<PAGE> 1
Registration Nos. 33-50208
811-7062
As filed with the Securities and Exchange Commission on July 14, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 6 / x /
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and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 / 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
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On _________________ pursuant to Paragraph (b) of Rule 485
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60 days after filing pursuant to Paragraph (a)(1) of Rule 485
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On _________________ pursuant to Paragraph (a)(1) of Rule 485
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75 days after filing pursuant to Paragraph (a)(2) of Rule 485
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On _________________ pursuant to Paragraph (a)(2) of Rule 485
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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.
d/b/a PACIFIC ADVISORS FUND INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
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Form N-1A Item No. Caption in Prospectus
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<S> <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 and Equity Fund; Balanced Fund;
Small Cap Fund; Risk Factors, Other
Investment Practices, 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
PART B
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Caption in Statement of
Form N-1A Item No. Additional Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and The Funds; Investment Management and Other
History Services
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Caption in Statement of
Form N-1A Item No. Additional Information
- ------------------ ----------------------
<S> <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 Pacific Global Fund Distributors, Inc.
Commissions
22. Calculation of Performance Not Applicable
Data
23. Financial Statements Independent Auditors
</TABLE>
PART C
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Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 5
PACIFIC ADVISORS FUND INC.
PROSPECTUS
----------
______ __, 1997
The Pacific Advisors Fund Inc. is designed to provide a range of investment
alternatives for individual investors. The Pacific Advisors Fund Inc. consists
of the following four investment funds (the "Funds"):
GOVERNMENT SECURITIES FUND seeks to provide high current income,
preservation of capital, and rising future income, consistent with prudent
investment risk.
INCOME AND EQUITY FUND seeks to provide current income and,
secondarily, long-term capital appreciation.
BALANCED FUND seeks to achieve long-term capital appreciation and
income consistent with reduced market risk.
SMALL CAP FUND seeks to provide capital appreciation through
investment in small market capitalization companies.
There is no assurance that the objective of each Fund will be realized. For
general information please call Pacific Advisors Fund Inc. toll free at
1-800-282-6693.
ABOUT THIS PROSPECTUS
This Prospectus sets forth concisely the information about each Fund that you
should know before investing. It should be retained for future reference. A
Statement of Additional Information, dated ______ __, 1997, about the Funds has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. It is available upon request and without charge by calling
Pacific Advisors Fund Inc. at the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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.
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO ANY PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY
WHERE SUCH OFFER WOULD BE UNLAWFUL.
<PAGE> 6
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
EXPENSE TABLE.............................................. OTHER CONSIDERATIONS............................................
FINANCIAL HIGHLIGHTS....................................... General ......................................................
Certificates..................................................
THE FUNDS.................................................. Net Asset Value...............................................
Distributions.................................................
Government Securities Fund............................... Taxes.........................................................
Income and Equity Fund...................................
Balanced Fund............................................ PERFORMANCE AND YIELD INFORMATION
Small Cap Fund...........................................
Additional Funds......................................... RISK FACTORS, OTHER INVESTMENT
PRACTICES, AND POLICIES OF
FUND MANAGEMENT ORGANIZATIONS.............................. THE FUNDS.....................................................
The Manager and Co-Manager............................... Cash Reserves and Repurchase Agreements.......................
The Advisers............................................. Fixed-Income Securities.......................................
The Distributor.......................................... Forward Commitments and When-Issued
The Transfer Agent, Dividend Securities.............................................
Disbursing Agent and Mortgage-Backed Securities....................................
Administrative Services Agent.......................... Collateralized Mortgage Obligations (CMOs)....................
Asset-Backed Securities.......................................
SHAREHOLDER GUIDE.......................................... Zero-Coupon Bonds.............................................
Securities Lending ...........................................
How to Invest............................................ Foreign Securities............................................
Initial Investment....................................... Writing and Purchasing Covered Put and
Subsequent Investments................................... Call Options on Securities .................................
Reducing Your Sales Charge............................... Certain Policies to Reduce Risk ..............................
SHAREHOLDER SERVICES MORE FACTS ABOUT THE COMPANY....................................
Exchanges of Shares...................................... Organization and Capitalization...............................
Additional Services...................................... Portfolio Turnover............................................
Redemptions.............................................. Distribution Plans............................................
Signatures and Signature Guarantees...................... Expenses......................................................
Telephone Exchanges and Redemptions...................... Meetings and Voting Rights....................................
Shareholder Communications....................................
RETIREMENT PLANS........................................... Additional Information........................................
FUND SERVICE ORGANIZATIONS......................................
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
EXPENSE TABLE
SHAREHOLDER TRANSACTION EXPENSES(1)
GOVERNMENT SECURITIES FUND AND INCOME AND EQUITY FUND
<S> <C>
Maximum Sales Charge Imposed on Purchases 4.75%
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested None
Dividends and Transfers, including Exchanges
from Eligible Funds
Maximum Contingent Deferred Sales Charge (as None
a percentage of offering price or net asset
value at the time of sale, whichever is less)
Exchange Fee(2) $5.00
Redemption Fee None
BALANCED FUND AND SMALL CAP FUND
Maximum Sales Charge Imposed on Purchases (as a 5.75%
percentage of offering price)
Maximum Sales Charge Imposed on Reinvested None
Dividends and Transfers, including Exchanges
from Eligible Funds
Maximum Contingent Deferred Sales Charge (as a None
percentage of offering price or net asset
value at the time of sale, whichever is less)
Exchange Fee(2) $5.00
Redemption Fee None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
GOVERNMENT SECURITIES FUND
Management Fees 0.00%(3)
Service Fees 0.11%(3)
Other Expenses 1.55%(3)
Total Fund Operating Expenses (after fee waiver or the 1.66%(3)
assumption of expenses)
INCOME AND EQUITY FUND
Management Fees 0.00%(3)
Service Fees 0.23%(3)
Other Expenses 1.62%(3)
Total Fund Operating Expenses (after fee waiver or the 1.85%(3)
assumption of expenses)
BALANCED FUND
Management Fees 0.00%(3)
Service Fees 0.08%(3)
Other Expenses 2.40%(3)
Total Fund Operating Expenses (after fee waiver or the 2.48%(3)
assumption of expenses)
SMALL CAP FUND
Management Fees 0.47%(3)
Service Fees 0.23%(3)
Other Expenses 2.21%(3)
Total Fund Operating Expenses (after fee waiver or the 2.91%(3)
assumption of expenses)
</TABLE>
1
<PAGE> 8
(1) Pacific Advisors Fund Inc. reserves the right to impose an annual $10.00 fee
on accounts which have a share value of less than $1,000 on the last business
day at the end of a calendar year. The fee has been waived since inception, and
there is currently no intention to impose it. 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.
(2) The $5.00 Exchange Fee currently is being waived by Pacific Global
Investor Services, Inc., the Company's Transfer Agent.
(3) 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, Co-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 and Equity 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 AND EQUITY FUND
$65 $102 $141 $251
BALANCED FUND
$81 $129 $180 $320
SMALL CAP FUND
$85 $142 $200 $359
</TABLE>
The Expense Table and the Examples are provided to assist your
understanding of the various costs and expenses to which an investment in each
Fund is subject. The figures shown reflect all the fees and expenses incurred
by the Funds for the fiscal year ended December 31, 1996. Actual fees and
expenses for the current year may be greater or less than the estimates. For
more information regarding expenses see "MORE FACTS ABOUT THE COMPANY."
These Examples should not be considered a representation of past or
future expenses for each Fund. Actual expenses may be greater or less than
those shown above. Similarly, the annual rate of return of 5% assumed in the
Examples is not an estimate or guarantee of future investment performance.
2
<PAGE> 9
FINANCIAL HIGHLIGHTS
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 table below represents a condensed
financial history of the operations of each Fund and expresses the information
in terms of a single share of each Fund outstanding throughout the period.
This per share and other information should be read in conjunction
with the financial statements and related notes included in the Company's
Annual Reports to Shareholders, which, except for pages 1 through 2 thereof,
are incorporated by reference into the Company's Statement of Additional
Information. A copy of each Fund's Annual Report is available without charge.
3
<PAGE> 10
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) to
1996 1995 1994 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> 11
INCOME AND EQUITY FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 For the Period
February 8, 1993(3) to
1996 1995 1994 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 and Equity 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> 12
BALANCED FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 For the Period
February 8, 1993(3) to
1996 1995 1994 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> 13
SMALL CAP FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 For the Period
February 8, 1993(3) to
1996 1995 1994 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> 14
THE FUNDS
The Pacific Global Fund, Inc., a Maryland corporation doing business as
Pacific Advisors Fund Inc. (the "Company"), is registered with the Securities
and Exchange Commission ("SEC") as an open-end diversified management
investment company. The Company currently offers four Funds: Government
Securities Fund, Income and Equity Fund, Balanced Fund and Small Cap Fund. Also
see "Exchanges to Eligible Funds" for availability of exchanges at net asset
value to and from certain other eligible mutual funds ("Eligible Funds"). Each
Fund is a separate investment portfolio of the Company with a distinct
fundamental investment objective, investment program, policies, and
restrictions. Each Fund's investment objective may not be changed without the
approval of a majority of its shareholders. Each Fund is advised and managed by
Pacific Global Investment Management Company (the "Manager" or "Pacific
Global"), which supervises the day-to-day investment operations of each Fund.
The Manager and the Company, on behalf of the Government Securities Fund and
the Balanced Fund, have entered into sub-advisory agreements with registered
investment advisers (the "Adviser(s)"). Spectrum Asset Management, Inc.
("Spectrum") serves as Adviser to the Government Securities Fund. Hamilton &
Bache, Inc. ("Hamilton & Bache") serves as Adviser to the Balanced Fund. The
Manager serves as Adviser to the Small Cap Fund. The Company, on behalf of the
Income and Equity Fund, entered into a co-management agreement with the Manager
and Hamilton & Bache on July 1, 1997. Under the co-management agreement, the
Manager and Hamilton & Bache (the "Co-Manager") co-manage the investment and
reinvestment of the Fund's assets. The Manager remains solely responsible for
the administrative management of the Income and Equity Fund under its
Investment Management Agreement.
GOVERNMENT SECURITIES FUND
INVESTMENT OBJECTIVE. The Government Securities Fund seeks to provide high
current income, preservation of capital, and rising future income, consistent
with prudent investment risk.
INVESTMENT PROGRAM. In seeking to achieve its objective, the Fund will
invest primarily (i.e., at least 65% of its total assets) in fixed-income
securities issued or guaranteed by the U.S. Government, or its agencies and
instrumentalities ("U.S. Government Securities"). The U.S. Government
Securities in which the Fund may invest include: (i) U.S. Treasury bills,
notes, and bonds, which are direct obligations of the U.S. Government; (ii)
Government National Mortgage Association ("GNMA") mortgage-backed securities,
which are guaranteed as to the timely payment of principal and interest by GNMA
and backed by the full faith and credit of the U.S. Treasury; (iii) securities
such as those issued by the Federal Home Loan Banks and the Federal National
Mortgage Association ("FNMA"), which are supported by the agency's right to
borrow money from the U.S. Treasury under certain circumstances; and (iv)
securities such as those issued by the Farmers Home Administration, which are
supported only by the issuing agency's or instrumentality's credit.
The Fund also will invest in high-grade fixed-income securities issued by
U.S. corporations, including convertible debt securities and preferred stocks,
and zero coupon bonds issued by agencies and instrumentalities of the U.S.
Government or by private corporations. High-grade securities are rated within
the three highest credit categories by any nationally recognized statistical
rating organization ("NRSRO") or, if unrated, are of comparable quality as
determined by Spectrum, the Fund's Adviser. In selecting such fixed-income
securities, Spectrum focuses on building core investments in areas of low risk
and high intrinsic value. The Fund's corporate
8
<PAGE> 15
bond investments emphasize short and intermediate-term issues of domestic
corporations that have strong or improving balance sheets.
Spectrum will actively manage the Fund's portfolio maturity to increase the
Fund's total rate of return. The proportion of the Fund's assets invested in
long, intermediate, or short-term securities is expected to vary depending on
Spectrum's evaluation of market patterns and economic conditions. When long
term interest rates are declining, the Fund will increase its investments in
longer term bonds. Conversely, when long term interest rates are rising, the
Fund will decrease its investments in longer term bonds and increase its
investments in high quality money market securities and other short term debt
securities. For temporary defensive purposes, the Fund may invest, without
limitation, in high quality money market securities. The Fund may also invest
up to 10% of its total assets in other open-end investment companies, in
accordance with Section 12(d)(1)(A) of the Investment Company Act of 1940. Such
investment in other investment companies will take into consideration the
operating expenses and fees of those companies, including advisory fees, as
such expenses will reduce investment return.
In addition, to enhance its income, the Fund will invest in dividend-paying
common stocks. In selecting such common stocks, the Fund emphasizes companies
with favorable prospects for rising dividend income. Investments in equity
securities may entail greater price volatility than investments in high-grade
fixed-income securities. However, to minimize such exposure to greater
volatility, the Fund's investments in equity securities will generally be made
in companies that have some of the following characteristics: (i) established
operating histories; (ii) strong or improving balance sheets; and (iii) above
average current dividend yields relative to the Standard & Poor's 500 Composite
Price Index ("S&P 500"). When the Fund invests more than 25% of its total
assets in dividend-paying common stocks, the Fund will concentrate such
investments in securities of issuers in the public utilities industry. The
securities of high quality public utilities are used by Spectrum as substitutes
for long term bonds. Concentration of investments in this area are made when
the current yield on U.S. Government 30-year bonds declines 60 basis points
(6/10 of 1%) from previous yield peaks for the period of the last 50 trading
days. Public utilities industry issuers include those engaged in the
manufacture, production, generation, transmission and sale of gas, electric
energy, and water and sanitary services, as well as issuers in the
communication field including telephone, telegraph, satellite, microwave, and
other companies providing communication facilities for the public benefit
(other than those in the public broadcasting industry). Investments in public
utilities industry securities may be affected by such factors as environmental
conditions, energy conservation programs, fuel shortages, and federal, state
and local legislative and regulatory actions.
The common stocks in which the Fund invests generally will be listed on a
national securities exchange. The Fund may also invest up to 25% of its total
assets in common stocks and fixed-income securities of foreign issuers.
Investments in common stocks of foreign issuers will be made primarily through
the use of American Depository Receipts ("ADRs"), although direct market
purchases also may be made.
Each Fund's investment objective is to provide current income consistent
with liquidity and conservation of capital. In pursuing its investment
objective, each Fund may invest in certain types of securities that have
special risks which are described under "RISK FACTORS, OTHER INVESTMENT
PRACTICES, AND POLICIES OF THE FUNDS" of this prospectus and therefore, may not
be suitable for all investors. Each Fund may purchase securities on a
whenissued, delayed delivery, or forward commitment basis, but not for leverage
(borrowing purposes). Generally, each Fund may invest in some or all of the
following: high-grade money
9
<PAGE> 16
market instruments with remaining maturities of 13 months or less, including
U.S. government securities, obligations of U.S. banks, commercial paper and
other short-term corporate obligations, corporate bonds and participation
interests or repurchase agreements involving any of the foregoing securities.
Each Fund may invest in obligations of banks, including foreign branches of
domestic banks and foreign and domestic branches of foreign banks. However,
each Fund does not intend to hedge its foreign currency risks and will engage
in currency exchange transactions on a spot (i.e., cash) basis only at the spot
rate prevailing in the foreign exchange market. Investors should carefully
assess the risks associated with an investment in each Fund.
INCOME AND EQUITY FUND*
INVESTMENT OBJECTIVE. The Income and Equity Fund seeks to provide current
income and, secondarily, long-term capital appreciation.
INVESTMENT PROGRAM. To achieve its objective, the Income and Equity Fund
will invest primarily (i.e., at least 65% of its total assets) in fixed-income
securities and income-producing equity and equity-related securities. Under
normal circumstances, it is expected that approximately 50% of the Fund's total
assets will be invested in fixed-income securities, including U.S. Government
Securities (such as those utilized by the Government Securities Fund),
corporate bonds, mortgage-backed securities, asset-backed securities,
collateralized mortgage obligations ("CMOs"), convertible debt securities,
Liquid Yield Option Notes ("LYONS"), Preference Equity Redemption Cumulative
Stock ("PERCS") and zero-coupon bonds. The fixed-income securities utilized by
the Fund will be primarily investment-grade, i.e., rated within the four
highest credit categories by any NRSRO or, if unrated, are of comparable
quality as determined by the Fund's Manager and Co-Manager. In the event that
the ratings for investment grade securities held by the Fund fall below
investment grade, the Fund will not be obligated to dispose of such securities
if, in the opinion of the Fund's Manager and Co-Manager, such investment is
considered appropriate under the circumstances. No more than 5% of the Fund's
net assets will be invested or held in securities with ratings less than
investment-grade. The proportion of the Fund's assets invested in any
particular type of fixed-income security or in any maturity will vary depending
on the Manager's and Co-Manager's evaluation of market and economic conditions.
