<PAGE>
Registration Nos. 33-50208
811-7062
As filed with the Securities and Exchange Commission on February 12, 1999
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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. 10 /X/
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and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11 /x/
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(Check appropriate box or boxes)
--------------------------------
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
(Agent for Service)
Copies to:
Joan E. Boros, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson
1025 Thomas Jefferson St., N.W., Suite 400
Washington, D.C. 20007
<PAGE>
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective:
___ Immediately upon filing pursuant to Paragraph (b)
___ On _________________ pursuant to Paragraph (b)
___ 60 days after filing pursuant to Paragraph (a)(1)
___ On _________________ pursuant to Paragraph (a)(1)
_x_ 75 days after filing pursuant to Paragraph (a)(2)
___ On _________________ pursuant to Paragraph (a)(2) of Rule 485.
The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its five series under the Securities Act of 1933
pursuant to Section 24(f) under the Investment Company Act of 1940.
<PAGE>
PACIFIC GLOBAL FUND, INC.
d/b/a PACIFIC ADVISORS FUND INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
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PART A
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Form N-1A Item No. Caption in Prospectus
------------------ ---------------------
<S> <C> <C>
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1 Front and Back Cover Pages Cover Page and Back Cover
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2 Risk/Return Summary; Investments, Introducing Our Funds; The Overview;
Risks, and Performance Which of our Funds is right for you;
What are the main risks in investing
in our Funds; Past Performance
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3 Risk/Return Summary; Fee Table Understanding Expenses; Fee Table; Fee
Example
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4 Investment Objectives, Principal Understanding Each Fund; Risk Factors,
Investment Strategies, and Other Investment Practices and Policies
Related Risks of the Funds
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5 Management's Discussion of Fund Provided in the Funds' annual reports
Performance
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6 Management, Organization, and Management of the Fund
Capital Structure
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7 Shareholder Information Understanding Earnings and Taxes;
Account Policies and Valuation; How to
Buy, Sell, and Exchange Shares
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8 Distribution Arrangements Understanding Expenses;
Rule 12b-1 fees; Sales charges for
Class A shares; How can you reduce
sales charges
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9 Financial Highlights Information Financial Highlights
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PART B
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Caption in
Form N-1A Item Number Statement of Additional Information
--------------------- -----------------------------------
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10 Cover Page and Table of Contents Cover Page and Table of Contents
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11 Fund History The Company and the Funds
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12 Description of the Fund and Its The Company and the Funds; Additional
Investments and Risks Information Concerning Investment
Strategies And Risks; Investment
Policies and Restrictions
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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Caption in
Form N-1A Item Number Statement of Additional Information
--------------------- -----------------------------------
<S> <C> <C>
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13 Management of the Fund Management of the Company and Its
Funds; Directors and Officers;
Committees of the Board of Directors;
Principal Holders of Securities;
Waiver of Initial Sales Charge on
Class A Shares
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14 Control Persons and Principal Directors and Officers; Principal
Holders of Securities Holders of Securities
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15 Investment Advisory and Other Investment Management and Other
Services Services; Investment Manager, Co-
Manager, and Advisers; Distribution of
Fund Shares; Transfer Agent and
Administrative Services Agent;
Custodian; Independent Auditors
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16 Brokerage Allocation and Other Portfolio Transactions; Distribution
Practices of Fund Shares
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17 Capital Stock and Other Capital Stock
Securities
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18 Purchase, Redemption, and Pricing Distribution of Fund Shares;
of Shares Additional Information Concerning
Purchase, Redemption, and Pricing of
Shares; Valuation of Fund Shares;
Specimen Price Make Up Sheet
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19 Taxation of the Fund Taxes
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20 Underwriters Distribution of Fund Shares
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21 Calculation of Performance Data Performance Information
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22 Financial Statements Financial Statements
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</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>
PACIFIC ADVISORS FUND, INC.
CLASS A AND C SHARES
[LOGO]
Prospectus dated May 1, 1999
Government Securities Fund
Income and Equity Fund
Balanced Fund
Growth Fund
Small Cap Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this prospectus or any
other mutual fund prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
INTRODUCING OUR FUNDS
TWO CLASSES OF SHARES
We offer two types of shares in our Funds: Class A shares and Class C shares.
This prospectus offers both. Consider buying:
- - Class A shares if you are a longer-term investor or have smaller amounts to
invest. There is a sales charge when you buy these shares, but there is no
minimum investment and the ongoing fees are lower than Class C shares.
- - Class C shares if you are a shorter-term investor with more money to
invest. There is no sales charge when you buy these shares, but there may
be a sales charge when you sell them. You must invest a minimum of $10,000
and the ongoing fees are higher than Class A shares.
KEY PEOPLE AND COMPANIES TO KNOW ABOUT
"We", "Us" and "Our"- mean Pacific Advisors Fund, Inc.
"You" and "Your"- mean the prospective investor or current shareholder.
"PGIMC"- means Pacific Global Investment Management Company, the investment
manager for all the Funds.
"PGFD"- means Pacific Global Fund Distributors, Inc., the distributor.
"PGIS"- means Pacific Global Investor Services, Inc., the transfer agent.
"Spectrum"- means Spectrum Asset Management, Inc., the adviser for the
Government Securities Fund.
"Hamilton & Bache"- means Hamilton and Bache, Inc., the co-manager for the
Income and Equity Fund and adviser for the Balanced Fund.
IMPORTANT TERMS TO KNOW IN THIS PROSPECTUS
"Liquidity"- refers to the ease of selling an investment for cash. A highly
liquid investment is easy to sell. An illiquid investment is difficult to sell.
"Market capitalization" or "capitalization"- means the number of shares
available for trading multiplied by the price per share.
"Quality"- means the credit rating given to a security by a nationally
recognized rating organization.
"Investment grade"- means the security has been rated high quality by a
nationally recognized rating organization.
2
<PAGE>
ASK QUESTIONS USING FUNDSPHONE
You can check your share balance, the price of your shares, and your account
transactions by calling FundsPhone between 7:00 a.m. and 4:00 p.m. Pacific time
at 1-800-282-6693 from a touch-tone telephone. You will need your personal
identification number and account number. You may also call this number if you
have general questions regarding the Funds, or if you would like us to send you
a free copy of our most recent prospectus, Statement of Additional Information,
or Annual or Semi-Annual Report.
3
<PAGE>
TABLE OF CONTENTS
THE OVERVIEW
WHICH OF OUR FUNDS IS RIGHT FOR YOU?
WHAT ARE THE MAIN RISKS OF INVESTING IN OUR FUNDS?
PAST PERFORMANCE
RISK/RETURN BAR CHART
BEST AND WORST QUARTERLY RETURNS
RISK/RETURN TABLE
UNDERSTANDING EXPENSES
FEE TABLE
FEE EXAMPLE
SALES CHARGES FOR CLASS A SHARES
HOW CAN YOU REDUCE SALES CHARGES?
UNDERSTANDING EACH FUND
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
SMALL CAP FUND
RISK FACTORS, OTHER INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS
MANAGEMENT OF THE FUND
UNDERSTANDING EARNINGS AND TAXES
HOW TO BUY, SELL, AND EXCHANGE SHARES
BUYING SHARES
SELLING SHARES
EXCHANGING SHARES
AUTOMATIC PLANS
ACCOUNT POLICIES
YEAR 2000 ISSUE
FINANCIAL HIGHLIGHTS
FOR MORE INFORMATION (BACK COVER)
4
<PAGE>
More detailed information on subjects covered in this prospectus is contained
within the Statement of Additional Information (SAI). Investors seeking more
in-depth explanations of this Fund should request the SAI and review it before
purchasing shares.
5
<PAGE>
THE OVERVIEW
WHICH OF OUR FUNDS IS RIGHT FOR YOU?
We offer five Funds. Consider our:
- - GOVERNMENT SECURITIES FUND if your main goal is to earn current income that
could increase over time, but you also want to protect the value of your
investment. We invest primarily in U.S. government fixed income securities.
Our strategy is to focus on owning these securities because they are low
risk, high value, and relatively liquid;
- - INCOME AND EQUITY FUND if your main goal is to earn current income that
could increase over time, but you also want to profit from rising
securities prices. We invest primarily in high quality corporate bonds, and
to a lesser extent, in dividend paying stocks to provide additional income
and some potential for capital appreciation;
- - BALANCED FUND if your main goal is to profit from rising securities prices
of medium to larger size companies while still earning some current income.
Our strategy is to invest in a flexible mix of common stocks, dividend
paying stocks and high quality, fixed income securities. We may adjust the
mix to reflect our evaluation of economic and market conditions. We focus
on total return (by seeking to sell securities at a profit, and earning
dividends and interest);
- - GROWTH FUND if your main goal is to profit from rising stock prices of
established, growing companies whose stocks are part of the S&P 500
Composite Index and NASDAQ 100 Index. Our strategy is to focus on
financially sound companies with positive future growth prospects;
- - SMALL CAP FUND if your main goal is to profit from rising stock prices of
small, growing companies, primarily those with market capitalizations under
$200 million. Our strategy is to focus on growth companies with unique or
proprietary advantages in their industries.
6
<PAGE>
WHAT ARE THE MAIN RISKS OF INVESTING IN OUR FUNDS?
Some risks vary from Fund to Fund, depending on the types of investments and the
ways we invest. You should be aware of all these risks before investing in any
of our Funds.
- - THE VALUE OF THE FUNDS' INVESTMENTS VARY FROM DAY TO DAY. The value of the
Funds' assets generally reflect market conditions, changes in interest
rates, company-specific events, and other domestic and international
developments.
- - STOCK PRICES MAY FLUCTUATE MORE THAN OTHER SECURITIES. In the short-term
stocks may experience greater price changes than fixed income securities.
We try to reduce this risk by buying stocks of companies that have
established operating histories, strong or improving balance sheets, and
growth potential.
- - SMALL CAP STOCKS MAY BE MORE VOLATILE. Investing in small capitalization
companies generally involves greater risks than investing in larger
companies. They may be more difficult to buy and sell, and more sensitive
to market changes, than larger market capitalization securities.
- - FOREIGN SECURITIES CARRY DIFFERENT RISKS THAN DOMESTIC SECURITIES. Adverse
political, economic, social or other conditions in a foreign country may
make the stocks of that country difficult or impossible to sell.
Investments in foreign securities are also subject to currency
fluctuations.
