Fund Fund Fund
<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
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE WAIVER OR ASSUMPTION
(as a percentage of average net assets)
Management Fees 0.00%*** 0.00%*** 0.00%*** 0.47%***
Service Fees 0.11%*** 0.23%*** 0.08%*** 0.23%***
Other Expenses 1.55%*** 1.62%*** 2.40%*** 2.21%***
Total Fund Operating Expenses 1.66%*** 1.85%*** 2.48%*** 2.91%***
</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.
** The $5.00 Exchange Fee currently is being waived by Pacific Global Investor
Services, Inc., the Company's Transfer Agent.
*** During the past fiscal year, the Manager agreed to reduce its investment
management fee when Fund Operating Expenses exceeded the lowest applicable limit
actually enforced by any state and to reimburse each Fund for any additional
expenses that exceeded such limit. Pursuant to recently enacted legislation,
state expense limitations on Fund Operating Expenses are no longer enforceable;
and, accordingly the Manager may determine that the reduction of its fees or
reimbursement of expenses is not necessary. Nonetheless, 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
2.95%, 7.29%, 4.36% and 3.24%, respectively, for the fiscal year ended December
31, 1996.
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
<S> <C> <C> <C> <C>
Government Securities Fund $63 $ 97 $132 $232
Income Fund 65 102 141 251
Balanced Fund 81 129 180 320
Small Cap Fund 85 142 200 359
</TABLE>
2
<PAGE> 8
The second sentence in the first paragraph on page 5 of the Prospectus is
amended to state:
The figures shown reflect all the fees and expenses incurred by the Funds
for the fiscal year ended December 31, 1996.
The first sentence in the first paragraph on page 5 of the Prospectus under the
caption "Financial Highlights" is amended to state:
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, 1995 and 1996, has been audited by Ernst & Young
LLP, the Company's independent auditors.
The first sentence in the second paragraph on Page 5 of the Prospectus under the
caption "Financial Highlights" is amended to state:
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, is
incorporated by reference into the Company's Statement of Additional
Information.
The following Financial Highlights Tables for the Government Securities Fund,
the Income Fund, the Balanced Fund and the Small Cap Fund replace the Financial
Highlight Tables on pages 6 through 9 of the Prospectus:
3
<PAGE> 9
GOVERNMENT SECURITIES FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Year Ended December 31 For the Period
------------------------------------------- February 8, 1993(3)
1996 1995 1994 to December 31, 1993
------------------------------------------- --------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 10.16 $ 8.82 $ 9.00 $ 9.00
----------- ----------- ----------- -----------
Income from Investment Operations:
Investment Income 0.43 0.45 0.22 0.11
Expenses (0.10) (0.14) (0.09) (0.04)
----------- ----------- ----------- -----------
Net Investment Income 0.33 0.31 0.13 0.07
Net realized and unrealized gain (loss)
on securities (0.65) 1.53 (0.14) (0.04)
----------- ----------- ----------- -----------
Total from Investment Operations (0.32) 1.84 (0.01) 0.03
----------- ----------- ----------- -----------
Less Distributions
Distributions from net investment income (0.32) (0.31) (0.17) (0.03)
Distributions from net capital gains (0.22) (0.19) 0.00 0.00
Net Asset Value, End of Year $ 9.30 $ 10.16 $ 8.82 $ 9.00
=========== =========== =========== ===========
TOTAL INVESTMENT RETURN(4) (3.15%) 20.32% (0.15)% 0.36%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $ 7,096 $ 5,837 $ 3,185 $ 1,179
Ratio of Expenses to Average Net Assets(1) 1.66% 1.65% 1.60% 1.38%(2)
Ratio of Net Investment Income
to Average Net Assets 3.46% 3.75% 2.09% 1.12%(2)
Portfolio Turnover Ratio 50.49% 57.85% 81.59% 129.16%(2)
Average Commission Per Share
Paid on Equity Transactions $ 0.0770 $ 0.0884 -- --
</TABLE>
- -----------------------
(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 2.95%, 2.80%, 4.86% and 15.46%, for the years 1996 through
1993 respectively, and the ratio of net investment income (loss) to average
net assets would have been (2.17%), (2.60%), (1.17%), and (12.95%), for the
years 1996 through 1993 respectively.