The remainder of the Fund's assets will be invested in equity and
equity-related securities, including common stocks, preferred stocks, and
convertible equity securities. Such securities will be chosen largely for their
total return characteristics. In evaluating such securities for investment, the
Fund's Manager and Co-Manager may consider the following factors: (i)
above-average earning's growth potential; (ii) sound balance sheets and other
financial characteristics; (iii) quality of management; and (iv) growth of
dividends. While the majority of these equity investments will consist of
dividend-paying securities of established companies, the Fund may also invest
in certain equity securities that do not pay current dividends, but which offer
prospects for capital growth or future income.
The equity securities in which the Fund invests may be listed on a national
securities exchange or traded in an established over-the-counter ("OTC")
market. The Fund may also invest up to 10% of its total assets in equity and
equity-related securities of foreign issuers. The Fund will invest in such
foreign equity securities primarily through the purchase of ADRs or other
similar securities. (See "RISK FACTORS, OTHER INVESTMENT PRACTICES, AND
10
<PAGE> 17
POLICIES OF THE FUNDS" of this prospectus for a more detailed description of
these investment practices and their risks.)
The mix of bonds and stocks held by the Fund will vary from time to time
depending on the assessment of business, economic, and investment conditions by
the Fund's Manager and Co-Manager. However, fixed-income securities can be
expected to represent the majority of the Fund's total assets as long as the
general level of interest rates remains well in excess of dividend yields
available from common stocks.
In addition to investing in fixed-income securities and income-producing
equity and equityrelated securities, the Fund may also invest in high-quality
money market securities. For temporary defensive purposes, the Fund may invest
in such money market securities without limitation.
Each Fund's investment objective is to provide current income consistent
with liquidity and conservation of capital. In pursuing its investment
objective, each Fund may invest in certain types of securities that have
special risks which are described under "RISK FACTORS, OTHER INVESTMENT
PRACTICES, AND POLICIES OF THE FUNDS" of this prospectus and therefore, may not
be suitable for all investors. Each Fund may purchase securities on a
whenissued, delayed delivery, or forward commitment basis, but not for leverage
(borrowing purposes). Generally, each Fund may invest in some or all of the
following: high-grade money market instruments with remaining maturities of 13
months or less, including U.S. government securities, obligations of U.S.
banks, commercial paper and other short-term corporate obligations, corporate
bonds and participation interests or repurchase agreements involving any of the
foregoing securities. Each Fund may invest in obligations of banks, including
foreign branches of domestic banks and foreign and domestic branches of foreign
banks. However, each Fund does not intend to hedge its foreign currency risks
and will engage in currency exchange transactions on a spot (i.e., cash) basis
only at the spot rate prevailing in the foreign exchange market. Investors
should carefully assess the risks associated with an investment in each Fund.
* The Income and Equity Fund was formerly called the Income Fund. The
name change more accurately reflects the Fund's continuing investment
program.
BALANCED FUND
INVESTMENT OBJECTIVE. The Balanced Fund seeks to achieve long-term capital
appreciation and income consistent with reduced market risk.
INVESTMENT PROGRAM. To achieve its objective, the Balanced Fund will invest
in a flexible combination of equity and equity-related securities,
investment-grade fixed-income securities, and high-quality money market
securities or money market funds. Hamilton & Bache will vary the composition of
the Fund's portfolio based on its evaluation of economic and market conditions,
price trends, and the anticipated returns available from each of the three
asset classes. Nevertheless, at least 25% of the Fund's total assets will be
invested at all times in fixed-income securities, including corporate debt
securities and preferred stocks.
In selecting equity and equity-related investments for the Fund, including
common stocks and convertible preferred stocks, Hamilton & Bache will consider
all factors that it believes influence security prices. In particular, it will
evaluate the momentum in trends of security prices of individual companies,
industries, and the stock market in general. Hamilton & Bache also will
11
<PAGE> 18
analyze the fundamental values of both particular companies and industries,
including their financial soundness and future prospects. The Fund's equity and
equity-related investments will be primarily in medium and large capitalization
companies (i.e., companies having market capitalizations in excess of $500
million).
The fixed-income portion of the Fund will be invested in investment-grade
quality bonds, debentures or asset-backed securities. Under normal conditions,
the Fund also may invest up to 25% of its total assets in high-quality money
market securities and money market funds. Such bonds and money market
securities may include: U.S. Government Securities (such as those used by the
Government Securities Fund), corporate bonds, mortgage-backed securities,
convertible debt securities, and CMOs. When market conditions warrant temporary
or defensive purposes, the Fund may invest up to 60% of the Fund's total assets
in money market securities.
The equity securities in which the Fund invests may be listed on a national
securities exchange or traded in an established OTC market. The Fund may invest
up to 20% of its total assets in equity and equity-related securities of
foreign issuers. The Fund may invest in such foreign equity securities through
the purchase of ADRs or other similar securities. (See "RISK FACTORS, OTHER
INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS" for a more detailed
description of these investment practices and their risks.) The Fund may also
invest up to 10% of its total assets in the securities of other investment
companies, including closed-end investment companies, in accordance with
Section 12(d)(1)(A) of the Investment Company Act of 1940. Such investment in
other investment companies will take into consideration the operating expenses
and fees of these companies, including advisory fees, as such expenses may
reduce investment return.
Each Fund's investment objective is to provide current income consistent
with liquidity and conservation of capital. In pursuing its investment
objective, each Fund may invest in certain types of securities that have
special risks which are described under "RISK FACTORS, OTHER INVESTMENT
PRACTICES, AND POLICIES OF THE FUNDS" of this prospectus and therefore, may not
be suitable for all investors. Each Fund may purchase securities on a
whenissued, delayed delivery, or forward commitment basis, but not for leverage
(borrowing purposes). Generally, each Fund may invest in some or all of the
following: high-grade money market instruments with remaining maturities of 13
months or less, including U.S. government securities, obligations of U.S.
banks, commercial paper and other short-term corporate obligations, corporate
bonds and participation interests or repurchase agreements involving any of the
foregoing securities. Each Fund may invest in obligations of banks, including
foreign branches of domestic banks and foreign and domestic branches of foreign
banks. However, each Fund does not intend to hedge its foreign currency risks
and will engage in currency exchange transactions on a spot (i.e., cash) basis
only at the spot rate prevailing in the foreign exchange market. Investors
should carefully assess the risks associated with an investment in each Fund.
SMALL CAP FUND
INVESTMENT OBJECTIVE. The Small Cap Fund seeks to provide capital
appreciation through investment in small market capitalization companies.
INVESTMENT PROGRAM. In seeking to achieve its objective, the Fund will
invest primarily (i.e., at least 65% of the Fund's total assets) in equity and
equity-related securities of small capitalization companies that are in an
early growth stage of their development. Such small
12
<PAGE> 19
capitalization companies (i.e., companies with under $500 million in market
capitalization) are often referred to as emerging growth companies. In
selecting securities of such emerging growth companies for the Fund, Pacific
Global, the Fund's Adviser, focuses on companies it believes have unique
characteristics or proprietary advantages that may offer superior prospects for
above-average increases in revenue and earnings. The Fund will also purchase
securities of companies that (i) are in industries that Pacific Global believes
are less likely to be affected by cyclical changes in the economy and (ii) have
strong prospects for earnings growth. Pacific Global will continuously monitor
these emerging growth companies and their industries to make certain they
retain the characteristics that led to their initial selection, and to
determine whether to increase the Fund's initial investment. The Fund may also
invest up to 10% of its total assets in the securities of other investment
companies, including closed-end investment companies, in accordance with
Section 12(d)(1)(A) of the Investment Company Act of 1940. Such investment in
other investment companies will take into consideration the operating expenses
and fees of those companies, including advisory fees, as such expenses may
reduce investment return.
Under normal circumstances, the Fund will be primarily invested in equity
and equity-related securities of such emerging growth companies, including:
common stocks, preferred stocks, and securities convertible into or
exchangeable for common stocks. Such equity and equity-related securities will
be principally traded in the U.S. OTC securities market and, as such, primarily
NASDAQ traded securities. Up to 5% of the Fund's total assets may be invested
directly in foreign securities.
While it is anticipated the Fund will invest principally in equity and
equity-related securities, the Fund also may invest in convertible preferred
stocks that pay above-average dividends and investment-grade fixed-income
securities provided such investments appear desirable in light of the Fund's
investment objective of capital appreciation. The Fund will not continue to
hold investment grade securities that have been down graded to below investment
grade. Convertible preferred stocks that pay above-average dividends and
long-term corporate bonds are considered by Pacific Global to have capital
appreciation potential. The fixed-income securities in which the Fund may
invest are generally expected to be long-term corporate bonds having an average
portfolio maturity of between 10 and 15 years, which have the potential to
provide capital appreciation. When, in the judgment of Pacific Global, a
temporary defensive posture is appropriate, the Fund may invest, without
limitation, in high-quality money market securities. (See "RISK FACTORS,
OTHER INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS" for a more detailed
description of fixed income securities.)
While the companies in which the Fund invests may offer greater opportunity
for capital appreciation than larger, more established companies, investment in
small capitalization companies generally will involve greater risks. For
example, such small capitalization companies may have limited product lines,
markets, or financial and management resources. In addition, many OTC stocks
trade less frequently and in a smaller volume than exchange-traded stocks. The
securities of companies traded in the OTC securities market also may be more
sensitive to market changes than the securities of exchange-traded companies.
In addition, while it is the policy of the Fund not to invest in securities of
companies with no operating history, the Fund may invest up to 10% of its total
assets in securities of companies with an operating history of less than three
years. Investments in the securities of such unseasoned companies may involve a
higher degree of risk than investments in securities of companies with longer
operating histories. The Fund is appropriate only for investors who can afford
the risks described above that apply to investments in small capitalization
companies.
13
<PAGE> 20
Each Fund's investment objective is to provide current income consistent
with liquidity and conservation of capital. In pursuing its investment
objective, each Fund may invest in certain types of securities that have
special risks which are described under "RISK FACTORS, OTHER INVESTMENT
PRACTICES, AND POLICIES OF THE FUNDS" of this prospectus and therefore, may not
be suitable for all investors. Each Fund may purchase securities on a
whenissued, delayed delivery, or forward commitment basis, but not for leverage
(borrowing purposes). Generally, each Fund may invest in some or all of the
following: high-grade money market instruments with remaining maturities of 13
months or less, including U.S. government securities, obligations of U.S.
banks, commercial paper and other short-term corporate obligations, corporate
bonds and participation interests or repurchase agreements involving any of the
foregoing securities. Each Fund may invest in obligations of banks, including
foreign branches of domestic banks and foreign and domestic branches of foreign
banks. However, each Fund does not intend to hedge its foreign currency risks
and will engage in currency exchange transactions on a spot (i.e., cash) basis
only at the spot rate prevailing in the foreign exchange market. Investors
should carefully assess the risks associated with an investment in each Fund.
ADDITIONAL FUNDS
The Distributor has arranged for shares of two money market portfolios of
The Reserve Fund, "America's First Money Market Fund" ("Reserve Fund
Portfolios"), to be available in exchange for shares of the Funds through the
Pacific Global Fund Distributors Money Market Account. The Distributor may
arrange for shares of other funds to be available for exchanges with shares of
the Funds (such other funds are referred to collectively with the Reserve Fund
Portfolios as the "Eligible Funds"). See "Shareholder Services: Exchanges of
Shares."
FUND MANAGEMENT ORGANIZATIONS
THE MANAGER
Pacific Global Investment Management Company is the Manager of the Company.
The Manager was incorporated on December 17, 1991 under the laws of the State
of California and has managed the assets of the Company since its inception.
The Manager had not previously served as adviser to any other registered
investment company. The Manager supervises a continuous investment program for
the Company, evaluates, recommends, and monitors the Co-Manager's and each
Adviser's performance, investment program, and compliance with applicable laws
and regulations, and recommends to the Board of Directors whether the Co-Manager
and each Adviser's contract should be continued or modified. The Manager also
serves as Adviser to the Small Cap Fund. The Manager is also responsible for
managing the Company's operations and business affairs and supervising the
Company's administrative services agent. See "INVESTMENT MANAGEMENT AND OTHER
SERVICES" in the Statement of Additional Information for more information
regarding the Company's investment management arrangements.
14
<PAGE> 21
George A. Henning, Chairman of the Company, is also the principal
stockholder and President and Director of the Manager. Mr. Henning, along with
Thomas H. Hanson, an Executive Vice President of the Manager, is primarily
responsible for the Manager's operations, which includes the services provided
to the Company, described above. Mr. Henning serves as the Chairman of Pacific
Global Fund Distributors, Inc. ("Distributor"), the Company's Distributor, and
Pacific Global Investor Services, Inc. ("PGIS"), the Company's transfer agent,
dividend disbursing agent, and administrative services agent.
Mr. Hanson also serves as Vice President and Secretary of the Company,
President and Director of the Distributor, and President and Director of PGIS.
In addition, Mr. Hanson is an Owner, Director, Chairman, and President of
TriVest Global Management, Inc., a holding company ("TriVest Global"), and
Chairman, President, and Chief Executive Officer of TriVest Capital Management,
Inc., a registered investment adviser ("TriVest Capital Management"). Prior
thereto, Mr. Hanson was Executive Vice President of Investors Research Company,
a Director of Investors Research Fund, Inc., an investment company, and a
principal of Unified Holdings, Inc. (a holding company).
The Company pays the Manager management fees at the maximum annual rates of
.40% of the average daily net assets of the Income and Equity Fund; .65% of the
average daily net assets of the Government Securities Fund; and .75% of the
average daily net assets of the Balanced and Small Cap Funds.
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 the same period, the Manager voluntarily waived its
management fees for the Income and Equity Fund and the Balanced Fund. The
Manager also assumed certain expenses of the Funds.
THE ADVISERS AND CO-MANAGER
The Manager (not the Funds) pays each Adviser for its services. The Manager
as Adviser to the Small Cap Fund is compensated by the Fund. Under the
management and sub-advisory agreements, each Adviser manages the assets of the
respective Funds in accordance with the investment objectives, investment
programs, policies, and restrictions under the supervision of the Manager and
the Board of Directors. Each Adviser determines which securities and other
instruments are purchased and sold for its respective Fund and obtains and
evaluates financial data relevant to each Fund. The Advisers are responsible
for administering certain affairs of the Fund arising from their investment
activities.
Hamilton & Bache as Co-Manager to the Income and Equity Fund is compensated
by the Fund. Under the co-management agreement, Hamilton & Bache co-manages the
Income and Equity Fund's assets in accordance with the Fund's investment
objectives, investment programs, policies, and restrictions under the
supervision of the Board of Directors. The Co-Manager works closely with the
Manager to determine which securities and other instruments to purchase and
sell for the Income and Equity Fund. See the Statement of Additional
Information for further information regarding reductions in the management,
co-management and sub-advisory
15
<PAGE> 22
fees on assets in excess of $200 million in assets of the Government
Securities, Balanced and Small Cap Funds and in excess of $100 million in
assets of the Income and Equity Fund.
For the period ended December 31, 1996, fees paid to the Advisers were
$8,800 and $0 for the Government Securities Fund and Balanced Fund,
respectively. For the period ended December 31, 1996, no fees were paid to
Expansion Funds of Arizona, Inc (formerly, the MMG Money Management Group,
Inc.), which served as a sub-adviser to the Income and Equity Fund prior to its
resignation on December 31, 1996.
SPECTRUM ASSET MANAGEMENT, INC.
Spectrum serves as Adviser to the Government Securities Fund. The Manager
pays Spectrum sub-advisory fees, computed daily and paid monthly, at the
maximum annual rate of .35% of the Fund's average daily net assets. Spectrum is
a registered investment adviser and a California corporation with $95 million
in assets under management, as of March 31, 1997. Spectrum serves as adviser to
individuals, family trusts, employee benefit plans and charitable and
educational endowments. Spectrum has not previously served as an adviser to any
other registered investment company. Spectrum's controlling interests are held
by R. "Kelly" Kelly, Chairman of Spectrum, and Marc Kelly, President and
Director of Spectrum, who are primarily responsible for the management of the
assets of the Government Securities Fund and have held such responsibility
since the Fund's inception.
HAMILTON & BACHE, INC.
Hamilton & Bache serves as Adviser to the Balanced Fund and Co-Manager to
the Income and Equity Fund. The Manager pays Hamilton & Bache sub-advisory
fees, computed daily and paid monthly, at the maximum annual rate of .40% of
the Fund's average daily net assets. The Company, on behalf of the Income and
Equity Fund, pays Hamilton & Bache co-management fees, computed daily and paid
monthly, at the maximum annual rate of .35% of the Fund's average daily net
assets. Hamilton & Bache is a registered investment adviser and a California
corporation with $91 million in assets under management, as of December 31,
1996. Hamilton & Bache serves as the investment manager to a number of separate
discretionary accounts for corporate pension and profit sharing plans and
individuals on a fee only basis. Prior to its resignation on July 19, 1994,
Hamilton & Bache served as the portfolio manager of a portfolio of a mutual
fund that it managed in a similar manner. Hamilton & Bache is wholly-owned by
Mary N. Hamilton, founder and President of Hamilton & Bache, and Stephen K.