- - BOND PRICES ARE AFFECTED BY INTEREST RATES. Bond prices generally decline
when interest rates rise, and rise when interest rates fall. Longer-term
debt and zero-coupon bonds are more sensitive to interest rate changes than
are debt instruments with shorter maturities.
- - LOSS OF YOUR ENTIRE INVESTMENT. As with all mutual funds, one risk of
investing in these Funds is that you could lose your entire investment.
- - NO GUARANTEES. We cannot guarantee we will reach our goals.
- - NO FDIC OR OTHER PROTECTION. Our shares are not insured by the FDIC, the
Federal Reserve Board, or any other government agency.
[sidebar: HOW WE REDUCE RISKS. In all of our Funds, we may use strategies that
try to reduce risks. One way is to own securities that are relatively liquid,
which helps us protect your investment and make quick investment decisions.
Another way is that sometimes we may sell some core investments and temporarily
invest in high quality, money market securities which are low risk, highly
liquid investments. This may help protect against temporary changes in the
investment markets due to economic, political or other adverse conditions.]
7
<PAGE>
PAST PERFORMANCE
From time to time we may publish a Fund's average annual total return in
advertising, marketing material, or other communications. You should be aware
that the performance of a Fund changes over time. Any presentation of a Fund's
average annual total return is not an indication of how it may perform in the
future.
We have provided the chart and tables below to give you some indication of the
risks of investing in our Funds by showing changes in the Fund's performance
from year to year (the risk/return bar chart); by showing each Fund's best and
worst quarterly performance since it began operations (the quarterly returns
table); and by showing how the Fund's average annual returns for the periods
shown compared with a broad measure of market performance (the risk return
table). There is no information for the Growth Fund because it began operations
on May 1, 1999.
A Fund's past performance is not necessarily indicative of how it will perform
in the future.
<TABLE>
<CAPTION>
RISK/RETURN BAR CHART (CLASS A SHARES)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Government Securities Fund 17.82% 11.72% (3.15%) 20.32 (0.15%)
Income and Equity Fund 12.14% 9.60% 1.78% 11.98% 0.99%
Balanced Fund 7.76% 15.24% 15.92% 8.70% (2.41%)
Small Cap Fund (16.66%) 6.95% 43.70% 17.27% (3.97%)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
BEST AND WORST QUARTERLY RETURNS (CLASS A SHARES)
BEST QTR. WORST QTR.
DATE CHANGE DATE CHANGE
<S> <C> <C> <C> <C>
Government Securities Fund 1997/4th Q 9.74% 1996/1st Q -4.92%
Income and Equity Fund 1997/2nd Q 5.49% 1996/2nd Q -1.73%
Balanced Fund 1997/2nd Q 10.41% 1998/3rd Q -7.46%
Small Cap Fund 1995/2nd Q 24.73% 1998/3rd Q -23.07%
</TABLE>
The sales charge is not included in the figures shown in the bar chart. If it
was included, each Fund's returns would be lower than those shown.
RISK/RETURN TABLE (CLASS A SHARES)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS
<S> <C> <C>
Government Securities Fund 12.25% 8.13%
Lehman Long-term T-Bond Index 8.42% 6.59%
Income and Equity Fund 6.79% 6.27%
Lehman Long-term T-Bond Index 8.42% 6.59%
Balanced Fund 1.53% 7.57%
S&P 500 Index 28.58% 24.05%
Lehman Long-term T-Bond Index 8.42% 6.59%
Small Cap Fund 21.46% 6.37%
Russell 2000 Index (2.57%) 11.87%
</TABLE>
The figures above include the sales charge.
Note: Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a
widely recognized unmanaged index of common stocks. Russell 2000 Index is an
unmanaged index of 2,000 small company stocks. Lehman Long-term T-Bond Index
is an unmanaged index of long term government bonds. Unlike the Funds'
returns, the total returns of the comparative indices do not include the effect
of brokerage commissions, transaction costs, or other investment costs.
9
<PAGE>
UNDERSTANDING EXPENSES
You pay a sales charge when you buy Class A shares. You pay no sales charge when
you buy Class C shares. You may, however, pay a contingent deferred sales charge
("CDSC") if you buy Class C shares and sell them within one year. The Class C
shares have higher ongoing expenses than the Class A shares and may end up
costing you more if you hold them for longer periods of time. (See "Fee
Example," in this section).
The information in this section will help you understand what expenses you will
pay when you buy and hold shares of the Funds. Please be aware that all
management and advisory fees are stated as a percentage of a Fund's average
daily net assets and are the maximum annual fees permitted.
FEE TABLE
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS C
(as a percentage of average net assets)
<S> <C> <C>
GOVERNMENT SECURITIES FUND
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% 0.00%
Maximum Contingent Deferred Sales Charge
(as a percentage of offering price or net asset
value at the time of sale, whichever is less) None 1.00%
Management Fees 0.65% 0.65%
Rule 12b-1 Fees 0.20% 1.00%
Other Expenses 3.09% 3.09%
Total Fund Operating Expenses 3.94% 4.74%
INCOME AND EQUITY FUND
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% 0.00%
Maximum Contingent Deferred Sales Charge
(as a percentage of offering price or net asset
value at the time of sale, whichever is less) None 1.00%
Management Fees 0.75% 0.75%
Rule 12b-1 Fees 0.22% 1.00%
Other Expenses 3.70% 3.70%
Total Fund Operating Expenses 4.67% 5.45%
10
<PAGE>
BALANCED FUND
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75% 0.00%
Maximum Contingent Deferred Sales Charge
(as a percentage of offering price or net asset
value at the time of sale, whichever is less) None 1.00%
Management Fees 0.75% 0.75%
Rule 12b-1 Fees 0.19% 1.00%
Other Expenses 2.94% 2.94%
Total Fund Operating Expenses 3.88% 4.69%
GROWTH FUND
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75% 0.00%
Maximum Contingent Deferred Sales Charge
(as a percentage of offering price or net asset
value at the time of sale, whichever is less) None 1.00%
Management Fees 0.75% 0.75%
Rule 12b-1 Fees 0.25% 1.00%
Other Expenses 3.50% 3.50%
Total Fund Operating Expenses 4.50% 5.25%
SMALL CAP FUND
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75% 0.00%
Maximum Contingent Deferred Sales Charge
(as a percentage of offering price or net asset
value at the time of sale, whichever is less) None 1.00%
Management Fees 0.75% 0.75%
Rule 12b-1 Fees 0.25% 1.00%
Other Expenses 3.02% 3.02%
Total Fund Operating Expenses 4.02% 4.77%
</TABLE>
FOOTNOTE: WAIVING FEES TO KEEP COSTS DOWN
PGIMC is waiving fees and/or absorbing or reimbursing expenses in amounts
necessary to keep the total Fund operating expenses of certain Funds from rising
above preset percentages of average net assets, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS C
<S> <C> <C>
Government Securities Fund 1.65% 2.40%
Income and Equity Fund 1.85% 2.60%
Growth Fund 2.50% 3.25%
</TABLE>
PGIMC will reduce its management fees for the Balanced Fund by 0.40% of average
daily net assets for both Class A and Class C shares. Net of this fee reduction,
the Balanced Fund's total fund operating expenses are 3.48% for Class A shares
and 4.29% for Class C shares. Hamilton & Bache is also participating in the
expense limitation arrangements for the Income and Equity Fund. PGIS, our
transfer agent, has also agreed to waive its fees on the Class C shares of the
Government Securities and the Income and Equity Funds to the extent necessary to
keep the costs at or below the limits shown above. PGIMC is not waiving or
reducing fees or reimbursing expenses for the Small Cap Fund. We may end or
change the fee waiver or expense reimbursement arrangements on any Fund with 90
days' notice.
11
<PAGE>
FEE EXAMPLE
We have included this example to help you compare the cost of investing in our
Funds with the cost of investing in other mutual funds. We assume you invest
$10,000 in the Fund for the time periods indicated and then sell all of your
shares at the end of those periods. We also assume that you earn 5% each year on
your investment and that the Fund's operating expenses remain the same. Your
actual costs may be higher or lower.
Based on these assumptions, and the total operating expenses shown in the fee
table on pages 10-11, your costs would be as follows. (These costs do not
reflect the expense reimbursement and fee waiver arrangements described in
the footnotes to the fee table.)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
GOVERNMENT SECURITIES FUND
Class A $ 850 $ 1,613 $ 2,392 $ 4,412
Class C 574 1,426 2,382 4,796
INCOME AND EQUITY FUND
Class A $ 920 $ 1,814 $ 2,714 $ 4,990
Class C 645 1,628 2,701 5,341
BALANCED FUND
Class A $ 941 $ 1,684 $ 2,445 $ 4,422
Class C 569 1,411 2,360 4,756
GROWTH FUND
Class A $ 999 $ 1,854 n/a n/a
Class C 625 1,571 n/a n/a
SMALL CAP FUND
Class A $ 954 $ 1,723 $ 2,507 $ 4,535
Class C 577 1,434 2,396 4,820
</TABLE>
Account fees are not included in these figures. If they were included, your
costs would be higher. This example is not an indication of past or future
expenses or performance.
RULE 12b-1 FEES. Each Fund has adopted a plan under Rule 12b-1 that allows the
Fund to pay an asset-based fee for distribution expenses and shareholder
services. The Funds pay only a service fee on Class A shares. The Funds pay both
a service and distribution fee on Class C shares. The maximum 12b-1 fees are:
<TABLE>
<CAPTION>
CLASS A CLASS C
<S> <C> <C>
12b-1 service fees 0.25% 0.25%
12b-1 distribution fees 0.00% 0.75%
</TABLE>
Because these fees are paid out of each Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment; and the distribution
fee on Class C shares may cost you more than paying other types of sales
charges.
12
<PAGE>
SALES CHARGES FOR CLASS A SHARES
The offering price of Class A shares includes the sales charge you pay when you
buy shares. Current sales charges are:
<TABLE>
<CAPTION>
As Percentage of As Percentage of
Amount of Purchase Offering Price Net Investment
<S> <C> <C>
GOVERNMENT SECURITIES FUND
& INCOME AND EQUITY FUND
Less than $ 50,000 4.75% 4.98%
$ 50,000 - $ 99,999 4.50% 4.71%
$ 100,000 - $ 249,999 3.50% 3.63%
$ 250,000 - $ 499,999 2.50% 2.56%
$ 500,000 - $ 999,999 2.00% 2.04%
$ 1 million and over** 0.00% 0.00%
<CAPTION>
BALANCED FUND, GROWTH FUND,
& SMALL CAP FUND
<S> <C> <C>
Less than $ 25,000 5.75% 6.10%
$ 25,000 - $ 49,999 5.50% 5.82%
$ 50,000 - $ 99,999 4.75% 4.99%
$ 100,000 - $ 249,999 3.75% 3.90%
$ 250,000 - $ 499,999 2.50% 2.56%
$ 500,000 - $ 999,999 2.00% 2.04%
$ 1 million and over** 0.00% 0.00%
</TABLE>
**Even though you do not pay a commission to your broker when you buy $1 million
or more of our shares, PGFD has arranged to pay brokers a fee of 1% of the first
$2 million, plus .50% on the next $1 million, plus .20% on the next $1 million,
plus .03% on any portion over $4 million.