(2) Annualized.
(3) Commencement of Operations.
(4) The Fund's maximum sales charge is not included in the total return
computation.
4
<PAGE> 10
INCOME FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Year Ended December 31, For the Period
------------------------------------------- February 8, 1993(3)
1996 1995 1994 to December 31, 1993
----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 9.67 $ 8.98 $ 9.06 $ 9.00
----------- ----------- ----------- -----------
Income from Investment Operations:
Investment Income 0.47 0.45 0.28 0.15
Expenses (0.12) (0.14) (0.12) (0.09)
----------- ----------- ----------- -----------
Net Investment Income 0.35 0.31 0.16 0.06
Net realized and unrealized gain
(loss) on securities (0.19) 0.72 (0.07) 0.04
----------- ----------- ----------- -----------
Total from Investment Operations 0.16 1.03 0.09 0.10
Less Distributions
Distributions from net
investment income (0.35) (0.31) (0.17) (0.04)
Distributions from net
capital gains (0.06) (0.03) 0.00 0.00
Net Asset Value, End of Year $ 9.42 $ 9.67 $ 8.98 $ 9.06
=========== =========== =========== ===========
TOTAL INVESTMENT RETURN (4) 1.78% 11.98% 0.99% 1.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $ 1,211 $ 1,071 $ 632 $ 135
Ratio of Expenses to Average Net Assets(1) 1.85% 1.86% 1.75% 1.68%(2)
Ratio of Net Investment
Income to Average Net Assets 3.75% 4.06% 2.17% 0.79%(2)
Portfolio Turnover Ratio 28.23% 33.40% 37.12% 0.00%(2)
Average Commission Per Share
Paid on Equity Transactions $ 0.1347 $ 0.1472 -- --
</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
7.29%, 8.25%, 12.73%, and 70.32%, for the years 1996 through 1993
respectively, and the ratio of net investment income (loss) to average net
assets would have been (1.69%), (2.32%), (8.80%), and (67.90%), for the
years 1996 through 1993 respectively.
(2) Annualized.
(3) Commencement of Operations.
(4) The Fund's maximum sales charge is not included in the total return
computation.
5
<PAGE> 11
BALANCED FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Period
For the Year Ended December 31 February 8, 1993(3)
1996 1995 1994 to December 31, 1993
------ ------ ------ --------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 9.31 $ 8.75 $ 8.99 $ 9.00
------ ------ ------ ------
Income from Investment Operations:
Investment Income 0.30 0.35 0.07 0.07
Expenses (0.21) (0.17) (0.05) (0.06)
------ ------ ------ ------
Net Investment Income 0.09 0.18 0.02 0.01
Net realized and unrealized gain (loss) on securities 1.39 0.57 (0.24) (0.01)
------ ------ ------ ------
Total from Investment Operations 1.48 0.75 (0.22) 0.00
Less Distributions
Distributions from net investment income (0.09) (0.18) (0.02) (0.01)
Distributions from net capital gains (0.04) (0.01) 0.00 0.00
Net Asset Value, End of Year $ 10.66 $ 9.31 $ 8.75 $ 8.99
======= ====== ====== ======
TOTAL INVESTMENT RETURN (4) 15.92% 8.70% (2.41%) 0.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $ 3,187 $ 2,129 $ 1,341 $ 121
Ratio of Expenses to Average Net Assets(1) 2.48% 2.24% 1.83% 1.60%(2)
Ratio of Net Investment Income
to Average Net Assets 1.12% 2.46% 0.93% 0.25%(2)
Portfolio Turnover Ratio 65.94% 41.23% 60.68% 61.71%(2)
Average Commission Per Share
Paid on Equity Transactions $ 0.0812 $ 0.1005 --
</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 4.36%, 5.31%, 17.85% and 108.91%, for the years 1996 through 1993
respectively, and the ratio of net investment income (loss) to average net
assets would have been (0.76%), (0.62%), (15.11%), and (106.91%), for the
years 1996 through 1993 respectively.