Bache, CFA, Chief Investment Officer of Hamilton & Bache. Ms. Hamilton and Mr.
Bache are primarily responsible for managing the assets of the Balanced Fund
and co-managing the assets of the Income and Equity Fund and have had such
responsibility since September 1, 1994 and ______ __, 1997, respectively.
16
<PAGE> 23
THE DISTRIBUTOR
Pacific Global Fund Distributors, Inc. (the "Distributor"), a fully
owned subsidiary of the Manager, serves as exclusive distributor of shares of
the Company, pursuant to a Distribution Agreement with the Company. The
Distributor may enter into Selling Group Agreements with unaffiliated
broker-dealers for the sale of shares of the Funds and may sell shares through
banks and other financial services firms. The Distributor pays commissions to
broker-dealers selling shares of the Funds, as discussed below. Sales of shares
of the Funds may also be a factor in selecting broker-dealers to execute
portfolio transactions. The Distributor may act as a broker for the Company in
conformity with the securities laws and rules thereunder. Also see "MORE FACTS
ABOUT THE COMPANY: DISTRIBUTION PLANS."
THE TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND ADMINISTRATIVE
SERVICES AGENT
Pacific Global Investor Services, Inc. (the "Transfer Agent" or "PGIS"), a
wholly owned subsidiary of the Manager, serves as transfer agent and dividend
disbursing agent to the Funds, pursuant to a Transfer Agency, Dividend
Disbursing Agency and Administrative Service Agreement. PGIS also performs
certain administrative services for the Company and the Funds pursuant to such
agreement. PGIS also provides similar services to the Distributor in connection
with the Eligible Funds.
SHAREHOLDER GUIDE
HOW TO INVEST
You may invest any amount you choose, as often as you want, in any of the
Funds unless your investment is automatically withdrawn from your bank account
(see "Automatic Investment Plan"). Currently, there is no minimum investment
requirement, but this policy could change. You may diversify your own portfolio
by choosing a combination of the Funds for your investment program. You should
be aware that the Company reserves the right to impose an annual $10.00 fee on
accounts which have a share value of less than $1,000 on the last business day
at the end of each calendar year. The fee has been waived since inception, and
there is currently no intention to impose it.
INITIAL INVESTMENT
You may make your first purchase of any Fund's shares either (1) by
ordering the shares through any dealer or broker that has entered into a
Selling Group Agreement with the Distributor ("Authorized Dealer") or (2) by
completing an Application and mailing it, along with your check payable to
Pacific Advisors Fund Inc., to PGIS, the Transfer Agent. (If no dealer or
broker is named in the Application, the Distributor will act as the dealer for
you.)
17
<PAGE> 24
Fund shares are sold at their offering price, which (as used in this
Prospectus) is the net asset value per share plus an applicable front-end sales
charge. Certain purchases, described below, are not subject to the front-end
sales charge. The sales charge may also be reduced if you meet certain
conditions (see "REDUCING YOUR SALES CHARGES").
SUBSEQUENT INVESTMENTS
You may make subsequent purchases of shares of the Funds through your
Authorized Dealer or by sending it directly to the Distributor.
BY MAIL. Send your check payable to Pacific Advisors Fund Inc. to PGIS.
When you are making subsequent investments, please enclose your check with the
Investment Form portion of your confirmation. If the Investment Form is not
available, indicate on your check your name, address, Fund name, and your
account number. If you are investing in more than one Fund, provide us with
information on how you want your payment applied.
Orders to purchase shares are effective on the business day PGIS receives
your check.
BY WIRE. You may make a subsequent investment in the Funds by wiring
monies. To do so:
1. Instruct your bank to wire federal funds to:
Bank Name: Chase NYC
ABA #: 021000021
BBK = United States Trust Company of New York
A/C#: 920-1-073195
Further Credit to: Pacific Advisor Funds
A/C #1012258
(Your bank may charge you a fee for this service.)
2. Be sure to specify on the wire: (a) The Fund you are buying and your
account number; and (b) the name listed on the Account.
3. Call PGIS if you have any questions.
CONDITIONS OF YOUR PURCHASE. The Company and the Distributor each reserves
the right to reject any purchase for any reason and to cancel any purchase due
to nonpayment. Share purchases are not binding on the Company or the
Distributor until they are confirmed by PGIS as paid. All purchases must be
made in U.S. dollars and all checks must be drawn on U.S. banks. No cash will
be accepted. As a condition of this offering, if your purchase is canceled due
to nonpayment or because your check does not clear (and, therefore, your
account is required to be redeemed), you will be charged a fee of $25.00. In
addition, you will be responsible for any related losses the Fund(s) incurs.
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<PAGE> 25
SHARE PRICE. Your shares in each Fund will be priced at the net asset value
per share (plus any applicable sales charge, as detailed below) next calculated
after your purchase order has been received in proper form by PGIS. When you
purchase shares through an Authorized Dealer, the dealer must receive your
order before the close of business on the New York Stock Exchange ("NYSE") and
transmit it to the Company by 4 p.m. New York time to receive that day's net
asset value. Current sales charges and dealer concessions are:
GOVERNMENT SECURITIES FUND AND INCOME AND EQUITY FUND
- -----------------------------------------------------
<TABLE>
<CAPTION>
As As
Percentage Percentage Amount
of Offering of Net Reallowed
Amount of Purchase Price Investment to Dealers*
------------------ ----- ---------- -----------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.98% 4.00%
$ 50,000 - $ 99,999 4.50% 4.71% 3.75%
$ 100,000 - $ 249,999 3.50% 3.63% 2.75%
$ 250,000 - $ 499,999 2.50% 2.56% 2.00%
$ 500,000 - $ 999,999 2.00% 2.04% 1.60%
$ 1 million and over** 0.00% 0.00% **
BALANCED FUND AND SMALL CAP FUND
- --------------------------------
As As
Percentage Percentage Amount
of Offering of Net Reallowed
Amount of Purchase Price Investment to Dealers
------------------ ----- ----- ----------
Less than $ 25,000 5.75% 6.10% 4.75%
$ 25,000 - $ 49,999 5.50% 5.82% 4.75%
$ 50,000 - $ 99,999 4.75% 4.99% 4.00%
$ 100,000 - $ 249,999 3.75% 3.90% 3.00%
$ 250,000 - $ 499,999 2.50% 2.56% 2.00%
$ 500,000 - $ 999,999 2.00% 2.04% 1.60%
$ 1 million and over** 0.00% 0.00% **
</TABLE>
* The amount reallowed to dealers is shown as a percentage of the offering
price. Under certain circumstances, commissions up to the full amount of the
sales charge may be reallowed to Authorized Dealers. Dealers that receive 90%
or more of the sales load may be deemed to be underwriters under the Securities
Act of 1933. Additionally the Distributor may use payments under the
Distribution Plan or its own resources to provide additional compensation in
the form of promotional merchandise, marketing support, travel or other
incentive programs. See "CONTINGENT DEFERRED SALES CHARGE."
** On purchases by a "Single Purchaser" (defined below in "RIGHT OF
ACCUMULATION") aggregating $1 million or more, the Distributor will pay
Authorized Dealers an amount equal to 1% of the first $2 million of such
purchases, plus .50% of the next $1 million, plus .20% of the next $1 million,
plus .03% of the portion of such purchases in excess of $4 million. The
Distributor also may, from time to time, enter into arrangements with specific
Authorized Dealers whereby the Distributor may make additional payments to that
dealer, based in part, on that dealer meeting certain sales criteria.
REDUCING YOUR SALES CHARGE
The sales charge you pay is affected by the size of your total investment
in the Funds as shown in the table above. There are various methods that
qualify to increase the size of your investment and thereby reduce the
applicable sales charge. Certain categories of Fund purchases also will be made
at net asset value, as described below.
SINGLE PURCHASER. The size of investment shown in the above table applies
to the total amount being invested by any "Single Purchaser" in shares of the
Funds and Eligible Funds other than the Reserve Fund Portfolios at any one time.
A "Single Purchaser," eligible for a
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<PAGE> 26
discount based on combining purchases, includes: (1) an individual; (2) an
individual and the members of his or her family (limited to the spouse and
minor children); or (3) a trustee or other fiduciary purchasing for a single
fiduciary account or trust estate, including employee benefit plans created
under Section 401 of the Internal Revenue Code, as well as related plans of the
same employer. When you invest in the Funds for several accounts at the same
time, you may combine these investments to reduce the applicable sales charge,
provided that PGIS is notified at the time of purchase.
To qualify for a reduced sales charge, you may combine concurrent purchases
of two or more Funds, including Eligible Funds (except direct purchases of the
Reserve Fund Portfolios). For example, if you concurrently invest $25,000 in
one Fund and $25,000 in another, the sales charge would be reduced to reflect a
$50,000 purchase. Remember, PGIS must be notified in writing of your intent to
make a concurrent purchase at the time of purchase.
RIGHT OF ACCUMULATION. You may reduce the sales charge by combining the
amount being invested in any Fund with certain previous purchases of shares of
any of the Funds and the Eligible Funds, by any "Single Purchaser" as described
above. However, the cumulative purchase discount does not apply to direct
purchases of shares of the Reserve Fund Portfolios. Your shares in any Fund and
any Eligible Fund (other than the Reserve Fund Portfolios) previously purchased
will be taken into account on a combined basis at the current net asset value
per share of each appropriate Fund in order to establish the aggregate
investment amount to be used in determining the applicable sales charge. Only
previous purchases of the Funds and other Eligible Funds (other than the
Reserve Fund Portfolios) that were sold subject to a sales charge and that are
still held in one of the Funds or Eligible Funds will be included in the
calculation. PGIS must be notified at the time your order is placed, and when
each subsequent order is placed, that such purchases should be combined. When
your payment is sent to PGIS, all accounts to be included under "Right of
Accumulation" must be specified by account number.
LETTER OF INTENT. The Letter of Intent provides an opportunity for you (or
any Single Purchaser as described above) to reduce your sales charge by
permitting you to aggregate your investments in qualifying accounts to be
included over a thirteen-month period. The initial purchase must be at least 5%
of the stated investment goal. When a Letter of Intent is submitted to PGIS,
each investment made during the thirteen-month period in any Fund or Eligible
Fund, other than the Reserve Fund Portfolios, will receive the sales charge
applicable to the total amount of the investment goal indicated in your Letter
of Intent. Shares equal to the dollar amount of the maximum sales load
applicable to the Fund(s) or Eligible Fund(s) invested in will be held in
escrow by PGIS until the total stated investment goal qualifying for a reduced
sales load has been satisfied or it will be applied to pay the applicable sales
load. Each payment sent directly to the transfer agent must indicate that a
Letter of Intent is on file along with all account numbers for each Fund or
Eligible Fund associated with the Letter of Intent. The Letter of Intent may
apply to purchases made up to 90 days before PGIS receives and accepts it. To
take advantage of this opportunity to reduce your sales charge, you must first
complete a Letter of Intent and submit it to PGIS for its approval.
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<PAGE> 27
NET ASSET VALUE PURCHASES. With respect to purchasing the Funds, the sales
charge will not apply to the following categories: (1) shares bought through
the reinvestment of your dividends and capital gains distributions; (2)
purchases by directors, officers, or bonafide employees of the Company, the
Manager, the Advisers, the Distributor, the Transfer Agent, and by members of
their immediate families; (3) purchases by clients of the Manager; (4)
purchases by registered investment advisers for their counsel accounts; (5)
purchases by registered representatives and other employees of Authorized
Dealers and by members of their immediate families; provided, always, that with
respect to categories (1) through (5): (a) any such share order in the Funds
shall originate with the member of the class thus qualified, (b) no sales
effort shall be required in connection with such purchase, (c) the purchaser
shall satisfactorily establish his or her employment or immediate relationship
upon request, and (d) the purchaser shall undertake that any such purchase is
for investment purposes only and the securities purchased will not be resold
except to that Fund; and (6) accounts opened for shareholders by dealers where
the amounts invested represent the redemption proceeds from investment
companies distributed by an entity other than the Distributor, if such
redemption has occurred no more than 60 days prior to the purchase of shares of
the Fund and the shareholder paid an initial sales charge.
In addition, purchases may be made at net asset value by the following
"Other Purchasers:" (1) investment advisers or financial planners who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; (2) clients of such
investment advisers or financial planners who place trades for their own
accounts if their accounts are linked to the master account of such investment
adviser or financial planner on the books and records of the broker or agent;
and (3) retirement and deferred compensation plans and trusts used to fund
those plans, including, but not limited to, those defined in Section 401(a),
403(b) or 457 of the Internal Revenue Code and "rabbi trusts." You should be
aware that you may be charged a fee if you effect transactions in Fund shares
through a broker or agent.
Shares are offered at net asset value to such Single Purchasers and Other
Purchasers because of anticipated economies in sales efforts and sales related
expenses. The Company may terminate, or amend the terms of, the offering of
shares of the Funds at net asset value to such Single Purchasers at any time.
Also see "SHAREHOLDER SERVICES."
SHAREHOLDER SERVICES
EXCHANGES OF SHARES
EXCHANGE PRIVILEGE. You may exchange shares into other Funds, including the
Eligible Funds. Exchange redemptions and purchases are processed simultaneously
at the share prices next determined after the exchange order is received in
proper form, as noted below. An exchange may be made by mail or by telephone. A
$5.00 service fee applies to each exchange, but is currently being waived by
Pacific Global Investor Services, Inc., the Company's Transfer Agent.
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<PAGE> 28
BY MAIL: Proper form for an exchange by mail requires a written request to
PGIS properly signed by all registered owners indicating the Fund name, account
number, and shares or dollar amount to be transferred into which Fund.
BY TELEPHONE: If you accepted telephone exchange privileges, you or your
dealer representative may telephone your exchange instructions to PGIS. Proper
form for an exchange by telephone requires identification by shareholder social
security number or other personal identification, the Fund name, account number
and shares or dollar amount to be transferred into which Fund. See "TELEPHONE
EXCHANGES AND REDEMPTIONS," below.
OTHER INFORMATION. No sales charge applies to exchanges, except certain
exchanges involving the shares of the Reserve Fund. Exchanges of shares from
Reserve Fund Portfolios are subject to applicable sales charges on the Fund
being purchased, unless Reserve Fund Portfolios shares were acquired by an
exchange from a Fund for which a sales charge applied, or by reinvestment of
dividends or capital gain distributions.
The following conditions must be met for all exchanges: (1) shares of the
Fund selected for exchange are available for sale in the shareholder's state of
residence; (2) the respective prospectuses of the funds whose shares are to be
exchanged and acquired also offer the Exchange Privilege to the investor; (3)
newly-purchased (by initial or subsequent investment) shares are held in an
account for at least 15 days and all other shares at least one day prior to the
exchange. In addition to the conditions stated above, shares of Eligible Funds
may be exchanged for shares of Reserve Fund Portfolios; shares of Reserve Fund
Portfolios purchased without a sales charge may be exchanged for shares of the
Funds and Eligible Funds offered with a sales charge upon payment of the sales
charge or, if applicable, may be used to purchase shares of Eligible Funds
subject to a contingent deferred sales charge ("CDSC") and shares of the Funds
acquired by reinvestment of dividends or distributions from any Eligible Funds
may be exchanged at net asset value for shares of any Eligible Fund. No CDSC is
imposed on exchanges of shares of a Fund subject to a CDSC for shares of
another Fund or for shares of Eligible Funds except that if the shares acquired
by exchange are redeemed within 18 months of the end of the calendar month of
the initial purchase of the exchanged shares, the CDSC will apply to the
acquired shares being redeemed (see "Contingent Deferred Sales Charge.").
The Fund may modify, suspend or discontinue the exchange privileges at any
time, and will do so on 60 days' notice, if such notice is required by
regulations adopted under the 1940 Act. The notice period may be shorter if
applicable law permits. Shareholders who had exchanged into the Eligible Funds
generally would be permitted to reacquire shares of the Funds without sales
charge for at least 60 days after notice of termination. The Fund reserves the
right to reject telephone or written requests submitted in bulk on behalf of 10
or more accounts. Telephone and written exchange requests must be received by
PGIS by 4:00 p.m., New York time, on a regular business day to take effect that
day. The number of shares exchanged may be less than the number requested if
the number requested would include shares subject to a restriction cited above
or shares covered by a certificate that is not tendered with such request. Only
the shares available for exchange without restriction will be exchanged.
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<PAGE> 29
Shares to be exchanged are redeemed on the business day PGIS receives an
exchange request in proper form (the "Redemption Date"). Normally, shares of
the Fund to be acquired are purchased on the Redemption Date, but such
purchases may be delayed by either Fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer of the
redemption proceeds. A Fund in its discretion reserves the right to refuse any
exchange request that will disadvantage it, such as an exchange that would
cause the Fund to sell portfolio securities in such quantities and at such time
that would result in significant losses to a Fund.