13
<PAGE>
HOW CAN YOU REDUCE SALES CHARGES?
INCREASE THE AMOUNT YOU INVEST. As the Class A sales charge table shows, the
more you invest, the lower the sales charge.
COMBINE YOUR PURCHASES. You can lower your sales charge by simultaneously
investing in several accounts, or two or more Funds (excluding the money market
Funds). For example, if you invest $25,000 in Class A shares of one Fund and
$25,000 in Class A shares of another Fund at the same time, the sales charge
will be based on a $50,000 purchase. You may also claim this discount by
combining purchases in related accounts, such as an account in the name of your
spouse or minor children. To get this discount, you must notify PGIS in writing
at the time of purchase.
CLAIM A RIGHT OF ACCUMULATION. You may lower your sales charge by combining the
amounts you invest over a specified period of time. PGIS must be notified in
writing at the time each order is placed that the purchases should be combined.
Remember to include your account number(s) on your request.
SIGN A LETTER OF INTENT. A letter of intent means you intend to buy a specific
amount of Class A shares over a thirteen-month period. You must first complete a
letter of intent and submit it to PGIS for approval. The initial purchase must
be at least 5% of your intended total. Please include all account numbers and
other requested information with each payment and indicate that a letter of
intent is on file. The letter of intent may cover purchases made up to 90 days
before PGIS receives and accepts it.
Your sales charges will be based on the intended total purchases over the
thirteen-month period. Until you reach that total, however, we will take an
amount of Class A shares from your account equal to the maximum possible sales
charge, and hold them in escrow. If you do not reach your intended goal on
schedule, we will sell the escrowed shares and use the proceeds to pay the
higher sales charge.
WE MAY CHARGE A FEE FOR SELLING YOUR SHARES. We will deduct a contingent
deferred sales charge ("CDSC") from your sale proceeds if you buy more than $1
million of Class A shares and sell them within 18 months, or if you buy Class C
shares and sell them within one year. The fee will be 1% of the purchase or sale
price, whichever is less. If you buy Class C shares, exchange them for Reserve
Fund shares, and sell them within one year of purchasing the Class C shares, you
will be charged the CDSC. We reserve the right to waive the CDSC at our
discretion.
WE MAY WAIVE THE SALES CHARGE. We may offer Class A shares without a sales
charge, under certain circumstances, to our employees and their families or to
other individuals who have business relationships with us or certain other
investment professionals. We reserve the right to change this policy at any
time.
14
<PAGE>
UNDERSTANDING EACH FUND
This section takes a closer look at our five Funds.
GOVERNMENT SECURITIES FUND
IS THIS FUND FOR YOU? This Fund seeks to provide high current income,
preservation of capital, and rising future income, consistent with prudent
investment risk. This Fund is for investors looking first, to earn current
income that could increase over time, and second, to protect the value of the
money they invest.
WHAT DO WE INVEST IN? We usually invest at least 65% of the Fund's assets in
high quality, U.S. government fixed income securities. We may also buy
zero-coupon bonds, dividend paying stocks, ADRs, and high quality money market
securities. We may invest up to 25% in foreign securities. For temporary
defensive purposes, we may invest without limitation in high quality money
market instruments.
HOW DO WE MAKE INVESTMENT DECISIONS? Our overall strategy is to focus on U.S.
government securities because they are low risk, of high intrinsic value, and
relatively liquid. We use a proprietary timing model that tries to predict
whether interest rates will go up or down. The allocation of the Fund's assets
to long-, intermediate-, or short-term maturities will depend on our adviser's
evaluation of market patterns and economic conditions. We tend to invest in a
higher proportion of short-term bonds when we believe interest rates will rise,
and in a higher proportion of longer-term bonds when we believe interest rates
will fall.
To increase the Fund's income, we may invest in dividend paying stocks,
primarily high quality public utility stocks, that seem likely to increase their
dividends over time. When more than 25% of the Fund's total assets are invested
in stocks, we concentrate holdings in high quality public utility stocks. In a
declining interest rate environment, we purchase public utility stocks because
their potential for capital appreciation complements our investments in
long-term bonds.
A RISK TO CONSIDER. Public utilities stocks may be affected by environmental
conditions, energy conservation programs, fuel shortages, and federal, state,
and local legislative and regulatory actions.
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INCOME AND EQUITY FUND
IS THIS FUND FOR YOU? This Fund seeks to provide current income and,
secondarily, long-term capital appreciation. This Fund is for investors looking
first, to earn current income that could increase over time, and second, to
profit over the long-term from rising securities prices, while seeking to reduce
the risk of price fluctuations.
WHAT DO WE INVEST IN? We usually invest at least 65% of the Fund's assets in
U.S. corporate fixed income securities and dividend paying stocks. The Fund's
fixed income investments will be primarily investment grade; no more than 5% of
the Fund's assets may be invested in below investment grade fixed income
securities. We may also buy U.S. government securities, zero-coupon bonds, ADRs,
and high quality money market securities. For temporary defensive purposes, the
Fund may invest without limitation in high quality money market securities.
HOW DO WE MAKE INVESTMENT DECISIONS? Our overall strategy is to focus on a core
group of corporate fixed income securities that we consider to be low risk, of
high intrinsic value and relatively liquid. The mix of our investments will vary
from time to time based on our assessment of business, economic, and investment
conditions. However, fixed income securities generally will comprise the
majority of the Fund's total assets, as long as the general level of interest
rates exceeds the dividend yields available on common stock. In selecting
stocks, we focus on the overall return, not yield alone. When the economic
outlook is favorable, we tend to increase the proportion of our investments in
stocks. When it is less favorable, we tend to decrease the proportion of our
investments in stocks. In evaluating stocks, we may consider the following
factors: above average earnings growth potential; sound balance sheets and other
financial characteristics; quality of management; and growth of dividends.
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BALANCED FUND
IS THIS FUND FOR YOU? This Fund seeks to achieve long-term capital appreciation
and income consistent with reduced risk. This Fund is for investors looking to
combine long-term growth, current income, and liquidity, while seeking to reduce
the risk of price fluctuations.
WHAT DO WE INVEST IN? We usually invest in a flexible combination of stocks,
investment grade U.S. corporate fixed income securities, and high quality money
market securities or money market funds. The Fund's portfolio usually is
weighted toward stocks. The Fund's stocks will consist primarily of companies
with market capitalization over $500 million. At least 25% of the Fund's assets,
however, must always be invested in fixed income securities and preferred
stocks. We may also invest in ADRs and securities of other investment companies.
Under normal circumstances, the Fund may invest up to 25% of its total assets in
high quality money market securities and money market funds. For temporary
defensive purposes, however, the Fund may invest up to 60% of its total assets
in money market securities.
HOW DO WE MAKE INVESTMENT DECISIONS? We evaluate economic and market conditions,
price trends, and expected returns. We also analyze a company's finances,
strategies, market positions, product lines, stock price movements and other
business factors which might affect its securities' prices. When the economy
appears to be growing and strong, we increase our investment in stocks. When the
economy is contracting or weak, we increase our investment in fixed income
securities.
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GROWTH FUND
IS THIS FUND FOR YOU? This Fund seeks to achieve long-term capital
appreciation through investment in medium to large capitalization companies.
This Fund is for investors who want to profit from rising stock prices. It is
generally for more conservative stock investors, who want to invest in large,
well established companies.
WHAT DO WE INVEST IN? We usually invest at least 65% of our assets in stocks of
U.S. companies that are part of the S&P 500 Composite Index and NASDAQ 100
Index. We may also invest in other U.S. companies and ADRs. For temporary
defensive purposes, this Fund may invest without limitation in high quality
money market instruments.
HOW DO WE MAKE INVESTMENT DECISIONS? We evaluate economic and market conditions,
price trends, and the anticipated growth potential of the companies. We consider
the momentum of trends in security prices of individual companies, industries,
and the stock market in general. We also look at the financial soundness and
future growth prospects of each company.
SMALL CAP FUND
IS THIS FUND FOR YOU? This Fund seeks to provide capital appreciation through
investment in small market capitalization companies. This Fund is for investors
who want to profit from rising stock prices. It is generally for more aggressive
stock investors, who want to invest in small, growing companies.
WHAT DO WE INVEST IN? We invest at least 65% of our assets in stocks of small
capitalization companies (under $500 million), often referred to as "emerging
growth" companies and "micro cap" stocks. A significant portion of our portfolio
generally consists of stocks of companies whose market capitalization is below
$200 million.
HOW DO WE MAKE INVESTMENT DECISIONS? We focus on companies with unique
characteristics or proprietary advantages in their industry that may give them
opportunities for above-average increases in sales and profits. We also look for
companies which have strong earnings growth potential and that, we believe, are
less likely to be affected than most companies by changes in the economy.
SMALL CAP STOCKS MAY BE MORE VOLATILE. Investing in small capitalization
companies generally involves greater risks than investing in larger companies.
For example, small companies may have limited product lines, markets, or
financial and management resources. These stocks may trade less frequently, in
smaller volume, and experience greater volatility. They may also be more
difficult to buy and sell, and may be more sensitive to market changes than
larger market capitalization securities.
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RISK FACTORS, OTHER INVESTMENT PRACTICES, AND POLICIES OF THE FUNDS
The following pages contain more detailed information about certain principal
investment policies, practices, and risks of the Funds. Any restrictions
described below are in addition to those described in the previous section. The
SAI contains more detailed information about these subjects, as well as other
investment policies, practices, and risks of the Funds. The SAI also contains a
listing of the limitations applicable to each Fund.
We may choose not to buy all of the instruments or use all of the investment
techniques permitted a particular Fund unless we believe that it will help to
achieve the Fund's objectives. Each Fund's current holdings and recent
investment practices are described in its Annual and Semi-Annual reports to
shareholders. You may obtain a free copy of the SAI or shareholders' reports by
calling us at 1-800-282-6693.