(2) Annualized.
(3) Commencement of Operations.
(4) The Fund's maximum sales charge is not included in the total return
computation.
6
<PAGE> 12
SMALL CAP FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Period
For the Year Ended December 31 February 8, 1993(3)
1996 1995 1994 to December 31, 1993
------- ------- ------- --------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 11.82 $ 10.35 $ 11.47 $ 9.00
------- ------- ------- ------
Income from Investment Operations:
Investment Income 0.09 0.19 0.19 0.09
Expenses (0.30) (0.27) (0.23) (0.12)
------- ------- ------- ------
Net Investment Income (loss) (0.21) (0.08) (0.04) (0.03)
Net realized and unrealized gain (loss) on securities 5.35 1.89 (0.42) 2.50
------- ------- ------- ------
Total from Investment Operations 5.14 1.81 (0.46) 2.47
Less Distributions
Distributions from net capital gains (0.49) (0.34) (0.66) 0.00
Net Asset Value, End of Year $ 16.47 $ 11.82 $ 10.35 $ 11.47
======= ======= ======= =======
TOTAL INVESTMENT RETURN(4) 43.70% 17.27% (3.97%) 29.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $ 8,549 $ 4,279 $ 3,169 $ 2,175
Ratio of Expenses to Average Net Assets(1) 2.91% 2.49% 2.45% 2.20%(2)
Ratio of Net Investment Income (loss)
to Average Net Assets (2.06%) (0.71%) (0.42%) (0.32%)(2)
Portfolio Turnover Ratio 51.83% 44.95% 49.79% 5.91%(2)
Average Commission Per Share
Paid on Equity Transactions $ 0.0807 $ 0.0833 -- --
</TABLE>
- ------------
(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 3.24%, 3.64%, 5.40% and 7.20%, for the years 1996 through 1993
respectively, and the ratio of net investment income (loss) to average net
assets would have been (2.39%), (1.88%), (3.37%), and (5.32%), for the years
1996 through 1993 respectively.
(2) Annualized.
(3) Commencement of Operations.
(4) The Fund's maximum sales charge is not included in the total return
computation.
7
<PAGE> 13
The last sentence in the third full paragraph on page 17 of the Prospectus is
amended to state:
For the fiscal year ending December 31, 1996, fees paid to the Manager were
$16,345 and $46,424 for the Government Securities Fund and Small Cap Fund,
respectively. For this same period, the Manager voluntarily waived its
management fees for the Income Fund and the Balanced Fund. The Manager also
assumed certain expenses of the Funds.
The last sentence in the fourth full paragraph on page 17 of the Prospectus is
amended to state:
For the period ended December 31, 1996, fees paid to the Advisers were
$8,800, $0 and $0 for the Government Securities Fund, Income Fund and
Balanced Fund, respectively.
The third sentence in the first paragraph on page 18 of the Prospectus is
amended to state:
Spectrum is a registered investment adviser and a California corporation
with $95 million in assets under management, as of March 31, 1997.
The third sentence in the third paragraph on page 18 of the Prospectus is
amended to state:
Hamilton & Bache is a registered investment adviser and a California
corporation with $91 million in assets under management, as of December 31,
1996.
The last sentence in the third full paragraph on page 24 of the Prospectus is
amended to state:
A $5.00 service fee applies to each exchange, but currently is being waived
by Pacific Global Investor Services, Inc., the Company's Transfer Agent.
The last sentence in the second full paragraph on page 37 of the Prospectus is
amended to state:
The portfolio turnover rates for each Fund for the fiscal year ended
December 31, 1996, were: 50.49% for the Government Securities Fund; 28.23%
for the Income Fund; 65.94% for the Balanced Fund; and 51.83% for the Small
Cap Fund.
The last sentence in the third full paragraph on page 37 of the Prospectus is
amended to state:
For the fiscal year ended December 31, 1996, fees paid for shareholder
services were $7,025, $2,517, $2,107, and $14,339 for the Government
Securities Fund, Income Fund, Balanced Fund and Small Cap Fund,
respectively.