EXCHANGES TO ELIGIBLE FUNDS. The Distributor has arranged for shares of the
Reserve Fund Portfolios to be available in exchange for shares of the Funds.
The Distributor may arrange for other funds to become Eligible Funds. The
exchange privilege to the Eligible Funds does not constitute an offering or
recommendation of the shares of any Eligible Fund by the Company or the
Manager. Each Eligible Fund's administrator may compensate the Distributor for
administrative services it performs with respect to that Eligible Fund. The
compensation is based on the average daily net asset value of shares of the
Eligible Funds acquired through the exchange privilege. The Transfer Agent may
perform services for the Distributor in connection with exchanges between the
Funds and the Eligible Funds.
The Eligible Funds have different investment objectives and policies. For
more information, including any charges and expenses, a prospectus of the
Eligible Fund into which the exchange is being made should be read prior to an
exchange. Dealers or brokers who process exchange orders on behalf of customers
may charge a fee for their services. Those charges may be avoided by making the
request directly to the Funds to exchange shares. For Federal tax purposes, an
exchange is treated as a redemption and purchase of shares.
ADDITIONAL SERVICES
AUTOMATIC INVESTMENT PLAN. You may make regular monthly investments of $25
or more through automatic withdrawals from your bank account. Once a plan is
established, your bank account will normally be debited by the 5th or 20th day
of the month.
AUTOMATIC REINVESTMENT. Dividends and capital gain distributions are
automatically reinvested in additional shares, at no sales charge, unless you
indicate otherwise on the account application. You also may elect to have
dividends and/or capital gain distributions paid in cash or reinvested in the
Eligible Funds.
ACCOUNT STATEMENTS. A statement of all account activity will be sent to you
after the end of each calendar quarter. Transactions in your account, such as
additional investments and dividend reinvestments, will be reflected on regular
confirmation statements.
PACIFIC ADVISORS FUNDSPHONE. You may check your share balance, the price of
your shares, and your most recent account transaction between 6:00 a.m. and 5:00
p.m. Pacific time with Pacific Advisors FundsPhone. To use this service, call
1-800-282-6693 from a TouchTone
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<PAGE> 30
telephone. You will need your Fund number, personal identification number (the
last four digits of your Social Security number or other tax identification
number associated with your account) and account number.
AUTOMATIC WITHDRAWAL PLANS. With a minimum account value of $10,000 you may
establish an Automatic Withdrawal Plan. The proceeds from scheduled redemptions
of shares are automatically transferred to your pre-designated bank account on
either the 15th or the 30th of each month. Payments are in equal dollar amounts
and must be at least $25. All dividends and distributions on shares under an
Automatic Withdrawal Plan must be reinvested in additional Fund shares.
You may establish an Insurance Premium Automatic Withdrawal Plan ("IP
Withdrawal Plan") to fund the scheduled payment of premiums for certain
eligible insurance policies. You must have a minimum account value of $5,000 to
establish an IP Withdrawal Plan. The proceeds from your scheduled redemptions
to fund the premium payments will be transmitted to your insurance company as
instructed on your IP Withdrawal Plan Authorization Form. Your insurance
company may establish other conditions affecting your required investment in
the Fund. Applicable forms and further information regarding the IP Withdrawal
Plan are available from your Authorized Dealer or PGIS.
Generally, it may not be advisable to purchase additional shares and incur
a sales charge when you are participating in a plan. Investors also should
consider that automatic withdrawals from relatively active portfolios entail
the risk that the automatic redemptions may occur at a time when net asset
value of the portfolio has fluctuated downward.
REDEMPTIONS
STANDARD PROCEDURES. To redeem some or all of your shares in a Fund,
generally you must send the Company a signed written request that specifies the
account number and either the dollar amount or the number of shares to be
redeemed, and include any share certificates. The Company may require
additional documentation for redemptions by business entities and organizations
or by a single purchaser such as a trustee or guardian. Similar procedures
apply to exchanges between the Funds and the Eligible Funds. See "TELEPHONE
EXCHANGES AND REDEMPTION" and "SIGNATURES AND SIGNATURE GUARANTEES," below.
WIRE TRANSFERS OF REDEMPTION PROCEEDS. For the protection of shareholders
and the Company, wire transfer instructions must be on file prior to executing
any request for the wire transfer of redemption proceeds. A shareholder may
change the bank account previously designated by written request, which must
include appropriate signature guarantees, a copy of any applicable corporate
resolution, or other relevant documentation.
CONTINGENT DEFERRED SALES CHARGE. A contingent deferred sales charge
("CDSC") will be deducted from your redemption proceeds of shares purchased in
amounts aggregating $1 million or more if they are redeemed within 18 months of
the end of the calendar month of their
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<PAGE> 31
purchase, in an amount equal to 1% of the lesser of the aggregate net asset
value of the redeemed shares (not including shares purchased by reinvestment of
dividends or distributions) or the original cost of such shares. However, the
total CDSC paid on such shares shall not exceed the aggregate commissions paid
to dealers on all shares of the Funds purchased subject to a CDSC by any
"Single Purchaser" (as defined in "REDUCING YOUR SALES CHARGE"). The CDSC does
not apply to purchases described in "Net Asset Value Purchases" and will be
waived in the case of redemptions of shares made for: (1) retirement
distributions (or loans) to participants or beneficiaries from retirement plans
qualified under Section 401(a) of the Internal Revenue Code, or from IRAs, or
other employee benefit plans; (2) returns of excess contributions to such
retirement or employee benefit plans; (3) Automatic Withdrawal Plan payments
limited to no more than 12% of the original account value annually; and (4)
involuntary redemptions of shares by operation of law or under procedures set
forth in the Fund's Articles of Incorporation or as adopted by the Board of
Directors.
Shares on which a CDSC was paid at the time of redemption and which are
subsequently reinvested under the "Reinvestment Privilege" will be credited
with payment of the CDSC on such reinvestment if identified by the shareholder
at the time of reinvestment. Additionally, no CDSC is charged on exchanges,
pursuant to the Fund's "Exchanges to Eligible Funds," of Fund shares purchased
subject to a CDSC, except that if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the initial purchase of
the exchanged shares, the CDSC will apply. In determining whether a CDSC is
payable, and the amount of any such CDSC, shares not subject to a CDSC are
redeemed first, including shares purchased by reinvestment of dividends and
distributions, and then other shares are redeemed in the order of purchase.
REINVESTMENT PRIVILEGE. In addition, you may reinvest, in a Fund from which
you redeemed or any Eligible Fund, the proceeds of a full or partial redemption
of your Fund shares without payment of a sales charge upon such reinvestment
where (1) the reinvestment is effected within 60 days of the prior redemption,
(2) the amount reinvested does not exceed your redemption proceeds, (3) such
reinvestment privilege has not been previously utilized by you in the current
calendar year and (4) you notify the Transfer Agent for the applicable Fund
that you are entitled to reinvest your redemption proceeds in the particular
Fund at that Fund's net asset value per share next determined after receipt of
such request. If you qualify for a no sales charge purchase, please contact
PGIS for details and appropriate forms.
SIGNATURES AND SIGNATURE GUARANTEES
The signature on a redemption or exchange request must be exactly as shown
on the Application. In the interest of safety, signature guarantees are
required for certain transactions. If redemption proceeds are in excess of
$50,000 or are to be sent to someone other than the registered shareholder or
to other than the registered address or if the transaction is an exchange of
shares, a signature guarantee is required. A guarantor must be: (i) a bank;
(ii) a securities broker or dealer, including a government or municipal
securities broker or dealer, that is a member of a clearing corporation or has
net capital of at least $100,000; (iii) a credit union
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<PAGE> 32
having authority to issue signature guarantees; (iv) a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities exchange, a
registered securities exchange or a clearing agency. Notary publics are not
acceptable guarantors.
TELEPHONE EXCHANGES AND REDEMPTIONS
EXCHANGES. To place a telephone exchange request, call PGIS at
1-800-282-6693. Telephone exchange calls may be recorded by PGIS. By exchanging
shares by telephone, the shareholder is acknowledging receipt of a Prospectus
of the Fund or Eligible Fund to which the exchange is made and for full or
partial exchanges, the terms of any special account features. Automatic
Withdrawal Plans and retirement plan contributions will be transferred to the
new account unless PGIS is otherwise instructed. Telephone exchange privileges
automatically apply to each shareholder of record and the dealer representative
of record unless and until PGIS receives written instructions from a
shareholder of record canceling such privileges. PGIS and the Funds will not be
responsible for the authenticity of telephone instructions nor for any loss,
damage, cost or expense arising out of any telephone instructions that PGIS
reasonably believes to be authentic based on its verification procedures. Such
procedures may include requiring certain personal identification information
prior to acting on telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If PGIS does not employ reasonable verification procedures to
confirm that instructions communicated by telephone are genuine, it may be
liable for any losses arising out of any action on its part or any failure or
omission to act as a result of its own negligence, lack of good faith, or
willful misconduct. Shares acquired by telephone exchange must be registered
exactly as the account from which the exchange was made. Certificated shares
are not eligible for telephone exchange. If all telephone exchange lines are
busy (which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request telephone exchanges
and would have to submit written exchange requests.
REDEMPTIONS. The Funds permit shareholders or their dealer representatives
to redeem shares by telephone. The proceeds will be mailed to your registered
address or wired to your predesignated bank account. The Company's procedures
and any limitations are designed to minimize unauthorized exercise of the
privilege.
To redeem shares by telephone, call PGIS at 1-800-282-6693. PGIS may record
any calls. Telephone redemptions may not be available if all lines are busy,
and shareholders would have to use the Funds' regular redemption procedures.
Requests received by PGIS prior to 4:00 p.m., New York time, on a regular
business day will be processed at the net asset value per share determined that
day. These privileges are not available for newly purchased shares (within the
prior 15 days), shares for U.S. Trust Co. of New York-sponsored retirement
plans, or for shares represented by share certificates. Telephone redemption
privileges apply automatically to each shareholder and the dealer
representative of record unless PGIS receives cancellation instructions from a
shareholder of record. If an account has multiple owners, PGIS may rely on the
instructions of any one owner. PGIS and the Fund will not be responsible for
any loss, damage, cost or expense arising out of any telephone instructions for
an account that PGIS reasonably believes to be authentic, based on its
procedures for verification.
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<PAGE> 33
For redemptions paid by check, amounts up to $25,000 may be redeemed by
telephone, once in each 30-day period. The check must be payable to the
shareholder(s) of record and sent to the address of record for the account.
This privilege is not available if the address of record has been changed
within 30 days of a telephone redemption request. Shares held in corporate-type
retirement plans for which U.S. Trust Co. of New York serves as trustee may not
be redeemed by telephone, telex, fax or telegraph.
RETIREMENT PLANS
Fund shares are available in connection with tax benefitted retirement
plans established under Sections 401(a) and 403(b) of the Internal Revenue Code
("Code"), IRAs and SEP-IRAs under Section 408 of the Code, and corporate
sponsored profit-sharing plans. Various initial, annual maintenance and
participant fees may apply to these retirement plans. Applicable forms and
information regarding plan administration, all fees, and other plan provisions
are available from your Authorized Dealer or PGIS.
OTHER CONSIDERATIONS
GENERAL
The purchase, exchange, and redemption price for shares is the net asset
value (plus any applicable sales charge, if any) per share next determined
after receipt by the Company of an order and payment in proper form under the
Company's Trade Date Procedures. See "Trade Date Procedures" in the Statement
of Additional Information. Dealers and brokers who process orders for
purchases, redemptions, and exchanges on behalf of their customers may charge a
transaction fee for their services. The Company reserves the right to reject
any purchase order or to suspend or modify the offering of its shares. Requests
for the redemption of shares are considered received when all required
information and signature guarantees have been provided. The right of
redemption may be suspended under unusual circumstances, as permitted by law.
If shares were purchased by check, proceeds may be delayed until the check has
been honored, but in no event more than 15 calendar days from the date of
receipt of the check.
CERTIFICATES
In the interest of economy and efficiency, the Company does not issue stock
certificates unless specifically requested in writing by the shareholders or
their dealers. Shareholders of uncertificated shares have the same ownership
rights as if certificates had been issued. Shares are not transferable.
At your written request, the Funds will issue stock certificates. Unless
your shares are purchased with wired funds, a certificate will not be issued
until 30 days have elapsed from the
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<PAGE> 34
time of purchase, or the Funds have satisfactory proof of payment, such as a
copy of your canceled check. Certificates will not be issued for fewer than 100
shares.
NET ASSET VALUE
Net asset value is determined by subtracting from the value of the assets
of each Fund the amount of its liabilities, and dividing the remainder by the
number of outstanding shares of that Fund. For valuation purposes, quotations
of foreign securities in a foreign currency are converted to U.S. dollar
equivalents. The Board of Directors has fixed the specific time of day for the
computation of the net asset value of all the Funds to be as of 4:00 p.m., New
York time, once daily on business days. Business days are days when the NYSE is
open for regular trading.
Fund securities are valued based on market quotations or, if such
quotations are not readily available, at fair market value as determined in
good faith under procedures established by the Company's Board of Directors. In
accordance with guidelines approved by the Board of Directors, a pricing
service, bank, or broker-dealer experienced in such matters may be used to
perform the above-described valuation functions.
DISTRIBUTIONS
Dividends and distributions of each Fund are paid in additional shares of
the Fund unless the Company is notified, in writing, that the shareholder
elects to receive such dividends and distributions in cash.
The Government Securities Fund and the Income and Equity Fund will declare
and distribute dividends of their net investment income, if any, quarterly. The
Balanced Fund and Small Cap Fund will declare and distribute dividends of their
net investment income, if any, annually.
Each Fund will distribute capital gain net income annually.
TAXES
The following discussion is only a brief summary of some of the important
tax considerations affecting the Company, its Funds, and its shareholders. For
further tax-related information, see "Taxes" in the Statement of Additional
Information. No attempt is made to present a detailed explanation of all
federal, state, and local income tax considerations, and this discussion and
that in the Statement of Additional Information are not intended as a
substitute for careful tax planning. Accordingly, potential investors are urged
to consult their own tax advisors with specific reference to their own tax
situation.
TAX CONSEQUENCES TO THE FUNDS. Each Fund is treated as a separate entity
for federal income tax purposes, and thus the provisions of the Internal Revenue
Code applicable to
28
<PAGE> 35
regulated investment companies generally (subchapter M of the Code) are applied
to each Fund separately, rather than to the Company as a whole. Each Fund
intends to qualify as a regulated investment company under subchapter M. If so
qualified, each Fund is not subject to federal income taxes with respect to net
investment income and net realized capital gains, if any, that are distributed
to its shareholders, provided that the Fund distributes each year at least 90%
of its net investment income, and meets certain other requirements set forth in
the Code. Each Fund would be subject to a 4% nondeductible excise tax on such
Fund's taxable income to the extent such Fund did not meet certain distribution
requirements by the end of each calendar year. Each Fund intends to make
sufficient distributions to avoid application of this excise tax.
TAX CONSEQUENCES TO THE SHAREHOLDERS. All dividends and distributions are
subject to taxes (except for shareholders exempt from income tax) whether
received in cash or reinvested in additional shares. For federal and state
income tax purposes, an exchange is treated as a sale and may result in a
capital gain or loss, although if the shares exchanged have been held less than
91 days, the sales charge paid on such shares is not included in the tax basis
of the exchanged shares, but is carried over and included in the tax basis of
the shares acquired.
BACKUP WITHHOLDING. Each Fund is required by federal law to withhold 31% of
reportable payments (which payments may include income dividends, capital gains
distributions, and share redemption proceeds) paid to shareholders who have not
complied with IRS regulations. In order to avoid this withholding requirement,
you must certify on your Application, or on a separate W-9 Form supplied by
PGIS, that your Social Security or Taxpayer Identification Number is correct
(or that you have applied for such a number and are waiting for it to be
issued) and that you are not currently subject to backup withholding, or you
are exempt from backup withholding.
PERFORMANCE AND YIELD INFORMATION
From time to time a Fund may publish its yield and/or average annual total
return in its advertising, marketing material and communications to
shareholders. The yield of a Fund will be calculated by dividing the net
investment income per share during a recent 30-day period by the maximum
offering price per share of the Fund on the last day of the period. The results
are compounded on a semi-annual basis and then annualized. A Fund's average
annual total return, which is the rate of growth of a Fund that would be
necessary to achieve the ending value of an investment kept in the Fund for the
period specified, is based on the following assumptions: (1) all dividends and
distributions by the Fund are reinvested in shares of the Fund at net asset
value; (2) all recurring fees are included for applicable periods; and (3) the
maximum current sales load, if any, is deducted from the initial investment.