EQUITY SECURITIES. This includes common stocks, preferred stocks, convertible
securities, and warrants. Common stocks represent an ownership interest in a
corporation. Although historically, stocks as an asset class generally have
shown long-term growth in value, in the short term their prices rise and fall
based on changes in an individual company's financial condition and overall
market and economic conditions. The stock prices of smaller companies, such as
the companies in which the Small Cap Fund principally invests, can be
particularly volatile.
CASH RESERVES AND REPURCHASE AGREEMENTS. Each Fund may purchase U.S. dollar
denominated money market instruments. The Funds will only buy high quality
securities rated within the two highest credit categories by any NRSRO or, if
not rated, of comparable quality as determined by the manager or the Fund's
adviser, as appropriate. The types of money market instruments that the Funds
may buy 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund buys a security at one
price and simultaneously agrees to sell it back at a higher price. The Funds'
repurchase agreements will be fully collateralized. Nevertheless, if the other
party defaults or becomes insolvent, the Fund could suffer a loss or a delay in
repayment.
FIXED INCOME SECURITIES include bonds, debentures, and other debt instruments
issued by companies to borrow money from investors. Issuers generally pay the
investor a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. Some debt instruments, such as zero coupon bonds,
do not pay current interest, but are sold at a discount from their face value.
Bond prices generally decline when interest rates rise, and rise when interest
rates fall. Longer-term debt and zero coupon bonds are more sensitive to
interest rate changes than are debt instruments with shorter maturities.
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The market value of debt instruments also reflect the credit quality of the
issuer. High grade debt instruments are rated at least A or its equivalent by
any NRSRO or are unrated debt instruments of equivalent quality. The issuers of
high grade debt instruments are considered to have a very strong capacity to pay
principal and interest. Investment grade debt instruments are rated at least Baa
or its equivalent by any NRSRO or are unrated debt instruments of equivalent
quality. Baa rated securities are considered to have adequate capacity to pay
principal and interest, although they also have speculative characteristics.
Lower rated debt securities are more likely to be adversely affected by changes
in economic conditions than are higher rated debt securities.
FOREIGN SECURITIES. Each Fund, as specified in its investment program, may
invest in foreign securities. Investments in foreign securities involve certain
risks that differ from the risks of investing in domestic securities. Adverse
political, economic, social or other conditions in a foreign country may make
the stocks of that country difficult or impossible to sell. It is more difficult
to obtain reliable information about some foreign securities. The costs of
investing in some foreign markets may be higher than domestic costs. Investments
in foreign securities also are subject to currency fluctuations. To seek to
reduce these risks, we sometimes invest in foreign securities through ADRs. ADRs
are certificates deposited with a U.S. bank that represent the right to own a
foreign security. Since ADRs are traded in U.S. markets and the issuers are
subject to the same auditing, accounting and financial reporting standards as
domestic securities, owning ADRs has advantages over owning other foreign
securities.
DIVERSIFICATION. In order to maintain the diversity of each Fund's portfolio and
reduce risk, each Fund has adopted the following as a fundamental investment
policy: Each Fund, with respect to 75% of its assets, will not invest in more
than 10% of the outstanding voting securities of any one issuer. A Fund may not
change this policy unless its shareholders approve.
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MANAGEMENT OF THE FUND
We would like you to be familiar with the key people and companies involved in
running our Funds.
PACIFIC ADVISORS FUND, INC. is the parent company to all the Funds and is
located at 206 North Jackson Street, Suite 201, Glendale, CA 91206.
INVESTMENT MANAGER
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY ("PGIMC") is the manager of the
Funds. As such, under the supervision of the Board of Directors, they supervise,
advise and manage the day-to-day investment operations of each Fund. They:
- - are solely responsible for the investment activities of the Small Cap Fund;
- - co-manage the investment activities of the Income and Equity Fund with
Hamilton & Bache (the "co-manager");
- - are solely responsible for the administrative management of the Income and
Equity Fund;
- - continuously evaluate, recommend, and monitor the co-manager's and each
adviser's performance;
- - are responsible for managing the Company's operations and business affairs
and supervising our administrative services agent; and
- - are ultimately responsible for all the Funds.
PGIMC began operations on December 17, 1991. They are located at 206 North
Jackson Street, Suite 201, Glendale, CA 91206.
GEORGE A. HENNING. Mr. Henning is co-portfolio manager of the Small Cap Fund.
Mr. Henning is Chairman, principal stockholder, President, and Director of
PGIMC. He also serves as the Chairman of Pacific Global Fund Distributors, Inc.
("PGFD"), and Pacific Global Investor Services, Inc. ("PGIS"), our transfer,
dividend disbursing, and administrative services agent. He has been associated
with these firms since 1991.
THOMAS H. HANSON. Mr. Hanson is co-portfolio manager of the Income and Equity
Fund and the Small Cap Fund. He is also portfolio manager for the Growth Fund.
Mr. Hanson is Executive Vice President, and Secretary of the company and serves
as Executive Vice President of PGIMC, President and Director of the Distributor,
and President and Director of PGIS. He has been associated with these firms
since 1991. He is also an owner, Director, Chairman, and President of TriVest
Global Management, Inc., and Chairman, President, and Chief Executive Officer of
TriVest Capital Management, Inc. He has been associated with these firms since
1993.
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CO-MANAGERS AND ADVISERS
The advisers manage the assets of their particular Fund under the supervision of
PGIMC and the Board of Directors. They determine which securities to buy and
sell for their Fund. They also continuously review the financial data relevant
to that Fund. The advisers are responsible for administering certain activities
of the Fund resulting from their investment activities.
SPECTRUM ASSET MANAGEMENT, INC. ("Spectrum") is the adviser to the Government
Securities Fund. R. "Kelly" Kelly, Chairman of Spectrum, and Marc Kelly, its
President and Director, are portfolio managers for the Government Securities
Fund.
Spectrum had $105 million in assets under management, as of December 31, 1998.
It also serves as adviser to individuals, family trusts, employee benefit plans
and charitable and educational endowments. Spectrum's controlling interests are
held by R. "Kelly" Kelly and Marc Kelly. They have been associated with the firm
since it began operations in 1977. Spectrum is located at 450 Newport Center
Drive, Suite 420, Newport Beach, CA 92660.
HAMILTON & BACHE, INC. ("Hamilton & Bache") is the adviser to the Balanced Fund
and co-manager of the Income and Equity Fund. Mary N. Hamilton and Stephen K.
Bache are portfolio managers for the Balanced Fund. Mr. Bache is also
co-portfolio manager of the Income and Equity Fund.
Hamilton & Bache is wholly-owned by Mary N. Hamilton, founder and President, and
Stephen K. Bache, CFA, Chief Investment Officer. They have been associated with
the firm since it began operations in 1990. Hamilton & Bache had $103 million in
assets under management, as of December 31, 1998. Hamilton & Bache is located at
206 North Jackson Street, Suite 201, Glendale, CA 91206.
DISTRIBUTOR
PACIFIC GLOBAL FUND DISTRIBUTORS, INC. ("PGFD") is a wholly owned subsidiary of
PGIMC and is the exclusive distributor of our shares. They are located at 206
North Jackson Street, Suite 201, Glendale, CA 91206.
TRANSFER, DIVIDEND DISBURSING, AND ADMINISTRATIVE SERVICES AGENT
PACIFIC GLOBAL INVESTOR SERVICES, INC. ( "PGIS"), is a wholly owned subsidiary
of PGIMC, and is the transfer, dividend disbursing, and administrative services
agent for the Funds. PGIS also provides similar services to the Distributor in
connection with the Reserve Fund Portfolios. They are located at 206 North
Jackson Street, Suite 201, Glendale, CA 91206.
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MANAGEMENT AND ADVISORY FEES
The Fund pays PGIMC and Hamilton and Bache (as co-manager of the Income and
Equity Fund only) directly for their services to the Funds. The management fee
paid by each Fund is as follows:
- - 0.65% from the Government Securities Fund;
- - 0.75% from the Income and Equity Fund;
- - 0.75% from the Balanced Fund;
- - 0.75% from the Growth Fund;
- - 0.75% from the Small Cap Fund.
As described above (see Fee Table, page 11), PGIMC and Hamilton & Bache (with
respect to the Income and Equity Fund only), are waiving their management fees
and are absorbing or reimbursing expenses in order to keep the Fund expenses of
the Government Securities Fund, Income and Equity Fund, and Growth Fund below
certain levels. In addition, PGIMC will reduce its management fee on the
Balanced Fund by 0.40% of average daily net assets. PGIMC may change this
arrangement on any Fund with 90 days' notice.
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UNDERSTANDING EARNINGS AND TAXES
It is important for you to know what kind of income you will receive and its tax
consequences. This discussion, however, does not explain of all federal, state,
and local tax consequences of owning Fund shares. You should not consider this
discussion to be a substitute for careful tax planning. Consult your tax adviser
about the tax consequences to you of buying shares and receiving distributions
for any of the Funds.
HOW WE PAY DIVIDENDS AND DISTRIBUTIONS. Usually, dividends and distributions
paid to you are reinvested in additional shares of the Fund. The Fund is
required to distribute substantially all its net investment income and net
capital gains to comply with tax requirements. You must notify us in writing if
you want to receive dividends and distributions in cash or reinvest them in the
money market funds we have available through the Reserve Fund Portfolios. (See
"Exchanging shares," pages 29-30.)
NO SALES CHARGE. There is no sales charge for reinvesting dividends.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS ARE DECLARED AND DISTRIBUTED? The
Government Securities Fund and the Income and Equity Fund declare and distribute
dividends quarterly. The Balanced Fund, Growth Fund, and Small Cap Fund declare
and distribute dividends annually. Each Fund distributes capital gains annually.
GENERAL TAX CONSEQUENCES. All dividends and distributions are subject to federal
taxes and may be subject to state and local taxes, regardless of whether you
decide to receive them in cash or reinvest them in additional shares.
TAX CONSIDERATIONS FOR EXCHANGES. An exchange is treated as a sale for tax
purposes and may result in a capital gain or loss. If you exchange shares that
you have held less than 91 days, the sales charge you paid on those shares is
not included in computing your tax basis for those shares. It is, however,
carried over and included in the tax basis of the new shares you acquired.