The last sentence on page 37 of the Prospectus is amended to state:
For the fiscal year ended December 31, 1996, the ratios of operating
expenses to average net assets for the Government Securities Fund, Income
Fund, Balanced Fund, and Small Cap Fund were 1.66%, 1.85%, 2.48%, and 2.91%,
respectively.
8
<PAGE> 14
PART A
Pursuant to Rule 411 under the Securities Act of 1933, as amended, and Rules
0-4 and 8b-23 under the Investment Company Act of 1940, as amended, the
information required to be included in Part A of this Registration Statement is
incorporated herein by reference to the Prospectus dated May 1, 1996, as filed
in electronic format via EDGAR with the Securities and Exchange Commission on
April 29, 1996. This Amendment does not delete, amend, or supersede any
information contained in the Registration Statement or Post-Effective Amendment
No. 4 to the Registration Statement, except to the extent provided herein.
<PAGE> 15
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,
as updated by Supplement dated May 1, 1997. 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, 1997.
<PAGE> 16
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-7
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Description of Certain Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
</TABLE>
S-2
<PAGE> 17
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 the Government Securities Fund and the Balanced 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; Hamilton &
Bache, Inc. ("Hamilton & Bache") serves as Advisor to the Balanced Fund; and
Pacific Global serves as Adviser to the Income Fund and 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.
Prior to December 31, 1996, MMG Money Management Group, Inc. (which
recently changed its name to Expansion Funds of Arizona, Inc.) served as the
investment sub-adviser for the Income Fund. As provided for in its agreement
with the Income Fund, Pacific Global assumed full responsibility for making and
implementing all investment decisions for the Income Fund on that date. At a
meeting held on February 28, 1997, the Board of Directors of the Company,
including a majority of the directors who are not "interested persons" of the
Company, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"), considered a recommendation by Pacific Global that Hamilton & Bache be
appointed as co-manager for the Income Fund. After considering Pacific Global's
recommendation and other information presented at that meeting, the Board of
Directors approved submission of the proposed co-management agreement
("Co-Management Agreement") to the Income Fund's shareholders at the
Shareholders' Meeting scheduled to take place on or about April 25, 1997, and
determined to recommend that the Income Fund's shareholders approve the proposed
Co-Management Agreement.
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. Hamilton & Bache is a
California corporation all of the shares of which are owned by Mary N. Hamilton
and Stephen K. Bache.
S-3
<PAGE> 18
MANAGER'S RESPONSIBILITIES
In addition to the duties set forth on page 17 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 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, 1996, PGIS received for its services as
Transfer Agent, $15,000, $0, $15,000, and $15,000 from the Government
Securities, Income, Balanced, and Small Cap Funds, respectively. For the fiscal
year ending December 31, 1996, PGIS received for its services as Administrative
Agent, $3,225, $543, $1,250, and $3,086 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,
1996, the Manager received for its services as Investment Manager, $16,345, $0,
$0, and $46,424 from the Government Securities, Income, Balanced, and Small Cap
Funds, respectively.
S-4
<PAGE> 19
For the fiscal year ending December 31, 1996, the Advisers received
for their services, $8,800, $0, and $0 from the Government Securities, Income
and Balanced Funds, respectively.
S-5
<PAGE> 20
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
- ------------------------ --------------
<S> <C>
First $100 million .75
next $100 million .70
next $100 million .65
next $100 million .60
next $100 million .55
over $500 million .50
</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-6
<PAGE> 21
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,
3780 Kilroy Airport Way University Group, Inc. (Real Estate)
Suite 820
Long Beach, California 90806
L. Michael Haller, III Senior Vice President, THQ Inc.; President, International Media
Director Group, Inc.; Consultant, Asahi Broadcasting Corp. (Entertainment
5016 N. Parkway, Suite 100 companies)
Calabasas, California 91302
*Thomas H. Hanson Executive Vice President and Director, Pacific Global Investment
Vice President and Secretary Management Company; President and Director, Pacific Global Fund
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.