A Fund may also illustrate in advertisements and sales literature its
cumulative total return for several time periods throughout the Fund's life
based on an assumed initial investment of $10,000, for example, after deducting
the maximum sales load, if any, at the time of the initial investment. The
current maximum sales charge on an investment of $10,000 is 5.75%. Any
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<PAGE> 36
such cumulative total return for a Fund will assume the reinvestment of all
capital gains and dividend income for the indicated periods and include all
recurring fees.
Comparative performance information also may be used from time to time in
advertising or marketing a Fund's shares. A Fund's total return may be compared
to that of other mutual funds with similar investment objectives and to bond
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the total return on Fund shares may be compared to data
prepared by Lipper Analytical Services, Inc. and/or Money, Forbes, Business
Week and Fortune magazines, newspapers or other investment performance
services. In addition, a Fund's total return may be compared to an index such
as the S&P 500. Such comparative performance information will be stated in the
same terms in which the comparative data and indices are stated. For these
purposes, the performance of a Fund, as well as the performance of other mutual
funds or indices, does not reflect sales charges, the inclusion of which would
reduce performance.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's yield or average annual total
return for any prior period should not be considered as a representation of
what an investment may earn or what an investor's yield or total return may be
in any future period. Because yield calculation methods differ from the methods
used for other purposes, a Fund's yield may not equal the distributions
shareholders receive or the income reported in a Fund's financial statements.
RISK FACTORS, OTHER INVESTMENT PRACTICES, AND
POLICIES OF THE FUNDS
A number of the investment policies and techniques referred to below are
subject to certain additional risks described more fully in the Statement of
Additional Information.
CASH RESERVES AND REPURCHASE AGREEMENTS
Each of the Funds may use U.S. dollar denominated money market instruments.
Such money market instruments will be limited to high-quality securities rated
within the two highest credit categories by any NRSRO or, if not rated, of
comparable investment quality as determined by the Manager or the Fund's
Adviser, as appropriate. Such domestic money market instruments may include:
U.S. Government Securities; certificates of deposit; banker's acceptances; bank
time deposits; commercial paper; short-term corporate debt securities; and
repurchase agreements with a securities dealer or bank. In these repurchase
transactions, the underlying security, which is held by the custodian through
the federal book-entry system for a Fund as collateral, will be marked to
market on a daily basis to ensure full collateralization of the repurchase
agreement. In the event of a bankruptcy or default of certain sellers of
repurchase
30
<PAGE> 37
agreements, a Fund could experience costs and delays in liquidating the
underlying security and might incur a loss if such collateral held declines in
value during this period.
FIXED-INCOME SECURITIES
Fixed-income securities are considered high-grade if they are rated at
least A or its equivalent by any NRSRO or, if unrated, are determined to be of
comparable investment quality by the Manager or the Fund's Adviser, as
appropriate. High-grade fixed-income securities are considered to have a very
strong capacity to pay principal and interest. Fixed-income securities are
considered investment-grade if they are rated, for example, at least Baa or its
equivalent by any NRSRO or, if not rated, are determined to be of comparable
investment quality by the Manager or the Fund's Adviser, as appropriate.
Investment-grade fixed-income securities are regarded as having an adequate
capacity to pay principal and interest, although these securities have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. See the
"Appendix" to the Statement of Additional Information regarding "Description of
Corporate Bond Ratings."
The maturity of fixed-income securities may be considered long (ten or more
years), intermediate (two to ten years), or short-term (thirteen months or
less). In general, the principal values of longer-term securities fluctuate
more widely in response to changes in interest rates than those of shorter-term
securities, providing greater opportunity for capital gain or risk of capital
loss. A decline in interest rates usually produces an increase in the value of
fixed-income securities, while an increase in interest rates generally reduces
their value.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Fund may purchase securities on a when-issued, delayed delivery, or
forward commitment basis. When such transactions are negotiated, the price of
such securities is fixed at the time of the commitment, but delivery and
payment for the securities may take place up to 90 days after the date of the
commitment to purchase. The securities so purchased are subject to market
fluctuation, and no interest accrues to the purchaser during this period.
When-issued securities or forward commitments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
The Manager and the Advisers for the Funds do not believe that the net asset
value or income of the Funds will be adversely affected by the purchase of
securities on a when-issued or forward commitment basis. No Fund will enter
into such transactions for leverage (borrowing) purposes.
MORTGAGE-BACKED SECURITIES
The Government Securities Fund, the Income and Equity Fund, and the
Balanced Fund each may invest in mortgage-backed securities, which are
securities representing interests in pools of
31
<PAGE> 38
mortgages. Principal and interest payments made on the mortgages in the pools
are passed through to the holder of such securities. Payment of principal and
interest on some mortgage-backed securities (but not the market value of the
securities themselves) may be guaranteed by the full faith and credit of the
U.S. Government (in the case of securities guaranteed by "GNMA"), or guaranteed
by agencies or instrumentalities of the U.S. Government (in the case of
securities guaranteed by the FNMA or FHLMC). Mortgage backed securities created
by non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers, or the mortgage poolers.
Unscheduled or early repayment of principal on mortgage-backed securities
(arising from prepayment of principal due to the sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose the Fund to a lower rate of return upon reinvestment of
principal. Like other fixed-income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when
interest rates are declining, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
The Government Securities Fund, the Income and Equity Fund, and the
Balanced Fund each may invest in CMOs. CMOs are debt securities collateralized
by underlying mortgage loans or pools of mortgage-backed securities guaranteed
by GNMA, FHLMC, or FNMA and are generally issued by limited purpose finance
subsidiaries of U.S. Government instrumentalities.
CMOs are not, however, "mortgage pass-through" securities, such as those
described above. Rather they are pay-through securities, i.e., securities
backed by the cash flow from the underlying mortgages. Investors in CMOs are
not owners of the underlying mortgages, which serve as collateral for such debt
securities, but are simply owners of a fixed-income security backed by such
pledged assets. CMOs are typically structured into multiple classes, with each
class bearing a different stated maturity and having different payment streams.
Monthly payments of principal, including prepayments, are first returned to the
investors holding the shortest maturity class; investors holding longer
maturity classes receive principal payments only after the shorter class or
classes have been retired.
ASSET-BACKED SECURITIES
The Income and Equity Fund and the Balanced Fund each may purchase
asset-backed securities that represent either fractional interests or
participation in pools of leases, retail installment loans, or revolving credit
receivables held by a trust or limited purpose finance subsidiary. Such
asset-backed securities may be secured by the underlying assets (such as
Certificates for Automobile Receivables or "CARS") or may be unsecured (such as
Credit Card
32
<PAGE> 39
Receivable Securities ("CARDS")). Depending on the structure of the
asset-backed security, monthly or quarterly payments of principal and interest
or interest only are passed-through (like mortgage-backed securities) or paid
through (like CMOs) to certificate holders. Asset backed securities may be
guaranteed up to certain amounts by guarantees, insurance, or letters of credit
issued by a financial institution affiliated or unaffiliated with the
originator of the pool.
Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage
pass-through securities), which may shorten the securities' weighted average
life and reduce their overall return to certificate holders. Certificate
holders may also experience delays in payment if the full amounts due on
underlying loans, leases, or receivables are not realized because of
unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. The value of these securities
also may change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the
pool, or the financial institution providing credit support enhancement for the
pool. If consistent with their respective investment objectives and investment
programs, the Government Securities Fund and the Income and Equity Fund each
may invest in other asset-backed securities that may be developed in the
future.
ZERO-COUPON BONDS
The Government Securities Fund and the Income and Equity Fund each may
invest in zero coupon bonds. Such bonds may be issued directly by agencies and
instrumentalities of the U.S. Government or by private corporations.
Zero-coupon bonds may originate as such or may be created by stripping an
outstanding bond. Zero-coupon bonds do not make regular interest payments.
Instead, they are sold at a deep discount from their face value.
Because a zero-coupon bond does not pay current income, its price can be
very volatile when interest rates change. In calculating its dividend, the
Income and Equity Fund takes into account as income a portion of the difference
between a zero-coupon bond's purchase price and its face value. The Income and
Equity Fund may also purchase LYONs which are securities that combine the
features of a zero-coupon bond with those of a convertible security. These
securities are also sold at a deep discount from their face value but, at
maturity, the holder of a LYON receives an equity interest in the issuing
company rather than a fixed-income security.
SECURITIES LENDING
For purposes of realizing additional income, each Fund may lend portfolio
securities with a value of up to 30% of that Fund's total assets to
broker-dealers and other financial institutions approved by the Board of
Directors. Any such loans will be continuously secured by collateral,
maintained in a segregated account, at least equal in value to the securities
loaned and markedto-market on a daily basis. During the time each Fund's
securities are on loan, the borrower
33
<PAGE> 40
will pay the Fund an amount equivalent to any dividend or interest paid on such
securities and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower. The risks in lending portfolio securities, as with other extensions
of secured credit, consist of possible delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans by a Fund will only
be made to broker-dealers and other financial institutions deemed to be
creditworthy and of good standing and will not be made unless, in the judgment
of the Manager or a Fund's Adviser, as appropriate the consideration to be
earned from such loans would justify the risk.
FOREIGN SECURITIES
Each of the Funds, as specified in its investment program, may invest in
foreign securities. Investments in foreign securities involve certain risks
that are not typically associated with investing in domestic issuers,
including: (i) less publicly available information about the securities and
about the foreign company or government issuing them; (ii) less comprehensive
accounting, auditing, and financial reporting standards, practices, and
requirements; (iii) stock markets outside the United States may be less
developed or efficient than those in the United States and government
supervision and regulation of those stock markets and brokers and the issuers
in those markets is less comprehensive than that in the United States; (iv) the
securities of some foreign issuers may be less liquid and more volatile than
securities of comparable domestic issuers; (v) settlement of transactions with
respect to foreign securities may sometimes be delayed beyond periods customary
in the United States; (vi) fixed brokerage commissions on certain foreign stock
exchanges and custodial costs with respect to securities of foreign issuers
generally exceed domestic costs; (vii) with respect to some countries, there is
the possibility of unfavorable changes in investment or exchange control
regulations, expropriation, or confiscatory taxation, taxation at the source of
the income payment or dividend distribution, limitations on the removal of
funds or other assets of each Fund, political or social instability, or
diplomatic developments that could adversely affect United States investments
in those countries; and (viii) foreign securities denominated in foreign
currencies may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations and each Fund may incur costs
in connection with conversions between various currencies. Specifically, to
facilitate each Fund's purchase of securities denominated in foreign
currencies, the Funds may engage in currency exchange transactions to convert
currencies to or from U.S. dollars. The Funds do not intend to hedge their
foreign currency risks and will engage in currency exchange transactions on a
spot (i.e., cash) basis only at the spot rate prevailing in the foreign
exchange market.
With respect to equity securities, each Fund may purchase American
Depositary Receipts ("ADRs"). ADRs are U.S. dollar-denominated certificates
issued by a United States bank or trust company and represent the right to
receive securities of a foreign issuer deposited in a domestic bank or foreign
branch of a United States bank and traded on a United States exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust
34
<PAGE> 41
company in the initial underwriting, although the issuing bank or trust company
may impose charges for the collection of dividends and the conversion of ADRs
into the underlying securities. Investment in ADRs has certain advantages over
direct investment in the underlying foreign securities since: (i) ADRs are U.S.
dollar-denominated investments that are registered domestically, easily
transferable and for which market quotations are readily available; and (ii)
issuers whose securities are represented by ADRs are subject to the same
auditing, accounting, and financial reporting standards as domestic issuers.
WRITING AND PURCHASING COVERED PUT AND CALL OPTIONS ON SECURITIES
To earn additional income or to minimize anticipated declines in the value
of its securities, the Balanced Fund and the Small Cap Fund each may write
(i.e., sell) exchange traded covered call and put options on securities. The
Balanced Fund and the Small Cap Fund may also purchase call and put options on
securities. In general, a call option on a security gives the holder
(purchaser) the right to buy and obligates the writer (seller) to sell, in
return for a premium paid, the underlying security at the exercise price during
the option period. Conversely, a put option on a security gives the holder the
right to sell and obligates the writer to purchase, in return for a premium
paid, the underlying security at the exercise price during the option period.
Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement in the
securities subject to the option, they do involve certain risks that are
different in some respects from investment risks associated with similar funds
which do not engage in such activities. These risks include the following:
writing covered call options - the inability to effect closing transactions at
favorable prices and the inability to participate in the appreciation of the
underlying securities above the exercise price; writing covered put options -
the inability to effect closing transactions at favorable prices and the
obligation to purchase the specified securities at prices which may not reflect
current market values; and purchasing call and put options -- possible loss of
the entire premium paid.
CERTAIN POLICIES TO REDUCE RISK
Each Fund has adopted certain fundamental investment policies in managing
its portfolio that are designed to maintain the portfolio's diversity and
reduce risk. Each Fund will not: (i) with respect to 75% of each Fund's total
assets, invest in more than 10% of the outstanding voting securities of any one
issuer; or (ii) borrow money except temporarily from banks to facilitate
redemption requests that might otherwise require untimely disposition of
portfolio securities and in amounts not exceeding 15% of each Fund's total
assets. Limitation (i) does not apply to U.S. Government Securities. These
investment policies are fundamental and may be changed for a Fund only by
approval of that Fund's shareholders.
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<PAGE> 42
MORE FACTS ABOUT THE COMPANY
ORGANIZATION AND CAPITALIZATION
The Company was established as a Maryland corporation on May 18, 1992. The
Board of Directors is responsible for the overall management and supervision of
its affairs. The Company is authorized to issue one billion shares of common
stock, $.01 par value per share. Each share of capital stock issued with
respect to a Fund has a pro-rata interest in the assets of that Fund and has no
interest in the assets of any other Fund. Each Fund bears its own liabilities
and its proportionate share of the general liabilities of the Company. The
Board is empowered by the Company's Articles of Incorporation and By-Laws to
establish additional series or classes of shares.
Pursuant to a Stock Purchase Agreement, the Manager provided the initial
capitalization of each Fund on December 23, 1992.
PORTFOLIO TURNOVER
Although no Fund purchases securities with a view to rapid turnover, there
are no limitations on the length of time that securities must be held by any
Fund and a Fund's annual portfolio turnover rate may vary significantly from
year to year. The portfolio turnover rates for each Fund for the fiscal year
ended December 31, 1996, were: 50.49% for the Government Securities Fund;
28.23% for the Income and Equity Fund; 65.94% for the Balanced Fund; and 51.83%
for the Small Cap Fund.
DISTRIBUTION PLANS
The Company has adopted a plan of distribution (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. The Plan allows the Company to make certain
payments to the Distributor for a portion of its costs incurred in distributing
the Company's shares. However, the Plan only provides for the payment of
shareholder service fees. The Plan has the effect of increasing annual expenses
of the Company by up to .25% of the Company's average daily net assets. The
Distributor is authorized to make quarterly payments to certain securities
dealers or brokers, administrators and others ("Recipients") up to the full
amount of the expense percentages described above for rendering distribution
assistance and administrative support services in connection with the sale of
Company shares. The fee imposed on each Fund's assets will be used to pay for
services provided by the Recipients. 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 and Equity Fund, Balanced
Fund, and Small Cap Fund, respectively.
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<PAGE> 43
EXPENSES
The Company bears all expenses of its operation, other than those assumed
by the Manager. In addition, the expense of organizing the Company and
registering and qualifying its initial shares under federal and state
securities laws will be charged to the Company's operations, as an expense, and
amortized over a period not to exceed five years.
The Manager has agreed to assume the expenses of each Fund that exceed the
lowest applicable limit actually enforced by any state. The Company may
reimburse the Manager for expenses so assumed as provided in the Expense
Limitation Agreement with respect to each Fund at such time as expenses do not
exceed any state expense limitation and assets of each Fund are $20 million,
and by making such reimbursement a Fund's expenses would not exceed any state
expense limitations. For the fiscal year ended December 31, 1996, the ratios of
operating expenses to average net assets for the Government Securities Fund,
Income and Equity Fund, Balanced Fund, and Small Cap Fund were 1.66%, 1.85%,
2.48%, and 2.91%, respectively.
MEETINGS AND VOTING RIGHTS
The Company does not intend to hold annual shareholder meetings.
Shareholders have certain rights, as set forth in the Company's Articles of
Incorporation and By-Laws, including the right to call a special meeting of
shareholders, upon the written request of the holders of at least 10% of the
votes entitled to be cast at such meeting, for the purpose of voting on the
removal of one or more Directors. Such removal may be effected upon the action
of a majority of the outstanding shares of the Company. The Company has an
obligation to assist in such shareholder communications.
Shareholders are entitled to one vote per share. Shares of a Fund will be
voted only with respect to that Fund except for the election of directors and
ratification of independent accountants. Approval by the shareholders of one
Fund is effective as to that Fund. Shares have noncumulative voting rights, do
not have preemptive or subscription rights, and are not transferable. Pursuant
to the Investment Company Act of 1940, shareholders of each Fund are required
to approve the adoption of any investment advisory agreement and distribution
plan relating to such Fund and of any changes in fundamental investment
restrictions or policies of the Fund.