BACKUP WITHHOLDING. Each Fund is required to withhold 31% of all dividends and
distributions unless you certify on your application, or on a separate W-9 Form,
that your Social Security or Taxpayer Identification Number is correct and that
you are not currently subject to or you are exempt from backup withholding.
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HOW TO BUY, SELL, AND EXCHANGE SHARES
[Sidebar: "PGIS" means Pacific Global Investor Services, Inc., our transfer
agent.]
Here is important information you should know about buying, selling and
exchanging shares.
BUYING SHARES
WHAT IS THE MINIMUM YOU CAN INVEST? Each class has its own minimum requirements:
- - Class A shares: no minimum investment;
- - Class C shares: minimum initial investment is $10,000; additional
investments must be at least $500. We reserve the right to waive the
minimum requirement at our discretion.
YOUR FIRST PURCHASE. You may order shares either:
- - through a selected dealer; or
- - by completing an application and mailing it, along with your check payable
to "Pacific Advisors Fund Inc.," to:
Pacific Global Investors Services (PGIS)
206 North Jackson St., Suite 201
Glendale, California 91206
PLEASE PAY BY CHECK. We only accept payments in U.S. dollars from checks drawn
on a U.S. bank. We cannot accept cash. If your purchase is canceled because you
didn't pay or your check did not clear, you will be charged $25.00 and will be
responsible for any losses a Fund incurs.
WE HAVE THE RIGHT TO REJECT ORDERS. We may reject any order for any reason and
cancel any purchase if we do not receive your money. Purchase orders are
effective on the business day PGIS receives your check. We are not responsible
for share purchases until PGIS confirms they have received your money.
ADDITIONAL PURCHASES. You may buy additional shares through your broker or by
sending money directly to PGIS at the address listed above.
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BUYING BY MAIL. There are two ways to buy shares by mail. Send your check to
PGIS:
- - with the Investment Form portion of your confirmation; or
- - write your name, address, Fund name, and your account number on your check.
If you are buying shares of more than one Fund, please specify in writing how
much you wish to invest in each Fund you are buying and to which accounts you
want your payment applied.
BUYING BY WIRE. You may make additional purchases by wire by instructing your
bank to wire federal funds to:
UMB Bank, N.A.
ABA #: 101000695
Further Credit to: Pacific Advisor Funds
A/C #9870609932
Your bank may charge a fee for this service. Be sure to specify on the wire the
Fund and Class of shares you are buying, your account number, and the name
listed on the account.
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SELLING SHARES
SELLING BY MAIL.
To sell some or all of your shares you must send us a signed written request
that specifies the account number and either the dollar amount or the number of
shares to be sold.
SEND US A PROPERLY COMPLETED REQUEST. Requests to sell shares are complete when
all required information, and signature guarantees have been provided. We may
ask you for additional documentation if we feel it is necessary.
SELLING BY TELEPHONE.
Call PGIS at (800) 282-6693. The proceeds are mailed to your address or wired to
your predesignated bank account. Telephone sales may not be possible if all
lines are busy.
VERIFYING AUTHENTICITY. PGIS will make every effort to confirm that telephone
instructions are authentic. They are not be responsible for any loss, damage, or
other expenses that occur when telephone instructions are reasonably believed to
be authentic. If PGIS does not use reasonable verification procedures, they may
be liable for any losses.
RESTRICTIONS. Telephone privileges are not available for newly purchased shares
(bought within the prior 15 days) or UMB Bank, N.A.-sponsored retirement plans.
Telephone sale privileges are available to you or your broker, unless you cancel
this privilege with PGIS. If an account has multiple owners, PGIS may rely on
the instructions of any one owner. Shares held in corporate-type retirement
plans for which UMB Bank, N.A. serves as trustee, must be sold by written
request, mailed to PGIS or an authorized dealer.
REDEMPTIONS OVER $25,000. Amounts up to $25,000 may be sold by telephone only
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 that account. For your protection,
you may not use this privilege if your address of record has been changed within
30 days of a previous telephone redemption request.
SELLING BY WIRE.
Unless otherwise specified, PGIS will assume that sales proceeds are to be
transferred via check. Wire transfer instructions must be on file with PGIS,
before they can transfer your money. The only way you can change the bank
account specified on your original application is by written request. Be sure to
include appropriate signature guarantees, a copy of any applicable corporate
resolution, and any other relevant documentation.
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CONTINGENCIES. If you buy shares by check and decide to sell them before your
check has cleared, we will not send you the proceeds of that sale until your
check has cleared. Your proceeds will, however, be sent to you no later than 15
calendar days after the date we receive your check.
SIGNATURES AND SIGNATURE GUARANTEE REQUIREMENT. The signature on a sale or
exchange request must be exactly as it appears on your application. We require a
signature guarantee when:
- - proceeds are more than $50,000;
- - proceeds are to be sent to someone other than the registered shareholder or
to other than the registered address; or
- - the transaction is an exchange of shares.
The guarantor must be authorized by state law to guarantee signatures. A notary
public is not acceptable. Acceptable guarantors include:
- - domestic banks;
- - members of a National Securities Exchange;
- - credit unions and savings associations; and
- - participants in the Securities Transfer Agents Medallion Program (STAMP).
REINVESTMENT PRIVILEGE. If you sell shares and then reinvest the money in one or
more of our Funds within 60 days, there will be no sales charge if:
- - the amount reinvested is less than your sale proceeds;
- - you have not already used this privilege in the current calendar year; and
- - you notify PGIS you want to reinvest without a sales charge.
SUSPENDING SALES. The right to sell your shares may be suspended when the New
York Stock Exchange ("NYSE") is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
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EXCHANGING SHARES
YOU MAY EXCHANGE BETWEEN ANY OF OUR FUNDS. You may exchange shares between any
of our five Funds. Class A shares of a Fund may only be exchanged for Class A
shares of another Fund. Class C shares of a Fund may only be exchanged for Class
C shares of another Fund.
YOU MAY EXCHANGE SHARES INTO TWO SPECIFIC MONEY MARKET FUNDS. We have arranged
for you to be able to exchange any shares of our Funds for shares of two money
market funds offered by the Reserve Fund Portfolios. One fund is a taxable money
market fund, and the other is a tax-free money market fund. Please read the
prospectuses for these two funds before exchanging into them. You must exchange
a minimum of $500 and fill out a separate application.
CONDITIONS OF EXCHANGES. You may only exchange shares if:
- - shares of the Fund selected for exchange are available for sale in your
state of residence; and
- - the shares to be exchanged have been in your account for at least 15 days
(if newly-purchased), or for at least one day (for all other shares), prior
to the exchange.
CONSIDERATIONS WHEN EXCHANGING OUT OF THE MONEY MARKET FUNDS INTO CLASS A
SHARES. If you exchange Reserve Fund Portfolio money market shares for Class A
shares, you may be subject to sales charges. You are not charged a sales charge
if you:
- - acquired Reserve Fund Portfolio shares through an exchange from Class A
shares;
- - bought Reserve Fund Portfolio shares and paid a sales charge for them; or
- - reinvest Reserve Fund Portfolio shares' dividends or capital gain
distributions.
SEND A PROPER REQUEST. An exchange is processed only after your properly
completed order is received by PGIS.
EXCHANGING BY MAIL. You must send a written request to PGIS properly signed by
all registered owners indicating the Fund name, account number, and shares or
dollar amount to be exchanged, and specify into which Fund the shares are to be
exchanged.
EXCHANGING BY TELEPHONE. If you requested telephone exchange privileges, you or
your broker may call PGIS at (800) 282-6693. You must identify yourself by your
Social Security Number or other personal identification, the Fund name, account
number and shares or dollar amount to be exchanged, and specify into which Fund
the shares are to be exchanged. If telephone exchange lines are not available,
you will have to submit a written exchange request.
THE FIRST FIVE EXCHANGES ARE FREE. You are allowed five (5) free exchanges per
calendar year. After that, there may be a $5.00 service fee for each exchange.
We currently waive this fee, but we reserve the right to impose it at any time.
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WE MAY DELAY YOUR REQUEST. If we believe a Fund would be disadvantaged by an
immediate exchange, we may delay the exchange for up to five business days.
RESTRICTIONS ON BULK EXCHANGE REQUESTS. We reserve the right to reject telephone
or written requests submitted in bulk on behalf of 10 or more accounts.
REQUESTS WHICH MIGHT CAUSE THE FUND TO LOSE MONEY. We reserve the right to
refuse any exchange request that would disadvantage a Fund, such as a request
that would result in significant losses to a Fund.
WE MAY DISCONTINUE EXCHANGES. We have the right to modify, suspend or
discontinue the exchange privilege at any time with 60 days' notice to you.
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AUTOMATIC PLANS
We offer plans to help you automatically buy, sell, and exchange shares each
month.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly investments into your
account by completing the Automatic Investment Plan section on your application.
The money will automatically be withdrawn from your bank account on or after the
5th or 20th of the month, whichever you specify on your application. Your
minimum monthly investment must be:
- - Class A shares: $25
- - Class C shares: $100
AUTOMATIC WITHDRAWAL PLAN. You may make regular monthly withdrawals from your
account by completing that section of your application. Your proceeds will
automatically be transferred to your pre-designated bank account on or after the
15th or the 30th of each month, whichever you specify on your application. We
will sell shares from your specified account if:
- - the total value of your account is at least $10,000;
- - payments are at least $25 and in equal dollar amounts; and
- - all dividends and distributions on shares covered by this plan are
reinvested in additional Fund shares.
We do not recommend buying Class A shares while you are using the Automatic
Withdrawal Plan. You could save sales charges on your purchases by eliminating
or reducing the Automatic Withdrawal Plan amount.
AUTOMATIC EXCHANGE PLAN. You may make regular monthly transfers of money or
shares between Funds, including the Reserve Funds, by completing that section of
your application. Your proceeds will automatically be exchanged on or after the
15th or the 30th of each month, whichever you specify on your application. To
use this plan:
- - the total value of your account must be at least $50,000;
- - payments must be at least $100 and in equal dollar amounts; and
- - all dividends and distributions on shares covered by this plan must be
reinvested in additional Fund shares.
YOU MAY PAY INSURANCE PREMIUMS AUTOMATICALLY. Through our Insurance Premium
Withdrawal Plan ("IP Withdrawal Plan"), you can automatically pay the premiums
for eligible insurance policies. We send the proceeds from your scheduled sales
to your insurance company according to the instructions on your IP Withdrawal
Plan Authorization Form. You must have a minimum account value of $5,000 to open
an IP Withdrawal Plan. Check with your insurance company for other conditions
and restrictions. Applicable forms and further information regarding the IP
Withdrawal Plan are available from your broker or PGIS.