</TABLE>
S-7
<PAGE> 22
<TABLE>
<S> <C>
*Paul W. Henning Treasurer, Pacific Global Investment Management Company;
Treasurer Treasurer and Director, Pacific Global Fund Distributors, Inc.;
Treasurer, Pacific Global Investor Services Inc.; Assistant
Controller, AdminaStar Defense Services, Inc. (Financial Services
Company)
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
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, 1996, was $5,400. 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, 1995 and 1996, 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, 1995 and 1996 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.
S-8
<PAGE> 23
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 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 24, 1997 are listed below:
<TABLE>
<CAPTION>
FUND SHAREHOLDER PERCENTAGE
---- ----------- ----------
<S> <C> <C>
Income Fund Joanne K. Maxwell 12.04%
29723 Stoughton Drive
Strongsville, OH 44136
Eva U. & Robert M. Rigney 6.09%
P.O. Box 5835
Berkeley, CA 95705
</TABLE>
As of April 24, 1997, the Directors and Officers of the Company, as a group,
owned 1.85% of the outstanding shares of the Small Cap Fund. As of April 24,
1997, the Directors and Officers of the Company, as a group, owned less than 1%
of the outstanding shares of the Government Securities, Income and Balanced
Funds.
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 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
S-9
<PAGE> 24
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, 1996, Rule 12b-1 payments of $7,025, $2,517, $2,107 and
$14,339 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.
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
S-10
<PAGE> 25
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;
(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;
S-11
<PAGE> 26
(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;
(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
S-12
<PAGE> 27
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 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
S-13
<PAGE> 28
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 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.
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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 ("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.
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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 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
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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 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.
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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.
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.
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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 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,
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(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 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.
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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 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.
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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.
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.
S-22
<PAGE> 37
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.
PACIFIC GLOBAL FUND DISTRIBUTORS, INC. COMMISSIONS
<TABLE>
<CAPTION>
1994 1995
FUND UNDERWRITING BROKERAGE TOTAL UNDERWRITING BROKERAGE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Small Cap $11,359 $20,878 $32,237 $7,151 $42,690 $49,841
Balanced 480 279 759 494 422 916
Income 3,774 0 3,774 372 0 372
Government
Securities 153 0 153 2,249 0 2,249
</TABLE>
<TABLE>
<CAPTION>
1996
FUND UNDERWRITING BROKERAGE TOTAL
<S> <C> <C> <C>
Small Cap $9,504 $55,227 $64,731
Balanced 1,106 584 1,690
Income 925 0 925
Government
Securities 5,592 0 5,592
</TABLE>
S-23
<PAGE> 38
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.
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 fiscal years ending December 31, 1994, 1995 and 1996
the total brokerage commissions paid by each Fund were, respectively, as
follows: Government Securities Fund, $1,659, $4,682 and $7,572; Income
Fund, $890, $1,649 and $757; Balanced Fund, $2,050, $5,730 and
$5,093; and Small Cap Fund, $44,653, $60,048 and $81,150. 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
S-24
<PAGE> 39
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.
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> 40
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
S-26
<PAGE> 41
circumstances 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> 42
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, 1996.
Financial Statements incorporated by reference into the
Statement of Additional Information from the Funds' Annual
Reports dated December 31, 1996.
Report of Independent Auditors
Statement of Assets and Liabilities as of December 31,
1996
Schedule of Investments as of December 31, 1996
Statement of Operations for the year ended December
31, 1996
Statement of Changes in Net Assets for the years ended
December 31, 1995 and December 31, 1996
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> 43
** 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> 44
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> 45
** 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).
+ Incorporated herein by reference to Post-Effective Amendment No. 4 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> 46
Item 26. Number of Holders of Securities
As of April 24, 1997:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Government Securities Fund 252
Income Fund 120
Balanced Fund 1,125
Small Cap Fund 1,957
</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, which
determination is made by: (a) the vote of a majority of a quorum of directors
who are neither interested persons of the Company nor parties to the
Proceeding (hereinafter
C-5
<PAGE> 47
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> 48
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> 49
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
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> 50
<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
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> 51
<TABLE>
<S> <C> <C>
Marc D. Kelly
President and Director
Ryan L. Kelly
Vice President
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 and Secretary
Director
Paul H. Henning Treasurer and Treasurer
Director
</TABLE>
__________________
* The principal business address of each person listed in the table is 206
North Jackson Avenue, Suite 201 Glendale, CA 91206.