SHAREHOLDER COMMUNICATIONS
Shareholders of the Company will receive annual financial statements
examined by the Company's independent auditors as well as unaudited semi-annual
financial statements. Each report will show the investments owned by the
Company and their respective market values, and will provide other financial
information. Shareholders with inquiries regarding the Company and individual
accounts should contact PGIS.
37
<PAGE> 44
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933. Copies of
the Registration Statement may be obtained from the Commission or may be
examined at the office of the Commission in Washington, D.C.
38
<PAGE> 45
FUND SERVICE ORGANIZATIONS
THE MANAGER, THE ADVISERS, AND THE CO-MANAGER
Pacific Global Investment Management Company
206 North Jackson Street
Suite 201
Glendale, CA 91206
Spectrum Asset Management, Inc.
450 Newport Center Drive
Suite 420
Newport Beach, CA 92660
Hamilton & Bache, Inc.
206 North Jackson Avenue
Suite 201
Glendale, CA 91206
THE DISTRIBUTOR
Pacific Global Fund Distributors, Inc.
206 North Jackson Street
Suite 201
Glendale, CA 91206
THE CUSTODIAN
United Missouri Bank, N.A.
P.O. Box 419226
Kansas City, MO 64141-6226
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND ADMINISTRATIVE SERVICES AGENT:
Pacific Global Investor Services, Inc.
206 North Jackson Street
Suite 201
Glendale, CA 91206
INDEPENDENT AUDITORS:
Ernst & Young LLP
515 South Flower Street
Los Angeles, California 90071
39
<PAGE> 46
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 ______ __,
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 ______ __,
1997.
<PAGE> 47
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
The Funds.......................................................................................................S-3
Investment Management and Other Services........................................................................S-3
Management of the Company and Its Funds.........................................................................S-6
Distribution Plan...............................................................................................S-9
Investment Restrictions.........................................................................................S-9
Description of Certain Investments.............................................................................S-12
Taxes..........................................................................................................S-20
Other Considerations...........................................................................................S-21
Appendix.......................................................................................................S-25
</TABLE>
S-2
<PAGE> 48
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 the following four Funds: Government Securities
Fund, Income and Equity 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 Adviser to the
Balanced Fund; and Pacific Global serves as Adviser to the Small Cap Fund. The
Company, on behalf of the Income and Equity Fund, entered into a co-management
agreement ("Co-Management Agreement") with the Manager and Hamilton & Bache on
July 1, 1997. Under the Co-Management Agreement, the Manager and Hamilton &
Bache ("Co-Manager") co-manage the investment and reinvestment of the Fund's
shares. Each Agreement, Sub-Advisory Agreement and the Co-Management Agreement
were approved by the Board of Directors, including a majority of the
non-"interested" persons. Each Agreement, Sub-Advisory Agreement and the
Co-Management Agreement also have been approved by applicable shareholders. The
name of the Income Fund has been changed to the "Income and Equity Fund." This
name change more accurately describes the investment objectives of the Fund.
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 AND CO-MANAGER. 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.
MANAGER'S RESPONSIBILITIES
In addition to the duties set forth in 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,
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<PAGE> 49
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. Pursuant to the Co-Management Agreement, the
Manager and Co-Manager are equally responsible for carrying out the duties
specified above with respect to the Income and Equity Fund.
In addition, the Manager will 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 and Equity, 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 and Equity, Balanced, and Small Cap Funds,
respectively.
THE MANAGER'S, CO-MANAGER'S AND 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. As further described in the
Table, the Company pays Hamilton & Bache for its services as Co-Manager to the
Income and Equity Fund. 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 and Equity, Balanced and Small
Cap Funds, respectively.
For the fiscal year ending December 31, 1996, the Advisers received for their
services $8,800 and $0 from the Government Securities and Balanced Funds,
respectively. For the period ended December 31, 1996, no fees were paid to
Expansion Funds of Arizona, Inc. (formerly, the MMG Money Management Group,
Inc.), which served
S-4
<PAGE> 50
as a sub-adviser to the Income and Equity Fund prior to its resignation on
December 31, 1996.
MANAGEMENT AND ADVISORY FEES
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
- --------------------------
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
<CAPTION>
INCOME AND EQUITY FUND
- ----------------------
Average Daily Net Assets Management Fee Co-Management Fee
- ------------------------ -------------- -----------------
<S> <C> <C>
First $100 million .40 .35
next $100 million .37 .33
next $100 million .34 .31
next $100 million .31 .29
next $100 million .28 .27
over $500 million .25 .25
<CAPTION>
BALANCED FUND
- -------------
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
<CAPTION>
SMALL CAP FUND
- --------------
Average Daily Net Assets Management Fee
- ------------------------ --------------
<S> <C>
First $200 million .75
next $200 million .72
next $200 million .69
over $600 million .66
</TABLE>
S-5
<PAGE> 51
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 The
Director 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.;
603 West Ojai Avenue General Agent, Transamerica Life Companies and Registered
Ojai, California 93023 Principal, 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
Director Accounting); Officer, August Financial Corp.; Executive Vice
3780 Kilroy Airport Way President, 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 companies)
Suite 100
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;
President and Chairman Chairman, Pacific Global Fund Distributors, Inc.; Chairman, Pacific
Global Investor Services Inc.
</TABLE>
S-6
<PAGE> 52
<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, 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-7
<PAGE> 53
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
May 31, 1997 are listed below:
<TABLE>
<CAPTION>
FUND SHAREHOLDER PERCENTAGE
---- ----------- ----------
<S> <C> <C>
Income and Equity Fund Joanne K. Maxwell 11.41%
29723 Stoughton Drive
Strongsville, OH 44136
Eva U. and Robert M. Rigney 5.78%
P.O. Box 5835
Berkeley, CA 95705
</TABLE>
As of May 31, 1997, the Directors and Officers of the Company, as a group,
owned 1.83% of the outstanding shares of the Small Cap Fund. As of May 31,
1997, the Directors and Officers of the Company, as a group, owned less than 1%
of the outstanding shares of the Government Securities Fund, Income and Equity
Fund and Balanced Fund.
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
S-8
<PAGE> 54
outside the U.S. are maintained in the custody of various foreign branches of
UMB, N.A. and such other custodians, including foreign banks and foreign
securities depositories, as are approved by the Board of Directors, in
accordance with regulations under the 1940 Act. The Funds may invest in
obligations of UMB, N.A. and may purchase or sell securities from or to UMB,
N.A..
DISTRIBUTION PLAN
Pursuant to the Company's Plan of Distribution pursuant to Rule 12b-1
(the "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 the 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 the 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 the Company's
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 by the Government Securities, Income and Equity,
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
S-9
<PAGE> 55
intention, in the foreseeable future (i.e., the next year), of making margin
deposits in connection with futures transactions or making short sales against
the box;
(2) SENIOR SECURITIES AND BORROWING: Issue any class of securities
senior to any other class of securities, although each Fund may borrow for
temporary or emergency purposes. Each Fund may borrow up to 15% of its total
assets. No securities will be purchased for a Fund when borrowed money exceeds
5% of the Fund's total assets. Each Fund may each enter into futures contracts
subject to restriction (5) below;
(3) REAL ESTATE: Purchase or sell real estate, or invest in real
estate limited partnerships, except each Fund may, as appropriate and
consistent with its respective investment objectives, investment program,
policies and other investment restrictions, buy securities of issuers that
engage in real estate operations and securities that are secured by interests
in real estate (including shares of real estate investment trusts, master
limited partnerships traded on a national securities exchange, mortgage
pass-through securities, mortgage-backed securities, and collateralized
mortgage obligations) and may hold and sell real estate acquired as a result of
ownership of such securities. In order to comply with the securities laws of
several states, the Balanced Fund and Small Cap Fund (as a matter of operating
policy) will not invest in securities of real estate investment trusts, if by
reason thereof the value of each Fund's aggregate investment in such securities
would exceed 10% of its total costs.
(4) CONTROL OF PORTFOLIO COMPANIES: Invest in portfolio companies
for the purpose of acquiring or exercising control of such companies;
(5) COMMODITIES: Purchase or sell commodities and invest in
commodities futures contracts, except that each Fund may enter into only those
futures contracts and options thereon that are listed on a national securities
or commodities exchange where, as a result thereof, no more than 5% of the
total assets for that Fund (taken at market value at the time of entering into
the futures contracts) would be committed to margin deposits on such future
contracts and premiums paid for unexpired options on such futures contracts;
provided that, in the case of an option that is "in-the-money" at the time of
purchase, the "in-the-money" amount, as defined under Commodity Futures Trading
Commission regulations, may be excluded in computing the 5% limit. As a matter
of operating policy, no Fund has any current intention, in the foreseeable
future (i.e., the next year), of entering into futures contracts or options
thereon;
(6) INVESTMENT COMPANIES: Invest in the securities of other investment
companies, except that each Fund, other than the Income and Equity 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 and Equity Fund have no
S-10
<PAGE> 56
current intention, in the foreseeable future (i.e., the next year), of
investing in options, straddles, spreads, or any combination thereof;
(9) OIL AND GAS PROGRAMS: Invest in interests in oil, gas, or
other mineral exploration or development programs or oil, gas and mineral
leases, although investments may be made in the securities of issuers engaged
in any such businesses;
(10) OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS:
Purchase or retain the securities of any issuer if to the knowledge of the
Company, those officers and directors of the Company, the Manager or the
Advisers who individually own more than 1/2 of 1% of the securities of such
issuer collectively own more than 5% of the securities of such issuer;
(11) LOANS: Make loans, except that each Fund in accordance with that
Fund's investment objectives, investment program, policies, and restrictions
may (i) make loans of portfolio securities with a value of up to 30% of that
Fund's total assets, (ii) invest in a portion of an issue of publicly issued or
privately placed bonds, debentures, notes, and other debt securities for
investment purposes, and (iii) purchase money market securities and enter into
repurchase agreements, provided such instruments are fully collateralized and
marked to market daily;
(12) UNSEASONED ISSUERS: The Balanced Fund and Small Cap Fund will not
invest more than 5% of each of its total assets in securities of issuers,
including their predecessors and unconditional guarantors, which, at the time
of purchase, have been in operation for less than three years, other than
obligations issued or guaranteed by the United States Government, its agencies,
and instrumentalities;
(13) ILLIQUID SECURITIES AND SECURITIES NOT READILY MARKETABLE:
Knowingly purchase or otherwise acquire any security or invest in a repurchase
agreement if, as a result, more than 15% of a Fund's net assets would be
invested in securities that are illiquid or not readily marketable, including
repurchase agreements maturing in more than seven days and foreign issuers
whose securities are not listed on a recognized domestic or foreign exchange.
Some investments may be determined by the Funds to be illiquid. Illiquid
securities are securities which each Fund cannot sell or dispose of in the
ordinary course of business at an acceptable price, securities which are
subject to legal or contractual restrictions on disposition, other securities
for which no readily available market exists, and repurchase agreements and
time deposits with a maturity of more than seven days. Difficulty in selling
securities may result in a loss and may be costly to a Fund. As a matter of
operating policy, in compliance with certain state securities regulations, no
more than 5% of any Fund's net assets will be invested in restricted
securities;
(14) MORTGAGING: Mortgage, pledge, or hypothecate in any other manner,
or transfer as security for indebtedness any security owned by a Fund, except
(i) as may be necessary in connection with permissible borrowings (in which
event such mortgaging, pledging, and hypothecating may not exceed 15% of each
Fund's total assets) and (ii) as may be necessary in connection with each
Fund's use of permissible options and futures transactions, subject to
restrictions (5) and (8) above;
(15) WARRANTS: Invest more than 5% of a Fund's net assets in
warrants, and will further limit its investment in unlisted warrants to no more
than 2% of its net assets;
(16) DIVERSIFICATION: Make an investment unless 75% of the value of
that Fund's total assets is represented by cash, cash items, US. 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
S-11
<PAGE> 57
(17) CONCENTRATION: Except for the Government Securities Fund,
purchase the securities of issuers conducting their principal business activity
in the same industry if, immediately after the purchase and as a result
thereof, the value of the investments of a Fund in that industry would exceed
25% of the current value of the total assets of that Fund. In those instances
in which the Government Securities Fund invests more than 25% of its total
assets in dividend-paying common stocks, the Government Securities Fund will
concentrate its investments in securities of issuers in the public utilities
industry.
The Government Securities Fund may invest more than 25% of its total
assets in dividend-paying common stocks when Spectrum anticipates that interest
rates will decline. Thus, investments in dividend-paying common stocks of
issuers in the public utility industry will serve as substitutes for investment
in long-term bonds. Concentration in securities in the public utility industry
will occur when utilizing such securities as substitutes for long-term bonds is
consistent with managing the Fund to increase the Fund's total rate of return.
Thus, concentration of investments in this area are made when the current yield
on U.S. Government 30-year bonds declines 60 basis points (6/10 of 1%) from
previous yield peaks for the period of the last 50 trading days. The Fund would
reverse its concentration of investments when the current yield on U.S.
Government bonds rises 60 basis points (6/10 of 1%) from previous yield lows
for the period of the last 50 trading days.
DESCRIPTION OF CERTAIN INVESTMENTS
The following is a description of certain types of investments which
may be made by the Funds.
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, each Fund may invest in high-quality
money market instruments. The money market instruments that may be used by each
Fund may include:
UNITED STATES GOVERNMENT OBLIGATIONS. These consist of various types
of marketable securities issued by the United States Treasury, i.e., bills,
notes and bonds. Such securities are direct obligations of the United States
Government and differ mainly in the length of their maturity. Treasury bills,
the most frequently issued marketable government security, have a maturity of
up to one year and are issued on a discount basis.
UNITED STATES GOVERNMENT AGENCY SECURITIES. These consist of debt
securities issued by agencies and instrumentalities of the United States
Government, including the various types of instruments currently outstanding or
which may be offered in the future. Agencies include, among others, the Federal
Housing Administration, Government National Mortgage Association, Farmer's Home
Administration, Export-Import Bank of the United States, Maritime
Administration, and General Services Administration. Instrumentalities include,
for example, each of the Federal Home Loan Banks, the National Bank for
Cooperatives, the Federal Home Loan Mortgage Corporation, the Farm Credit
Banks, the Federal National Mortgage Association, and the United States Postal
Service. These securities are either; (i) backed by the full faith and credit
of the United States Government (e.g., United States Treasury Bills); (ii)
guaranteed by the United States Treasury (e.g., Government National Mortgage
Association mortgage-backed securities); (iii) supported by the issuing
agency's or instrumentality's right to borrow 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'
S-12
<PAGE> 58
acceptance, the borrower is liable for payment as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most bankers' acceptances have maturities of six months or less and are
traded in secondary markets prior to maturity. Time deposits are generally
short-term, interest-bearing negotiable obligations issued by commercial banks
against funds deposited in the issuing institutions. The Funds will not invest
in any security issued by a commercial bank or a savings and loan association
unless the bank or savings and loan association is organized and operating in
the United States, has total assets of at least one billion dollars, and is a
member of the Federal Deposit Insurance Corporation ("FDIC"), in the case of
banks, or insured by the FDIC in the case of savings and loan associations;
provided, however, that such limitation will not prohibit investments in
foreign branches of domestic banks which meet the foregoing requirements. The
Funds will not invest in timedeposits 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
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<PAGE> 59
subject to a demand feature is considered to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
Floating rate instruments (generally corporate notes, bank notes, or
Eurodollar certificates of deposit) have interest rate reset provisions similar
to those for variable rate instruments and may be subject to demand features
like those for variable rate instruments. The interest rate is adjusted,
periodically (e.g., daily, monthly, semi-annually), to the prevailing interest
rate in the marketplace. The interest rate on floating rate securities is
ordinarily determined by reference to, or is a percentage of, a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure. The maturity of a floating rate instrument is
considered to be the period remaining until the principal amount can be
recovered through demand.
FIXED-INCOME SECURITIES
As noted in the Prospectus, in accordance with each Fund's investment
objectives and investment program, each Fund may invest to varying degrees in
high and medium quality fixed-income securities. (See the Appendix for a
description of each rating category.) Certain of these fixed-income securities
are described below.
MORTGAGE-BACKED SECURITIES. Interests in pools of mortgage-backed
securities differ from other forms of debt securities (which normally provide
for periodic payments of interest in fixed amounts and the payment of principal
in a lump sum at maturity or on specified call dates). Instead, mortgage-backed
securities provide monthly payments consisting of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly
payments made by the individual borrowers on the underlying residential
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Unscheduled payments of principal may be made if the underlying
mortgage loans are repaid, refinanced or the underlying properties are
foreclosed, thereby shortening the securities' weighted average life. Some
mortgage-backed securities, such as securities guaranteed by the Government
National Mortgage Association ("GNMA"), are described as "modified pass-through
securities." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, on the
scheduled payment dates regardless of whether the mortgagor actually makes the
payment.