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ACCOUNT POLICIES
This section explains how we price your share transactions.
NET ASSET VALUE. Net asset value ("NAV") is calculated separately for each Fund
by subtracting the liabilities of each Fund from its assets, and then dividing
by the number of outstanding shares of that Fund.
WHEN IS NAV CALCULATED? NAV is calculated at 4:00 p.m., Eastern time, on days
when the NYSE is open for trading.
HOW SHARES ARE VALUED. Shares are valued at market prices or, if those are not
available, at fair market value. Under guidelines approved by the Board of
Directors, a bank, broker-dealer or pricing service may perform valuation
services for us.
PRICE OF CLASS A SHARES. Class A shares are bought at NAV plus any applicable
sales charge.
PRICE OF CLASS C SHARES. Class C shares are bought at NAV. There is no sales
charge when you buy these shares.
PRICE OF REINVESTED SHARES. Reinvested dividends and capital gains will also
receive the next calculated NAV. There is no sales charge on reinvested
dividends.
REDEMPTION PRICE OF SHARES. Class A and Class C shares are sold at NAV. If a
CDSC applies, we will subtract it from your sales proceeds.
WHEN YOUR SHARES ARE BOUGHT, SOLD OR EXCHANGED. Shares are bought, sold or
exchanged after the next NAV is calculated, after your properly completed order
has been received by PGIS. In order to receive that day's NAV, your order must
be received before the close of business on the NYSE and, in most instances,
transmitted to PGIS by 4:00 p.m. Eastern time.
ORDERS THROUGH AUTHORIZED DEALERS. Orders placed with certain authorized dealers
or their designees will be considered received by PGIS when the order is
accepted by that dealer or its designee. Other authorized dealers may require
you to place your order before 4:00 p.m. Eastern time so that it can be sent to
PGIS by then.
SOME BROKERS CHARGE FEES. Authorized dealers may charge a fee for their
services.
32
<PAGE>
ACCOUNT STATEMENTS. An account statement detailing the value of the assets in
your account will be sent to you each quarter. Transactions in your account will
be shown on regular confirmation statements sent to you when you buy or sell
shares. You will also receive Annual and Semi-Annual reports.
ACCOUNTS WITH LOW BALANCES. We reserve the right to impose an annual $10.00 fee
on accounts with less than $1,000 in them on the last business day of each
calendar year. The fee has been waived in the past, and we do not currently
expect to impose it.
YEAR 2000 ISSUE
In the past, many computer programs used two digits to identify a year. If
that programming is not changed, many computer applications and systems could
misinterpret dates after December 31, 1999, resulting in errors or failures.
A computer failure at a mutual fund or its service providers could impair the
fund's operations, including pricing, securities trading, and shareholder
services.
Our goal is to provide uninterrupted high quality service to our
shareholders. To this end, the manager and its affiliates have reviewed their
internal computer systems for Year 2000 problems. We believe that our systems
do not suffer from Year 2000 programming problems and will remain operational
after December 31, 1999.
We note, however, that we do business with many other brokerage firms and
other companies whose computer systems may be affected by Year 2000 problems.
Problems with their systems may also affect our operations. To try to assess
the likelihood of that possibility, we have contacted our major business
partners and believe that they are taking steps to avoid Year 2000 problems
with their own internal systems. Nevertheless, it is possible that our
operations could be interrupted by a Year 2000 problem at another company. In
that event, we will make every reasonable effort to correct the problem and
implement alternative arrangements if necessary. It is also possible that a
Fund's performance could be harmed if a computer system failure at a company
or governmental unit affected the price of its securities that were owned by
a Fund.
33
<PAGE>
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. The results for Class C shares
reflect operations since we started offering Class C shares. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned, or lost, on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Ernst & Young LLP, our
independent auditors, whose report, along with the Fund's financial statements
are included in the Annual Report, which is available upon request. This is the
financial history for Class A and Class C shares of each Fund. There is no
financial history for the Growth Fund because it is a new fund which began
operations on May 1, 1999.
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
(For a share outstanding throughout the period)
Class A shares Class C shares
For the Year Ended December 31 April 2, 1998 to
1998 1997 1996 1995 1994 December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $9.87 $ 9.30 $ 10.16 $ 8.82 $ 9.00 $10.24
Income from Investment Operations:
Net Investment Income 0.34 0.35 0.33 0.31 0.13 0.23
Net realized and unrealized gain (loss) on securities 1.38 0.71 (0.65) 1.53 (0.14) 1.02
Total from Investment Operations 1.72 1.06 (0.32) 1.84 (0.01) 1.25
Less Distributions
Distributions from net investment income (0.33) (0.35) (0.32) (0.31) (0.17) (0.32)
Distributions from net capital gains (0.67) (0.14) (0.22) (0.19) 0.00 (0.67)
Total Distributions (1.00) (0.49) (0.54) (0.50) (0.17) (0.99)
Net Asset Value, End of Year $10.59 $ 9.87 $ 9.30 $ 10.16 $ 8.82 $10.50
Total Investment Return (2) 17.82% 11.72% (3.15%) 20.32% (0.15%) 12.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $5,456 $3,939 $7,096 5,837 $3,185 $795
Ratio of net
investment
income to
agerage net
assets
With expense
reductions 3.32% 3.36% 3.46% 3.75% 2.09% 2.05%*
Without
expense
reductions 1.04% 1.51% (2.17)% (2.60)% (1.17)% 0.63%*
Ratio of expenses to
average net
assets
With expense
reductions 1.66% 1.65% 1.66% 1.65% 1.60% 1.06%*
Without
expense
reductions 3.94% 3.51% 2.95% 2.80% 4.86% 2.48%*
Portfolio turnover
rate 41.98% 68.52% 50.49% 57.85% 81.59% N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not Annualized
N/A Not Applicable
34
<PAGE>
<TABLE>
<CAPTION>
INCOME AND EQUITY FUND
(For a share outstanding throughout the period)
Class A shares Class C shares
For the Year Ended December 31 April 2, 1998 to
1998 1997 1996 1995 1994 December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $9.98 $9.42 $ 9.67 $ 8.98 $ 9.06 $10.39
Income from Investment Operations:
Net Investment Income 0.37 0.33 0.35 0.31 0.16 0.22
Net realized and unrealized gain (loss) on securities 0.83 0.56 (0.19) 0.72 (0.07) 0.43
Total from Investment Operations 1.20 0.89 0.16 1.03 0.09 0.65
Less Distributions
Distributions from net investment income (0.34) (0.33) (0.35) (0.31) (0.17) (0.32)
Distributions from net capital gains (0.10) 0.00 (0.06) (0.03) 0.00 (0.10)
Total Distributions (0.44) (0.33) (0.41) (0.34) (0.17) (0.42)
Net Asset Value, End of Year $10.74 $ 9.98 $ 9.42 $ 9.67 $ 8.98 $ 10.62
Total Investment Return (2) 12.14% 9.60% 1.78% 11.98% 0.99% 6.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $2,646 $1,894 $1,211 $1,071 $632 $702
Ratio of net
investment
income to
agerage net
assets
With expense
reductions 3.68% 3.56% 3.75% 4.06% 2.17% 2.16%*
Without
expense
reductions 0.83% (0.96)% (1.69)% (2.32)% (8.80)% 0.31%*
Ratio of expenses to
average net
assets
With expense
reductions 1.83% 1.85% 1.85% 1.86% 1.75% 1.43%*
Without
expense
reductions 4.67% 6.38% 7.29% 8.25% 12.73% 3.28%*
Portfolio turnover
rate 16.72% 42.30% 28.23% 33.40% 37.12% N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not Annualized
N/A Not Applicable
35
<PAGE>
<TABLE>
<CAPTION>
BALANCED FUND
(For a share outstanding throughout the period)
Class A shares Class C shares
For the Year Ended December 31 April 2, 1998 to
1998 1997 1996 1995 1994 December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 12.06 $ 10.66 $ 9.31 $ 8.75 $ 8.99 $ 13.09
Income from Investment Operations:
Net Investment Income 0.03 0.00 0.09 0.18 0.02 (0.04)
Net realized and unrealized gain (loss) on securities 0.90 1.62 1.39 0.57 (0.24) (0.13)
Total from Investment Operations 0.93 1.62 1.48 0.75 (0.22) (0.17)
Less Distributions
Distributions from net investment income 0.00 (0.01) (0.09) (0.18) (0.02) (0.01)
Distributions from net capital gains (0.30) (0.21) (0.04) (0.01) 0.00 (0.30)
Total Distributions (0.30) (0.22) (0.13) (0.19) (0.02) (0.31)
Net Asset Value, End of Year $ 12.69 $ 12.06 $ 10.66 $ 9.31 $ 8.75 $ 12.61
Total Investment Return (2) 7.76% 15.24% 15.92% 8.70% (2.41%) (1.28%)
******
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $6,420 $5,593 $3,187 $2,219 $1,341 $378
Ratio of net
investment
income to
average net
assets
With expense
reductions 0.22% (0.03)% 1.12% 2.46% 0.93% (0.64)%*
Without
expense
reductions (0.18)% (0.50)% (0.76)% (0.62)% (15.11)% (0.91)%*
Ratio of expenses to
average net
assets
With expense
reductions 3.48% 3.28% 2.48% 2.24% 1.83% 3.12%*
Without
expense
reductions 3.88% 3.75% 4.36% 5.31% 17.85% 3.39%*
Portfolio turnover
rate 53.97% 64.13% 65.94% 41.23% 60.68% N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not Annualized
N/A Not Applicable
36
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP FUND
(For a share outstanding throughout the period)
Class A shares Class C shares
For the Year Ended December 31 April 2, 1998 to
1998 1997 1996 1995 1994 December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 17.51 $ 16.47 $ 11.82 $ 10.35 $ 11.47 $ 19.70
Income from Investment Operations:
Net Investment Expense (0.58) (0.38) (0.21) (0.08) (0.04) (0.29)
Net realized and unrealized gain (loss) on securities (2.34) 1.52 5.35 1.89 (0.42) (4.81)
Total from Investment Operations (2.92) 1.14 5.14 1.81 (0.46) (5.10)
Less Distributions
Distributions from net capital gains (0.36) (0.10) (0.49) (0.34) (0.66) (0.36)
Total Distributions (0.36) (0.10) (0.49) (0.34) (0.66) (0.36)
Net Asset Value, End of Year $ 14.23 $ 17.51 $ 16.47 $ 11.82 $ 10.35 $ 14.24
Total Investment Return (2) (16.66%) 6.95% 43.70% 17.27% (3.97%) (25.88%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 9,331 $ 11,125 $ 8,549 $ 4,279 $ 3,169 $ 239
Ratio of net
investment
income to
agerage net
assets
With expense
reductions (3.71)% (2.82)% (2.06)% (0.71)% (0.42)% (3.68)%*
Without
expense
reductions (3.71)% (2.99)% (2.39)% (1.88)% (3.37)% (3.68)%*
Ratio of expenses to
average net
assets
With expense
reductions 4.02% 3.18% 2.91% 2.49% 2.45% 3.85%*
Without
expense
reductions 4.02% 3.35% 3.24% 3.64% 5.40% 3.85%*
Portfolio turnover
rate 49.63% 30.72% 51.83% 44.95% 49.79% N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not Annualized
N/A Not Applicable
37
<PAGE>
FOR MORE INFORMATION (BACK COVER)
Additional information is available free of charge in the Statement of
Additional Information (SAI). The SAI is incorporated by reference (legally
considered part of this document). Additional information about the Fund's
investments is available in the Fund's Annual and Semi-Annual Reports to
shareholders. To receive a free copy of this prospectus, the SAI, the Annual or
Semi-Annual Report, or to obtain additional information about the Funds, please
contact:
Pacific Global Fund Distributors, Inc.