C-10
<PAGE> 52
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> 53
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, 1997.
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, 1997
- --------------------------------------
Victoria Breen
/s/ Thomas M. Brinker, Sr. Director April 29, 1997
- ----------------------------------
Thomas M. Brinker, Sr.
/s/ Kathleen M. Fishkin Director April 29, 1997
- ------------------------------------
Kathleen M. Fishkin
/s/ L. Michael Haller, III Director April 29, 1997
- -------------------------------------
L. Michael Haller, III
/s/ Thomas H. Hanson Vice President, Secretary, April 29, 1997
- ----------------------------------- and Treasurer (Principal
Thomas H. Hanson Financial and Accounting
Officer)
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ George A. Henning President and Chairman of April 29, 1997
- ------------------------------------ the Board (Principal
George A. Henning Executive Officer)
/s/ Siegfred Kagawa Director April 29, 1997
- -------------------------------------
Siegfred Kagawa
/s/ Takashi Makinodan Director April 29, 1997
- ------------------------------------
Takashi Makinodan
/s/ Gerald E. Miller Director April 29, 1997
- --------------------------------------
Gerald E. Miller
/s/ Louise K. Taylor Director April 29, 1997
- --------------------------------------
Louise K. Taylor
</TABLE>
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- -----------
<S> <C> <C>
11 Consent of Ernst & Young LLP, Independent Auditors
17 Financial Data Schedule
</TABLE>
______________________
<PAGE> 1
EXHIBIT 11
CONSENT OF 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, 1997, in Post-Effective Amendment No. 5 under the Securities Act of
1933 and Post-Effective Amendment No. 6 under the Investment Company Act of
1940 to the Registration Statement (Form N-1A) and related Statement of
Additional Information of Pacific Global Fund, Inc. dba Pacific Advisors Fund
Inc.
/S/ Ernst & Young LLP
April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> SMALL CAP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5,898,554
<INVESTMENTS-AT-VALUE> 8,479,903
<RECEIVABLES> 43,107
<ASSETS-OTHER> 40,167
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,563,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,419
<TOTAL-LIABILITIES> 14,419
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,314,972
<SHARES-COMMON-STOCK> 519,057
<SHARES-COMMON-PRIOR> 362,008
<ACCUMULATED-NII-CURRENT> (171,132)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (371)
<ACCUM-APPREC-OR-DEPREC> 2,405,289
<NET-ASSETS> 8,548,758
<DIVIDEND-INCOME> 42,444
<INTEREST-INCOME> 9,966
<OTHER-INCOME> 0
<EXPENSES-NET> (180,019)
<NET-INVESTMENT-INCOME> (127,609)
<REALIZED-GAINS-CURRENT> 240,687
<APPREC-INCREASE-CURRENT> 2,004,355
<NET-CHANGE-FROM-OPS> 2,117,433
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (242,210)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188,810
<NUMBER-OF-SHARES-REDEEMED> (44,925)
<SHARES-REINVESTED> 13,164
<NET-CHANGE-IN-ASSETS> 4,269,599
<ACCUMULATED-NII-PRIOR> (43,523)
<ACCUMULATED-GAINS-PRIOR> 1,152
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,195,999
<PER-SHARE-NAV-BEGIN> 11.82
<PER-SHARE-NII> (0.21)
<PER-SHARE-GAIN-APPREC> 5.35
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.49)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.47
<EXPENSE-RATIO> 2.91
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,326,633
<INVESTMENTS-AT-VALUE> 3,123,059
<RECEIVABLES> 53,150
<ASSETS-OTHER> 25,184
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,201,393
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,954
<TOTAL-LIABILITIES> 13,954
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,737,378
<SHARES-COMMON-STOCK> 298,952
<SHARES-COMMON-PRIOR> 228,804
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5)