The principal governmental guarantor of mortgage-backed securities is
GNMA. GNMA is authorized to guarantee, with the full faith and credit of the
U.S. Government, the timely payment of principal and interest on securities
issued by lending institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
mortgage loans. These mortgage loans are either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. A "pool" or group
of such mortgage loans is assembled and, after being approved by GNMA, is
offered to investors through securities dealers.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("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
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represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but Pcs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-backed securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. Timely payment of interest and principal of these pools may be supported
by various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. The insurance and guarantees
are issued by governmental entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the issuers thereof
will be considered in determining whether a mortgage-backed security meets each
Fund's investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. Each Fund may buy mortgage-backed securities without
insurance or guarantees if its Adviser determines that the securities meet that
Fund's quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. Each Fund will limit its investment in mortgage-backed
securities or other securities which may be considered illiquid or not readily
marketable to no more than 15% of that Fund's total assets.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). Collateralized mortgage
obligations ("CMOs") are debt securities collateralized by underlying whole
mortgage loans or, more typically, by pools of mortgage-backed securities
guaranteed by GNMA, FHLMC, or FNMA and their income streams. CMOs are generally
structured into multiple classes or tranches, each bearing a different stated
maturity. The actual maturity and average life of a CMO will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of
mortgages according to how quickly the loans are repaid. Monthly payment of
principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity
class. Investors holding the longer maturity classes receive principal only
after the first class has been retired. An investor is partially guarded
against a sooner than desired return of principal because of the sequential
payments.
In a typical CMO transaction, a corporation issues multiple series of
CMO bonds (e.g., Series A, B, C, and Z bonds). Proceeds of the CMO bond
offering are used to purchase mortgages or mortgage-backed certificates which
are used as collateral for the loan ("Collateral"). The Collateral is generally
pledged to a third party trustee as security for the CMO bond. Principal and
interest payments from the Collateral are used to pay principal on the CMO
bonds. The Series A, B, and C bonds all bear current interest. Interest on the
Series Z bond is accrued and added to principal and a like amount is paid as
principal on the Series A, B, or C bond currently being paid off. When the
Series A, B, and C bonds are paid in full, interest and principal on the Series
Z bond begins to be paid 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 and Equity Fund and the Balanced
Fund each may invest in asset-
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backed securities including interests in pools of receivables, such as
motor vehicle installment purchase obligations (such as Certificates for
Automobile Receivables or "CARs") and credit card receivables (such as Credit
Card Receivable Securities or "CARDS"). Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. However, such securities may also
be issued on a pay-through basis (like CMOs) and, in such case, are generally
issued as the debt of a special purpose entity organized solely for the purpose
of owning such asset and issuing such pay-through security. Assetbacked
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 and Equity 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 and
Equity 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
and Equity 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.
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Zero coupon bond and "pay-in-kind" securities may be more speculative
and subject to greater fluctuations in their market value in response to
changing interest rates than debt obligations that make period distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, zero coupon bonds eliminate any reinvestment
risk and lock in a rate of return to maturity.
For federal tax purposes, the holder of a zero coupon bond is required
to accrue a portion of the discount at which the security was purchased (or, in
the case of a "pay-in-kind" security, the difference between the issue price
and the sum of all the amounts payable on redemption) as income each year even
though the holder of such a security receives no interest payment on such
security during the year. Since each Fund is a regulated investment company,
under the Internal Revenue Code of 1986 (the "Code"), and must distribute each
year to its shareholders substantially all of its income (including that which
it must accrue and recognize with respect to any zero coupon bonds and
"pay-in-kind" securities in which it invests) in order to comply with certain
Code provisions, such distributions could reduce the amount of cash available
for investment by each Fund.
PERCS. The Income and Equity 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-ofthe-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 and Equity 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 and Equity 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
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the commitment to purchase a security on a when-issued basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. Each Fund will maintain, in a segregated account with the
custodian, cash and liquid high-quality debt securities equal in value to
commitments for when-issued securities.
WARRANTS
Warrants are securities that give the holder the right to purchase
equity securities from the issuer at a specific price (the "strike price") for
a limited period of time. The strike price of warrants typically is higher than
the prevailing market price of the underlying security at the time the warrant
is issued, while the market value of the warrant is typically much lower than
the current market price of the underlying securities. Warrants are generally
considered to be more risky investments than the underlying securities, but may
offer greater potential for capital appreciation than the underlying
securities.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to the expiration date. These
factors can make warrants more speculative than other types of investments.
Each Fund will limit its investment in warrants to no more than 5% of its net
assets, valued at the lower of cost or market value, and will further limit its
investment in unlisted warrants to no more than 2% of its net assets.
SECURITIES LOANS
For purposes of realizing additional income, each Fund may make
secured loans of its portfolio securities amounting to no more than 30% of the
value of that Fund's total assets. Securities loans are made to broker-dealers
and other financial institutions approved by the Board of Directors of the
Company. Loans of securities by the Funds are made pursuant to agreements
requiring that the loans be continuously secured by collateral equal in value
at all times to the securities loaned, as marked-to-market on a daily basis.
The collateral received will consist of cash, U.S. Government Securities,
letters of credit or such other collateral as permitted by interpretations or
rules of the Securities and Exchange Commission ("SEC") and approved by the
Company's Board of Directors. While the securities are on loan, the Funds will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower.
Any loan of portfolio securities by any Fund will be allowable at any
time by the lending Fund upon notice of five business days. When voting or
consent rights which accompany loaned securities pass to the borrower, the
lending Fund will call the loan, in whole or in part as appropriate, to permit
the exercise of such rights if the matters 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
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investment companies. Each Fund's investment in other investment companies is
limited in amount by the 1940 Act, so that each Fund may purchase shares in
another investment company unless (i) such a purchase would cause the Fund to
own, in the aggregate, more than 3% of the total outstanding voting stock of
the acquired company, (ii) such a purchase would cause the Fund to have more
than 5% of its total assets invested in one investment company, (iii) such a
purchase would cause the Fund to have more than 10% of its total assets
invested in all other investment companies in the aggregate, or (iv) all Funds
in the Company would own more than 10% of the total outstanding voting stock of
such registered investment company. Such investments may involve the payment of
substantial premiums above the value of such investment companies' portfolio
securities. In addition, the return from such an investment will be reduced by
the operating expenses and fees of such other investment companies, including
applicable advisory fees. Although each Fund, other than the Income and Equity
Fund, is permitted to invest in other investment companies, each Fund has no
current intention (i.e., in the next year) of so doing.
DEPOSITARY 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 Depositary Receipts ("ADRs").
Certain Funds may also utilize European Depositary 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
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traded.
A call option is a contract that gives the purchaser thereof, during
the term of the option, the right to buy a specified amount of the security
underlying the call option at a fixed price (called the exercise or "strike"
price) upon exercise of the option. Conversely, a put option is a contract that
gives the purchaser thereof, during the term of the option, the right to sell a
specified amount of the security underlying the put option at the exercise
price upon exercise of the option.
Through the writing of a covered call option, a Fund will receive
premium income but will also thereby obligate itself during the term of the
option, upon the exercise thereof, to sell to the purchaser of such option the
security underlying the option regardless of the market value of the security
during the option period. Through the writing of a covered put option, a Fund
will receive premium income but will also thereby obligate itself during the
term of the option, upon the exercise thereof, to purchase from the holder of
the put option the security underlying the option regardless of the market
value of the security during the option period.
To "cover" a call option written, a Fund may, for example, identify
and make available for sale the specific portfolio security to which the option
relates or may establish a segregated asset account with the Company's
custodian, containing cash or liquid assets that, when added to amounts, if
any, deposited with its broker as margin, equal the market value of the
securities underlying the call option written. To cover a put option written, a
Fund may, for example, establish a segregated asset account with the Company's
custodian containing cash or liquid assets that, when added to amounts, if any,
deposited with its broker as margin, equal the market value of the securities
underlying the put option written.
Each Fund may purchase put options on securities for defensive
purposes in order to hedge against an anticipated decline in the value of its
portfolio securities. Each Fund may purchase call options on securities to take
advantage of anticipated increases in the value of its portfolio securities. In
addition, each Fund may write put or call options on securities, for the
purpose of generating additional income, which may partially offset the effects
of adverse changes in the value of that Fund's portfolio securities.
Although these investment practices will be used to generate
additional income and to attempt to reduce the effect of any adverse price
movement in the securities subject to the option, they do involve certain risks
that are different, in some respects, from the investment risks associated with
similar funds that do not engage in such activities. These risks include the
following: writing covered call options -- the inability to effect closing
transactions at favorable prices and the inability to participate in the
appreciation of the underlying securities above the exercise price, adjusted
for premiums received; writing covered put options -- the inability to effect
closing transactions at favorable prices and the obligation to purchase the
specified securities at prices which may not reflect their current market
values; and purchasing put and call options -- possible loss of the entire
premium paid if the option expires unexercised.
TAXES
Each Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Code. As such, it must meet the requirements of
Subchapter M of the Code, including the requirements regarding the source and
distribution of investment income and the diversification of investments.
In general, to qualify as a RIC, at least 90% of the gross income of
each Fund for the taxable year must be derived from dividends, interest, and
gains from the sale or other disposition of securities, and less than 30% of
its gross income for the taxable year can be attributable to gains (without
deductions for losses) from the sale or other disposition of securities held
for less than three months.
A RIC must distribute to its shareholders 90% of its ordinary income
and net short-term capital gains.
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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.
EXCHANGING. Shares of a Fund 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
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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 and 3,774 0 3,774 372 0 372
Equity
Government
Securities 153 0 153 2,249 0 2,249
<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 and 925 0 925
Equity
Government
Securities 5,592 0 5,592
</TABLE>
PORTFOLIO TRANSACTIONS
The Company has no obligation to do business with any broker-dealer or
group of broker-dealers in executing transactions in securities. In placing
orders, the Manager, Advisers and Co-Manager 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
Manager, Advisers and Co-Manager to pay higher commissions in recognition of
brokerage services which, in an Adviser's opinion, are necessary to achieve
best execution, provided the Manager, Adviser or Co-Manager believes this to be
in the best interest of the Fund. The Manager, Advisers and Co-Manager may also
rank broker-dealers based on the value
S-22
<PAGE> 68
of their research services and include such ranking as a selection factor.
The Manager, each Adviser and the Co-Manager, 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 Manager, each Adviser and the
Co-Manager must regard such higher commissions as reasonable in relation to the
brokerage and research services provided, viewed in terms of the Manager's,
each Adviser's or the Co-Manager's responsibilities to the Funds or other
accounts, if any, as to which it exercises investment discretion.
The Advisers' and the Co-Manager's other accounts may have investment
objectives and programs that are similar to those of the Funds they advise.
Accordingly, occasions may arise when an Adviser or Co-Manager 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 and Co-Manager 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 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 and Equity 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 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
S-23
<PAGE> 69
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-24
<PAGE> 70
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The ratings of certain debt instruments in which the Funds may invest
are described below.
MOODY'S INVESTORS SERVICE, INC. - BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
not likely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated Baa are considered to be medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have speculative elements,
and their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
STANDARD & POOR'S CORPORATION - BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
S-25
<PAGE> 71
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-26
<PAGE> 72
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements filed as part of Prospectus:
Condensed Financial Information for the Government
Securities Fund, Income and Equity Fund (formerly,
the 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
1(c) Articles of Amendment of the Articles of
Incorporation dated June 28, 1997.
** 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.
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<PAGE> 73
<TABLE>
<S> <C> <C>
** 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 and Equity Fund (formerly, 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 and
Equity Fund (formerly, the Income Fund), Pacific Global
Investment Management Company, and Expansion Funds of
Arizona, Inc. (formerly, the 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.
5(g) Co-Management Agreement by and between Pacific Global Fund,
Inc. d/b/a Pacific Advisors Fund Inc., on behalf of the Income and
Equity Fund, Pacific Global Investment Management Company and
Hamilton & Bache, Inc.
</TABLE>
C-2
<PAGE> 74
<TABLE>
<S> <C> <C>
** 6 Distribution Agreement between Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc. and Pacific Global Fund Distributors,
Inc.
7 Not applicable.
+ 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.
</TABLE>
C-3
<PAGE> 75
<TABLE>
<S> <C> <C>
* 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.
** 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.
</TABLE>
- --------------------------
* 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).
++ Incorporated herein by reference to Post-Effective Amendment No. 5 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).
Item 26. Number of Holders of Securities
As of May 31, 1997:
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<PAGE> 76
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Government Securities Fund 238
Income and Equity Fund 117
Balanced Fund 1,128
Small Cap Fund 1,649
</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 referred to as "disinterested
non-party directors") or (b) independent legal counsel in a
written opinion. [By-Laws, Article 10, Section 10.01]
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<PAGE> 77
(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
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,
C-6
<PAGE> 78
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,
unenforce- able. 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)]
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 and the co-manager, namely, Spectrum Asset Management, 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
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<PAGE> 79
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
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 New 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
</TABLE>
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<PAGE> 80
<TABLE>
<S> <C> <C>
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 Director Newport Beach, CA 92660
Marc D. Kelly
President and Director
Ryan L. Kelly
Vice President
Maralyn M. Clyburn
Secretary
Hamilton & Bache, Inc. Mary Hamilton 206 North Jackson Avenue, Suite 201
Chairman Glendale, CA 91206
Stephen Bache
Chief Investment Officer
</TABLE>
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<PAGE> 81
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 Offices
Business Address* with Underwriter with the Company
- ------------------ --------------------- ----------------
<S> <C> <C>
George A. Henning Chairman of the Board, President and
Secretary Chairman of the Board
Thomas H. Hanson President and Director Vice President and Secretary
Paul H. Henning Treasurer and Director Treasurer
</TABLE>
- ------------------
* The principal business address of each person listed in the table is 206
North Jackson Avenue, Suite 201 Glendale, CA 91206.
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
C-10
<PAGE> 82
pursuant to such agreement. Pacific Management, pursuant to its Investment
Management Agreements with respect to each Fund, maintains all records required
pursuant to such agreements. Pacific Distributors, as principal underwriter for
the Company, maintains all records required pursuant to the Distribution
Agreement with the Company.
Item 31. Management Services
Pacific Management, pursuant to its Investment Management Agreements
with the Company, performs certain administrative services for the Company.
Pacific Global Investor Services, Inc., pursuant to the Transfer Agency,
Dividend Disbursing Agency, and Administrative Service Agreement with the
Company, assists Pacific Management in performing certain administrative
services for the Company.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The Company undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Company's latest
annual report to Shareholders upon request and without
charge.
C-11
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Pacific Global Fund, Inc.
d/b/a Pacific Advisors Fund Inc. has duly caused this Post-Effective Amendment
No. 6 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Glendale and State of California, on the 9th day of July, 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. 6 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Victoria Breen Director July 9, 1997
- ----------------------------------
Victoria Breen
/s/ Thomas M. Brinker, Sr. Director July 9, 1997
- ----------------------------------
Thomas M. Brinker, Sr.
/s/ Kathleen M. Fishkin Director July 9, 1997
- ------------------------------------
Kathleen M. Fishkin
/s/ L. Michael Haller, III Director July 9, 1997
- -------------------------------------
L. Michael Haller, III
/s/ Thomas H. Hanson Vice President and Secretary July 9, 1997
- -----------------------------------
Thomas H. Hanson
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ George A. Henning President and Chairman of July 9, 1997
- --------------------------------------
George A. Henning the Board (Principal
Executive Officer)
/s/ Paul W. Henning Treasurer (Principal Financial July 9, 1997
- --------------------------------------
Paul W. Henning and Accounting Officer)
/s/ Siegfred Kagawa Director July 9, 1997
- --------------------------------------
Siegfred Kagawa
/s/ Takashi Makinodan Director July 9, 1997
- --------------------------------------
Takashi Makinodan
/s/ Gerald E. Miller Director July 9, 1997
- --------------------------------------
Gerald E. Miller
/s/ Louise K. Taylor Director July 9, 1997
- --------------------------------------
Louise K. Taylor
</TABLE>
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- -----------
<S> <C>
1(c) Articles of Amendment of the Articles of Incorporation dated June 28, 1997
5(g) Co-Management Agreement by and between Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund Inc., on behalf of the Income and Equity Fund, Pacific
Global Investment Management Company and Hamilton & Bache, Inc.
11 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
- ---------------------------
<PAGE> 1
EXHIBIT 1(c)
<PAGE> 2
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
PACIFIC GLOBAL FUND, INC.
Pacific Global Fund, Inc., a Maryland corporation (the "Corporation"),
having its principal office in Baltimore City, Maryland, hereby certifies that:
First: The Corporation's Board of Directors in accordance with Section
2-605(a)(4) of the Maryland General Corporation Law and the Seventh
Article of the Corporation's Articles of Incorporation has adopted a
resolution changing the name of the Income Fund, a series of the
Corporation, to the Income and Equity Fund.