206 North Jackson St., Suite 201
Glendale, California 91206
(800) 282-6693
Documents will be sent within 3 business days of receipt of your request.
Information about the Fund may be reviewed and copied:
at the SEC's Public Reference Room in Washington, D.C. (1-800-SEC-0330);
on the Commission's Internet site (http://www.sec.gov); or
by written request (and payment of a duplicating fee) to the Public
Reference Section of the Commission, Washington, D.C. 20549-6009.
Investment Company Act file number: 811-7062
38
<PAGE>
PACIFIC ADVISORS FUND INC.
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
SMALL CAP FUND
206 NORTH JACKSON STREET
SUITE 201
GLENDALE, CALIFORNIA 91206
TOLL FREE NUMBER: 1-800-282-6693
STATEMENT OF ADDITIONAL INFORMATION
CLASS A AND CLASS C SHARES
This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Company's Prospectus dated [May 1], 1999. You may
obtain a copy of the Prospectus by calling Pacific Global Investor Services,
Inc., at the telephone number above.
The date of this Statement of Additional Information is [May 1], 1999.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
The Company and the Funds. . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information Concerning Investment Strategies and Risks. . . . . . .
Government Securities Fund. . . . . . . . . . . . . . . . . . . . . . . .
Income and Equity Fund. . . . . . . . . . . . . . . . . . . . . . . . . .
Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small Cap Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information Concerning Specific Strategies and Instruments. . . . . . . .
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Policies and Restrictions . . . . . . . . . . . . . . . . . . . . .
Investment Management and Other Services . . . . . . . . . . . . . . . . . . .
Investment Manager, Co-Manager, and Advisers. . . . . . . . . . . . . . .
Distribution of Fund Shares . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent and Administrative Services Agent. . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management of the Company and Its Funds. . . . . . . . . . . . . . . . . . . .
Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . .
Committees of the Board of Directors. . . . . . . . . . . . . . . . . . .
Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . .
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series and Classes of Shares. . . . . . . . . . . . . . . . . . . . . . .
Meetings and Voting Rights. . . . . . . . . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information Concerning Purchase, Redemption, and Pricing of Shares.
Trade Date Procedures . . . . . . . . . . . . . . . . . . . . . . . . . .
Reducing Your Sales Charge -- Class A Shares. . . . . . . . . . . . . . .
Additional Shareholder Services . . . . . . . . . . . . . . . . . . . . .
Telephone Exchanges and Redemptions . . . . . . . . . . . . . . . . . . .
Exchanges of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specimen Price Makeup Sheet . . . . . . . . . . . . . . . . . . . . . . . . .
S-2
<PAGE>
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S-3
<PAGE>
THE COMPANY AND
THE FUNDS
The Pacific Global Fund, Inc., d/b/a Pacific Advisors Fund Inc. (the
"Company" or "we"), is registered with the Securities and Exchange Commission as
an open-end diversified management investment company. The Company was
incorporated under the laws of the State of Maryland on May 18, 1992. We
currently offer the following five Funds: Government Securities Fund, Income and
Equity Fund, Balanced Fund, Growth 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.
ADDITIONAL INFORMATION CONCERNING
INVESTMENT STRATEGIES AND RISKS
GOVERNMENT SECURITIES FUND
The Fund may invest in high-grade fixed-income securities issued by U.S.
corporations, including convertible debt securities, preferred stocks, and
zero coupon bonds. 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 Asset Management, Inc. ("Spectrum"), the Fund's
Adviser. In selecting corporate fixed-income securities, Spectrum focuses on
building core investments in areas of low risk and high intrinsic value. The
Fund's corporate bond investments emphasize short and intermediate-term
issues of domestic corporations that have strong or improving balance sheets.
The Fund may 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, as amended (the "1940 Act"). 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. See "Investment in Other Investment Companies", on page
S-[12] below.
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 Depositary
Receipts ("ADRs"), although direct market purchases also may be made. See
"Depositary Receipts and Foreign Securities", on pages S-[12] to S-[13] below.
INCOME AND EQUITY FUND
If 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 (I.E., Pacific Global
Investment Management Company and Hamilton & Bache, Inc., respectively) 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 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 common stocks and
fixed-income securities of foreign issuers. Investments in common stocks of
foreign issuers will be made primarily through the use of ADRs, although direct
market purchases also may be made.
For temporary defensive purposes, the Fund may invest without limitation in
high-quality money market securities. The types of high quality money market
securities in which it may invest are described below in "Money Market
Instruments" beginning on page S-[5] below.
BALANCED FUND
Under normal conditions, the Fund 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, 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. See "Money Market
Instruments" beginning on page S-[5] below.
S-4
<PAGE>
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 also
invest up to 20% of its total assets in equity and equity-related securities of
foreign issuers. Investments in securities of foreign issuers will be made
through ADRs or other similar securities.
The Fund may invest up to 10% of its total assets in other open-end
investment companies, in accordance with Section 12(d)(1)(A) of the 1940 Act.
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. See "Investment in Other Investment
Companies" on page S-[12] below.
GROWTH FUND
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 investment in companies with longer
operating histories.
Up to 10% of the Fund's total assets may be invested directly in foreign
securities. See "Depositary Receipts and Foreign Securities" on pages S-[12]
to S-[13] below.
When, in the judgment of the Manager, a temporary defensive posture is
appropriate, the Fund may invest, without limitation, in high-quality money
market securites. See "Money Market Instruments" beginning on page S-[5]
below.
SMALL CAP FUND
The Fund may invest up to 10% of its total assets in other open end
investment companies, in accordance with Section 12(d)(1)(A) of the 1940 Act.
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. See "Investment in Other Investment
Companies" on page S-[12] below.
Up to 5% of the Fund's total assets may be invested directly in foreign
securities. See "Depositary Receipts and Foreign Securities" on pages S-[12] to
S-[13] below.
While we anticipate that 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 downgraded to below investment
grade. Convertible preferred stocks that pay above average dividends and
long-term corporate bonds are considered by the Manager 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.
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.
When, in the judgement of the Manager, a temporary defensive posture is
appropriate, the Fund may invest, without limitation, in high-quality money
market securities. See "Money Market Instruments" beginning on page S-[5]
below.
INFORMATION CONCERNING SPECIFIC STRATEGIES AND INSTRUMENTS
In pursuing its investment objective, each Fund may invest in certain types
of securities that have special risks, as described below, and therefore, may
not be suitable for all investors. Investors should carefully assess the risks
associated with an investment in each Fund. The following is a description of
certain types of investments and strategies that may be used by the Funds and
the risks of those investments and strategies.
S-5
<PAGE>
MONEY MARKET INSTRUMENTS
Each Fund may use U.S. dollar denominated money market instruments 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. 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. These 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. These securities are either; (i) backed by the full faith and
credit of the United States Government (E.G., United States Treasury Bills);
(ii) guaranteed by the United States Treasury (E.G., Government National
Mortgage Association mortgage-backed securities); (iii) supported by the issuing
agency's or instrumentality's right to borrow from the United States Treasury
(E.G., Federal National Mortgage Association Discount Notes); or (iv) supported
only by the issuing agency's or instrumentality's own credit (E.G., securities
issued by the Farmer's Home Administration).
BANK AND SAVINGS AND LOAN OBLIGATIONS. These include certificates of
deposit, bankers' acceptances, and time deposits. Certificates of deposit
generally are short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in the
issuing institution. Bankers' acceptances are time drafts drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction (E.G., to finance the import, export, transfer, or storage of
goods). With a bankers' acceptance, the borrower is liable for payment as is
the bank, which unconditionally guarantees to pay the draft at its face amount
on the maturity date. Most bankers' acceptances have maturities of six months
or less and are traded in secondary markets prior to maturity. Time deposits
are generally short-term, interest-bearing negotiable obligations issued by
commercial banks against funds deposited in the issuing institutions. The Funds
will not invest in any security issued by a commercial bank or a savings and
loan association unless the bank or savings and loan association is organized
and operating in the United States, has total assets of at least one billion
dollars, and is a member of the Federal Deposit Insurance Corporation ("FDIC"),
in the case of banks, or insured by the FDIC in the case of savings and loan
associations; provided, however, that such limitation will not prohibit
investments in foreign branches of domestic banks which meet the foregoing
requirements. The Funds will not invest in time-deposits maturing in more than
seven days.
SHORT-TERM CORPORATE DEBT INSTRUMENTS. These include commercial paper,
which is 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 the 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. No Fund will enter into a
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repurchase agreement for a duration of more than seven days if, as a result,
more than 15% of the total value of that Fund's total assets would be invested
in such agreements or other securities which are not readily marketable.
The Funds will seek to assure that the amount of collateral with respect to
any repurchase agreement is adequate. As with a true extension of credit,
however, there is risk of delay in recovery or the possibility of inadequacy of
the collateral should the seller of the repurchase agreement fall financially.