<ACCUMULATED-NET-GAINS> 342
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 449,724
<NET-ASSETS> 3,187,439
<DIVIDEND-INCOME> 22,460
<INTEREST-INCOME> 68,295
<OTHER-INCOME> 0
<EXPENSES-NET> (62,496)
<NET-INVESTMENT-INCOME> 28,259
<REALIZED-GAINS-CURRENT> 10,316
<APPREC-INCREASE-CURRENT> 352,267
<NET-CHANGE-FROM-OPS> 390,842
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,087)
<DISTRIBUTIONS-OF-GAINS> (10,790)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 110,863
<NUMBER-OF-SHARES-REDEEMED> (44,123)
<SHARES-REINVESTED> 3,408
<NET-CHANGE-IN-ASSETS> 1,057,953
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 816
<OVERDISTRIB-NII-PRIOR> (177)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20,095
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,517,026
<PER-SHARE-NAV-BEGIN> 9.31
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.39
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> 2.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> INCOME
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 903,624
<INVESTMENTS-AT-VALUE> 1,200,800
<RECEIVABLES> 31,937
<ASSETS-OTHER> 19,767
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,252,504
<PAYABLE-FOR-SECURITIES> 27,334
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,020
<TOTAL-LIABILITIES> 41,354
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,187,217
<SHARES-COMMON-STOCK> 128,604
<SHARES-COMMON-PRIOR> 110,752
<ACCUMULATED-NII-CURRENT> 446
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 37
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,450
<NET-ASSETS> 1,211,150
<DIVIDEND-INCOME> 8,539
<INTEREST-INCOME> 52,512
<OTHER-INCOME> 0
<EXPENSES-NET> (20,176)
<NET-INVESTMENT-INCOME> 40,875
<REALIZED-GAINS-CURRENT> 8,198
<APPREC-INCREASE-CURRENT> (28,446)
<NET-CHANGE-FROM-OPS> 20,627
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40,665)
<DISTRIBUTIONS-OF-GAINS> (8,205)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,474
<NUMBER-OF-SHARES-REDEEMED> (13,288)
<SHARES-REINVESTED> 3,666
<NET-CHANGE-IN-ASSETS> 139,997
<ACCUMULATED-NII-PRIOR> 236
<ACCUMULATED-GAINS-PRIOR> 44
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,090,226
<PER-SHARE-NAV-BEGIN> 9,67
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> (0.19)
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.42
<EXPENSE-RATIO> 1.85
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 6,599,869
<INVESTMENTS-AT-VALUE> 6,940,571
<RECEIVABLES> 131,895
<ASSETS-OTHER> 37,801
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,110,267
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,940
<TOTAL-LIABILITIES> 13,940
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,012,649
<SHARES-COMMON-STOCK> 762,959
<SHARES-COMMON-PRIOR> 574,402
<ACCUMULATED-NII-CURRENT> 1,814
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,225
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 80,639
<NET-ASSETS> 7,096,327
<DIVIDEND-INCOME> 26,986
<INTEREST-INCOME> 302,518
<OTHER-INCOME> 0
<EXPENSES-NET> (106,973)
<NET-INVESTMENT-INCOME> 222,531
<REALIZED-GAINS-CURRENT> 162,292
<APPREC-INCREASE-CURRENT> (546,913)
<NET-CHANGE-FROM-OPS> (162,090)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (221,637)
<DISTRIBUTIONS-OF-GAINS> (161,531)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 346,901
<NUMBER-OF-SHARES-REDEEMED> (195,381)
<SHARES-REINVESTED> 37,037
<NET-CHANGE-IN-ASSETS> 1,259,352
<ACCUMULATED-NII-PRIOR> 920
<ACCUMULATED-GAINS-PRIOR> 464
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 45,364
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,434,353
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> (0.65)
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> (0.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.30
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