Second: The amendment was approved by a majority of the entire Board
of Directors of the Corporation.
Third: The amendment is limited to a change expressly permitted by
Section 2-605 of the Maryland General Corporation Law.
Fourth: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
2
<PAGE> 3
IN WITNESS WHEREOF, Pacific Global Fund, Inc. has caused these
Articles of Amendment to be executed by its President and attested by its
Secretary on the 28th day of June, 1997.
PACIFIC GLOBAL FUND, INC.
Attest: /s/ Victoria Breen By: /s/ George A. Henning
------------------ ---------------------
Victoria Breen George A. Henning
Assistant Secretary Chairman of the Board of Directors
/s/ Thomas H. Hanson
--------------------
Thomas H. Hanson
Vice President
The undersigned, President of Pacific Advisors Fund, Inc., who
executed on behalf of said Corporation the foregoing Articles of Amendment of
the Articles of Incorporation of which this certification is made a part,
hereby acknowledges, in the name and on behalf of said Corporation, the
foregoing Articles of Amendment to be the corporate act of said Corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth herein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/ George A. Henning
---------------------
Dated: June 28, 1997 George A. Henning, President
3
<PAGE> 1
EXHIBIT 5(g)
<PAGE> 2
CO-MANAGEMENT AGREEMENT
CO-MANAGEMENT AGREEMENT, made as of the 1st day of July, 1997, by and among
PACIFIC GLOBAL FUND, INC., a Maryland corporation doing business as Pacific
Advisors Fund Inc. (the "Corporation"), PACIFIC GLOBAL INVESTMENT MANAGEMENT
COMPANY, a California corporation ("PGIMC") and HAMILTON & BACHE, INC., a
California corporation ("H&B").
WITNESSETH
WHEREAS, the Corporation is engaged in business as an open-end investment
management company and is registered as such under the Investment Company Act
of 1940, as amended (the "1940 Act"); and
WHEREAS, the Corporation is a series type investment company currently
consisting of four series, the Balanced Fund, the Income Fund, the Government
Securities Fund, and the Small Cap Fund, each with its own investment
objectives, investment program, policies, and restrictions; and
WHEREAS, PGIMC is engaged principally in the business of rendering investment
management services and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act"); and
WHEREAS, H&B is engaged principally in the business of rendering investment
advisory services and is registered as an investment adviser under the Advisers
Act; and
WHEREAS, PGIMC and the Corporation on behalf of its separately designated
series, the Income Fund (the "Fund"), have entered into an Investment
Management Agreement dated as of October 16, 1992 (the "Investment Management
Agreement") pursuant to which PGIMC is authorized to act as sole investment
manager of the Corporation with respect to the Fund and, in its discretion, to
engage the services of a sub-adviser to provide investment advisory and other
services to the Fund; and
WHEREAS, PGIMC shall continue to provide investment management services to the
Fund pursuant to the Investment Management Agreement in addition to its duties
under this Agreement; and
WHEREAS, the Corporation proposes to engage H&B as co-manager ("Co-manager") of
the Fund's assets and to authorize PGIMC to serve as Co-manager along with H&B
of the Fund's assets; and
WHEREAS, H&B and PGIMC are willing to perform co-management services for the
Fund upon the terms and conditions and for the compensation hereinafter set
forth;
<PAGE> 3
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. The Corporation hereby employs H&B to serve as Co-manager and
authorizes PGIMC to serve as Co-manager with respect to the assets of the Fund
and to perform the services hereinafter set forth. H&B and PGIMC hereby accept
such employment and authorization and agree for the compensation herein
provided to assume all obligations herein set forth and to bear all expenses of
their performance of such obligations (but no other expenses).
2. Subject to the supervision and control of the Corporation's Board
of Directors, H&B and PGIMC shall co-manage the investment and reinvestment of
the Fund's assets in accordance with applicable law, including the Internal
Revenue Code of 1986, as amended, and the investment objectives, investment
program, policies, and restrictions set forth in the then-current Prospectus
and then-current Statement of Additional Information relating to the Fund
contained in the Corporation's Registration Statement under the 1940 Act, and
the Securities Act of 1933, as amended from time to time, and subject to such
further limitations as the Corporation may from time to time impose by written
notice to H&B and PGIMC. H&B and PGIMC shall jointly establish the overall
investment program for the management of the Fund's assets. H&B and PGIMC,
shall amend and update such investment program from time to time as financial
and other economic conditions warrant.
3. Subject to the supervision and control of the Corporation's Board
of Directors, H&B and PGIMC shall jointly have the authority to make
determinations with respect to the investment and reinvestment of the assets of
the Fund and to take such steps as may be necessary to implement the same.
Consistent with their duties hereunder, H&B and PGIMC shall advise the
Corporation's Board of Directors of the manner in which voting rights, rights
to consent to corporate action, and any other non-investment decisions
pertaining to the Fund's portfolio securities should be exercised.
4. H&B, shall regularly furnish such reports to PGIMC as it may
request for PGIMC's use in discharging its obligations under the Investment
Management Agreement, which reports may be distributed by PGIMC to the
Corporation at periodic meetings of the Corporation's Board of Directors and at
such other times as may be reasonably requested by the Corporation's Board of
Directors. Such reports shall include: H&B's economic outlook and investment
research and strategy of H&B; a discussion of the Fund's portfolio activity,
including a schedule of the Fund's investments and other assets and a statement
of all purchases and sales for the Fund during the period since the last
preceding report, and the Fund's performance since the last report and for such
other relevant periods as shall be mutually agreed upon; and any other
information about material developments affecting the Fund. Copies of all such
reports shall be furnished to PGIMC for examination and review within a
reasonable time prior to the presentation of such reports to the Corporation's
Board of Directors.
5. (a) H&B and PGIMC shall select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund and place,
in the name of the Fund or its nominee, all such orders. Such brokers or dealers
may include brokers or dealers affiliated
<PAGE> 4
with H&B, PGIMC and the Corporation ("affiliated brokers or dealers"). All
purchases and sales of portfolio securities for the Fund placed with affiliated
brokers or dealers shall be executed in compliance with procedures established
by the Corporation's Board of Directors. When placing all orders, H&B and PGIMC
shall use their best efforts to obtain the best available price and most
favorable execution for the Fund. H&B and PGIMC shall use their best efforts to
recapture all available tender and exchange offer solicitation fees and similar
payments in connection with tenders or exchanges of the securities of the Fund.
H&B or PGIMC shall send, by facsimile or comparable means, copies of all
portfolio transactions to the Corporation's custodian on the date such
portfolio transactions are executed. H&B and PGIMC shall advise the Board of
Directors of the Corporation of any fees or payments of whatever type that may
be possible for H&B or PGIMC or any of their affiliates to receive in
connection with the purchase or sale of investment securities for the Fund.
(b) Subject to the appropriate policies, procedures, and/or
guidelines established by the Corporation's Board of Directors, H&B and PGIMC
may also effect individual securities transactions at commission rates in
excess of the minimum commission rates available, if H&B and PGIMC determine in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage or research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the overall
responsibilities of H&B and PGIMC with respect to the Fund and H&B's other
advisory clients. The execution of such transactions shall not be deemed to
represent an unlawful act or breach of any duty created by this Agreement or
otherwise.
(c) H&B and PGIMC shall promptly communicate to the
Corporation's Board of Directors such information relating to portfolio
transactions as the Board of Directors may reasonably request.
(d) The parties understand that the Fund shall bear all
brokerage commissions in connection with purchases and sales of portfolio
securities for the Fund and all ordinary and reasonable transaction costs in
connection with purchases of such securities in private placements and
subsequent sales thereof.
6. H&B and PGIMC shall:
(a) provide, without charge, persons to render such
reasonable clerical, administrative, and other services (other than services
described in any other sub-paragraphs of this paragraph 6) to the Fund as the
Corporation's Board of Directors may from time to time reasonably request;
(b) furnish the Corporation, for the Fund, without charge,
such reasonable administrative and management supervision and office
facilities, which may be their own offices, as shall be appropriate or as the
Corporation's Board of Directors may reasonably request, subject to the
requirements of any regulatory authority to which H&B or PGIMC may be subject;
(c) generally assist in all other aspects of the Fund's
operations as the Corporation's Board of Directors may reasonably request;
<PAGE> 5
(d) provide, as the Corporation's Board of Directors may
reasonably request and without charge, persons satisfactory to the Board of
Directors to serve as the Corporation's officers;
(e) provide, at a cost to the Fund to be agreed upon from
time to time by the Corporation, H&B and PGIMC, persons, who may be employees
of H&B, PGIMC or their respective affiliates, satisfactory to the Corporation's
Board of Directors, to provide other services for the Fund, and such facilities
and equipment as may be necessary for such persons to carry out their duties
hereunder, including without limitation office space and facilities, telephone
and CRT terminals and equipment (including telephone lines) necessary for
access to the Fund's records;
(f) provide data processing services, recordkeeping, and
clerical services, internal auditing and regulatory compliance services,
internal executive and administrative services, and stationery and office
supplies;
(g) provide information to the Corporation as necessary to
prepare reports to shareholders, tax returns, and reports to and filings with
the Securities and Exchange Commission and any other regulatory and
administrative bodies that have jurisdiction over the operations of the Fund
and shall submit to all such regulatory and administrative bodies such
information, reports, or other material as necessary to comply with applicable
laws or regulations; and
(h) maintain records relating to the services provided under
this Agreement, which records shall be the property of, and under control of,
the Corporation.
H&B may (at its cost except as contemplated by paragraph 5 and 6(e) of this
Agreement) employ, retain, or otherwise avail itself of the services and
facilities of persons and entities within its own organization or any other
organization for the purpose of providing PGIMC, the Corporation or the Fund
with such information, advice or assistance, including but not limited to
advice regarding economic factors and trends and advice as to transactions in
specific securities, as H&B may deem necessary, appropriate, or convenient for
the discharge of its obligations hereunder or otherwise helpful to PGIMC, the
Corporation or the Fund, or in the discharge of H&B's overall responsibilities
with respect to the other accounts which it serves as investment manager.
7. H&B and PGIMC shall cooperate with and make available to the
Corporation and any agents engaged by the Corporation, their expertise relating
to matters affecting the Fund which involve markets, securities or individual
companies. Such matters shall include, but shall not be limited to, the pricing
of certain securities owned by the Fund for the purpose of pricing Fund shares
and the selection of agents engaged by the Corporation on behalf of the Fund.
8. (a) As compensation for all services under the Investment Management
Agreement and this Agreement PGIMC shall receive a fee calculated at the annual
rate of .40% on the first $100 million of the average daily net asset value of
the Fund, .37% of
<PAGE> 6
the next $100 million, .34% of the next $100 million, .31% of the next $100
million, .28% of the next $100 million, and .25% of average daily net asset
value in excess of $500 million.
(b) As compensation for all services rendered by H&B under
this Agreement, the Corporation shall pay to H&B a co-management fee calculated
at the annual rate of .35% on the first $100 million of the average daily net
asset value of the Fund, .33% of the next $100 million, .31% of the next $100
million, .29% of the next $100 million, .27% of the next $100 million, and .25%
of average daily net asses value in excess of $500 million.
The co-management fee shall accrue on each calendar day, and the sum of the
daily fee accruals shall be paid monthly to H&B on the first business day of
the next succeeding calendar month. The daily fee accruals shall be computed by
multiplying the fraction of one over the number of calendar days in the year by
the applicable annual co-management fee rate described above, and multiplying
this product by the net assets of the Fund as determined in accordance with the
Fund's then-current Prospectus as of the close of business on the previous
business day on which the Fund's net asset value was determined. The
co-management fee shall be payable through the date of termination of this
Agreement.
H&B shall promptly reduce its co-management fee by the amount of any
commissions, tender and exchange offer solicitation fees, other fees, or
similar payments received by H&B, or any affiliated person of H&B, in
connection with the Fund's portfolio transactions, less the amount of any
direct expenses incurred by H&B, or any affiliated persons of H&B, in obtaining
such commissions, fees, or payments. Such "commissions" or "other fees" shall
exclude those charged by brokers or dealers affiliated with H&B, PGIMC and the
Corporation as referred to in paragraph 5(a). Such "tender and exchange offer
solicitation fees" shall exclude those received by H&B acting in the capacity
of manager for any such offer.
(c) H&B and PGIMC shall bear all expenses in connection with
the performance of their services under this Agreement, except as otherwise
provided herein. Expenses incurred in connection with the investment operations
of the Fund, including brokers' commissions, transfer and capital gains or
other income taxes, and fees relating to purchases, sales, or loans of
investments, shall be paid out of the assets of the Fund. Other expenses
incurred in the operation of the Fund shall also be paid by the Fund, as
described in the then-current Prospectus and Statement of Additional
Information and as provided in the Investment Management Agreement between the
Corporation, on behalf of the Fund, and PGIMC.
9. H&B and PGIMC shall not be liable for any loss or losses sustained
by reason of any investment including the purchase, holding or sale of any
security as long as H&B and PGIMC shall have acted in good faith and with due
care; and, in any event, H&B and PGIMC shall be liable for their willful
misfeasance, bad faith, or negligence in the performance of their investment
management duties or for failure to exercise due care in rendering other
services under this Agreement. A good faith mistake in judgment shall not be
deemed to be the absence of due care.
10. (a) This Agreement shall become effective on the day and year first
above written and unless sooner terminated as hereinafter provided, shall
continue in effect
<PAGE> 7
through June 30, 1998. Thereafter, this Agreement shall continue in effect from
year to year, so long as its continuance is approved in the manner required by
the 1940 Act.
(b) This Agreement may be terminated at any time without the
payment of any penalty, (a) by the Board of Directors of the Corporation,
including the vote or written consent of a majority of the directors of the
Corporation who are not parties to this Agreement or the Investment Management
Agreement or interested persons of any such party, (b) by the vote of a
majority of the outstanding voting securities of the Fund, (c) by PGIMC on
sixty (60) days' prior written notice to the Fund, or (d) by H&B on sixty (60)
days' prior written notice to the Fund. This Agreement shall terminate
automatically in the event of its assignment, or upon termination of the
Investment Management Agreement between the Corporation and PGIMC.
(c) As used in this Agreement, the terms "assignment",
"interested person", and "vote of a majority of the outstanding voting
securities" of the Fund shall have the meanings set forth for such terms in the
1940 Act.
(d) In the event of termination of this Agreement, H&B shall
promptly return to the Corporation all records maintained by H&B with respect
to the Fund and H&B shall be free from any claim or retention of rights
therein. H&B may retain copies of such records that it maintains pursuant to
the requirements of the 1940 Act. H&B and PGIMC shall not disclose or use any
records or information obtained pursuant to this Agreement in any manner
whatsoever except as expressly authorized by this Agreement and applicable law.
H&B and PGIMC shall keep confidential any information obtained in connection
with their duties hereunder and shall disclose such information only if the
Corporation, on behalf of the Fund, has authorized such disclosure or if such
disclosure is expressly required by applicable law or federal or state
regulatory authorities. H&B, PGIMC, and the Corporation shall furnish to the
other parties any documents and other materials prepared for distribution which
refer to the other party prior to use, and each party shall have the right to
limit use of such documents to which it reasonably objects.
(e) Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid (a) if to H&B, to Hamilton
& Bache, Inc., 206 North Jackson Street, Suite 201, Glendale, CA 91206; (b) if
to PGIMC, to Pacific Global Investment Management Company, 206 North Jackson
Street, Suite 201, Glendale, CA 91206; and (c) if to the Corporation, at the
foregoing office of PGIMC.
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of H&B to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar nature or a dissimilar nature, nor
to limit or restrict the right of H&B to engage in any other business or to
render services of any kind to any other corporation, firm, individual, or
association.
12. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule, or otherwise, the remainder of this
Agreement shall not be affected thereby.
13. Except insofar as the 1940 Act or other federal laws and
regulations may be controlling, this Agreement shall be governed by, and
construed and enforce in accordance with, the laws of the State of California.
<PAGE> 8
14. This Agreement contains the entire agreement among the parties
hereto, and shall, as of the effective date hereof, supersede all prior
agreements, oral or written, among the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and Year first above written.
PACIFIC GLOBAL
ATTEST: INVESTMENT MANAGEMENT COMPANY
/s/ Yen B. Truong /s/ George A. Henning
- ----------------- ---------------------
ATTEST: HAMILTON & BACHE, INC.
/s/ Yen B. Truong /s/ Stephen K. Bache
- ----------------- --------------------
PACIFIC GLOBAL FUND, INC. d/b/a
ATTEST: PACIFIC ADVISORS FUND INC. ON
BEHALF OF THE INCOME FUND
/s/ Yen B. Truong /s/ George A. Henning
- ----------------- ---------------------
<PAGE> 1
EXHIBIT 11
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Independent Auditors" and "Other Information", and to the use
of our report dated January 29, 1997, in Post-Effective Amendment No. 6 under
the Securities Act of 1933 and Post-Effective Amendment No. 7 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
July 10, 1997
2