In addition, a Fund could incur costs in connection with disposition of the
collateral if the seller were to default. The Funds will enter into repurchase
agreements only with sellers deemed to be creditworthy by the Company's Board of
Directors and only when the economic benefit to the Funds is believed to justify
the attendant risks. The Funds have adopted standards for the sellers with whom
they will enter into repurchase agreements. The Board of Directors believes
these standards are designed to reasonably assure that such sellers present no
serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase agreement. The Funds may enter into
repurchase agreements only with member banks of the Federal Reserve System or
primary dealers in U. S. Government Securities.
ADJUSTABLE RATE AND FLOATING RATE SECURITIES. Adjustable rate securities
(I.E., variable rate and floating rate instruments) are securities that have
interest rates that are adjusted periodically, according to a set formula. The
maturity of some adjustable rate securities may be shortened under certain
special conditions described more fully below.
Variable rate instruments are obligations (usually certificates of deposit)
that provide for the adjustment of their interest rates on predetermined dates
or whenever a specific interest rate changes. A variable rate instrument
subject to a demand feature is considered to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand.
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
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. 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. Baa rated 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 for a description of each rating category.)
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.
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Certain of these fixed-income securities are described below.
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 mortgages.
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.
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.
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 or agencies or instrumentalities of the
U.S. Government. 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, credit unions and
mortgage bankers. Mortgage-backed securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues
Participation Certificates ("Pcs") which represent interests in conventional
mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal, but Pcs are not backed by the
full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may, in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-backed securities. Pools
created by such non-governmental issuers generally offer a higher rate of
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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"). The Government Securities
Fund, the Income and Equity Fund, and the Balanced Fund may invest in CMOs.
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, however, are not "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 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-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 or "CARDs". Such securities are generally issued as
pass-through certificates, which represent
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undivided fractional ownership interests in the underlying pools of assets.
However, such securities may also be issued on a pay-through basis (like CMOs)
and, in such case, are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such asset and issuing such
pay-through security. Asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. The payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) affiliated or
unaffiliated with the issuers of such securities.
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.
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 are sold at and 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
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of the zero coupon bond, the investor receives the face value of the bond. The
Funds may also invest up to 5% of its net assets in "pay-in-kind" securities
(I.E., debt obligations the interest on which may be paid in the form of
additional obligations of the same type rather than cash) which have
characteristics similar to zero coupon securities. Zero coupon 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 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 periodic 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. When a Fund owns a zero coupon bond or pay-in-kind security,
this "phantom income" is treated as part of the income that a Fund must
distribute each year to maintain its status as a regulated investment company,
under the Internal Revenue Code of 1986 (the "Code"). As a result, since this
"phantom income" may result in the payment of actual cash distributions to Fund
shareholders, purchases of zero coupon and pay-in-kind securities 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-of-the-money" call option written by the
purchaser of the PERCS to the issuer of the PERCS. Most PERCS expire three
years from the date of issue, at which time they are exchangeable for the
issuer's common stock or cash, at the option of the issuer. Under a typical
arrangement, if after three years the issuer's common stock is below the call
price established by the PERCS, each PERCS would convert to one share of common
stock. If however, the issuer's common stock is trading above the call price,
the holder of the PERCS would receive less than one full share of common stock.
The amount of that fractional share of common stock received by the PERCS'
holder is determined by dividing the call price of the PERCS by the market price
of the issuer's common stock. Some PERCS provide that they can be called
immediately if the issuer's common stock is trading at a specified level or
better. Investors, such as the Income 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 accrued 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, DELAYED ISSUE, AND FORWARD COMMITMENT SECURITIES
Each Fund may, from time to time, purchase securities on a "when-issued",
delayed delivery, or forward commitment 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.
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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. The price of the securities are subject to market
fluctuation. Accordingly, when-issued securities and forward commitments
involve a risk of loss if the value of the security to be purchased declines
before 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. While when-issued securities may be sold before 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. When a Fund makes the commitment to purchase a security on a
when-issued or forward commitment 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 and forward commitment 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. 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.
Any loan of portfolio securities by any Fund will be callable 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.
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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.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Government Securities Fund, the Balanced Fund and the Small Cap Fund
may each invest in other investment companies. Each Fund's investment in other
investment companies is limited in amount by the 1940 Act, so that each Fund may
purchase shares in another investment company unless (i) such a purchase would
cause the Fund to own, in the aggregate, more than 3% of the total outstanding
voting stock of the acquired company, (ii) such a purchase would cause the Fund
to have more than 5% of its total assets invested in one investment company,
(iii) such a purchase would cause the Fund to have more than 10% of its total
assets invested in all other investment companies in the aggregate, or (iv) all
Funds in the Company would own more than 10% of the total outstanding voting
stock of such registered investment company. Such investments may involve the
payment of substantial premiums above the value of such investment companies'
portfolio securities. In addition, the return from such an investment will be
reduced by the operating expenses and fees of such other investment companies,
including applicable advisory fees. Although each Fund, other than the Income
and Equity Fund and the Growth 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 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 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 (ii) 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.
To the extent that a fund invests in foreign securities, it 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. Those risks include: (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
S-13
<PAGE>
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. As a result of these risks, 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, Growth Fund and Small Cap Fund each may write
covered put and call options on securities and may purchase put and call
options on securities. Each Fund will only utilize options on securities
that are exchange traded.
A call option is a contract that gives the purchaser thereof, during the
term of the option, the right to buy a specified amount of the security
underlying the call option at a fixed price (called the exercise or "strike"
price) upon exercise of the option. Conversely, a put option is a contract that
gives the purchaser thereof, during the term of the option, the right to sell a
specified amount of the security underlying the put option at the exercise price
upon exercise of the option.
Through the writing of a covered call option, a Fund will receive
premium income but will also thereby obligate itself during the term of the
option, upon the exercise thereof, to sell at a specified price 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 at a specified price 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.
S-14
<PAGE>
PORTFOLIO TURNOVER
The Funds had the following portfolio turnover rates for the fiscal years
ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Government Income and Balanced Fund Small Cap Fund
Security Fund Equity Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 42% 17% 54% 50%
1997 69% 42% 64% 31%
</TABLE>
No data is shown for the Growth Fund, because it had not yet commenced
operations.
Portfolio turnover rates reflect the investment manager's capital
allocation decision-making in response to market and economic conditions and
each Fund's stated investment philosophy and policies. The Government
Securities and Income and Equity Funds' portfolio turnover rates decreased
during 1998 as a result of the manager's limited need to reallocate capital
from intermediate and longer-term fixed income securities since interest
rates continued their downward trend. The Small Cap Fund's portfolio turnover
rate was higher in 1998, as a result of greater volatility in the market. The
manager sold fully-valued and underperforming companies in response to a small
cap market correction from April to the end of the year.
INVESTMENT POLICIES AND RESTRICTIONS
In addition to the policies and restrictions set forth in the Prospectus
with respect to each Fund, which are described as fundamental investment
policies, investment restrictions (1), (2), (3), (5), (7), (11), (14), (16) and
(17) described below, have been adopted as fundamental investment policies of
each Fund. Such fundamental investment policies may be changed only with the
consent of a "majority of the outstanding voting securities" of the particular
Fund. As used in the Prospectus and in this Statement of Additional
Information, the term "majority of the outstanding voting securities" means the
lesser of (1) 67% of the voting securities of a Fund present at a meeting where
the holders of more than 50% of the outstanding voting securities of a Fund are
present in person or by proxy, or (2) more than 50% of the outstanding voting
securities of a Fund. Shares of each Fund will be voted separately on matters
affecting only that Fund, including approval of changes in the fundamental
objectives, policies, or restrictions of that Fund.
The following investment restrictions apply to each Fund except as
indicated to the contrary.
A Fund will not:
(1) MARGIN AND SHORT SALES: Purchase securities on margin or sell
securities short, except each Fund may make margin deposits in connection with
permissible options and futures transactions subject to restrictions (5) and (8)
below and may make short sales against the box. As a matter of operating
policy, no Fund has a current intention, in the foreseeable future (I.E., the
next year), of making margin deposits in connection with futures 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. Each
Fund will not borrow money except temporarily from banks to facilitate
redemptions requests that might otherwise require untimely disposition of
portfolio securities. 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
S-15
<PAGE>
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 and
Growth 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 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;
S-16
<PAGE>
(12) UNSEASONED ISSUERS: The Balanced Fund and Growth Fund will not
invest more than 5%, and the Small Cap Fund will not invest more than 10%, of
its total assets in securities of issuers, including their predecessors and
unconditional guarantors, which, at the time of purchase, have been in
operation for less than three years, other than obligations issued or
guaranteed by the United States Government, its agencies, and
instrumentalities;
(13) ILLIQUID SECURITIES AND SECURITIES NOT READILY MARKETABLE: Knowingly
purchase or otherwise acquire any security or invest in a repurchase agreement
if, as a result, more than 15% of a Fund's net assets would be invested in
securities that are illiquid or not readily marketable, including repurchase
agreements maturing in more than seven days and foreign issuers whose securities
are not listed on a recognized domestic or foreign exchange. Some investments
may be determined by the Funds to be illiquid. Illiquid securities are
securities which each Fund cannot sell or dispose of in the ordinary course of
business at an acceptable price, securities which are subject to legal or
contractual restrictions on disposition, other securities for which no readily
available market exists, and repurchase agreements and time deposits with a
maturity of more than seven days. Difficulty in selling securities may result
in a loss and may be costly to a Fund. As a matter of operating policy, in
compliance with certain state securities regulations, no more than 5% of any
Fund's net assets will be invested in restricted securities;
(14) MORTGAGING: Mortgage, pledge, or hypothecate in any other manner, or
transfer as security for indebtedness any security owned by a Fund, except (i)
as may be necessary in connection with permissible borrowings (in which event
such mortgaging, pledging, and hypothecating may not exceed 15% of each Fund's
total assets) and (ii) as may be necessary in connection with each Fund's use of
permissible options and futures transactions, subject to restrictions (5) and
(8) above;
(15) WARRANTS: Invest more than 5% of a Fund's net assets in warrants, and
will further limit its investment in unlisted warrants to no more than 2% of its
net assets;
(16) DIVERSIFICATION: Make an investment unless 75% of the value of that
Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other investment companies and other securities. For
purposes of this restriction, the purchase of "other securities" is limited so
that no more than 5% of the value of the Fund's total assets would be invested
in any one issuer. As a matter of operating policy, each Fund will not consider
repurchase agreements to be subject to the above-stated 5% limitation if all the
collateral underlying the repurchase agreements are securities issued by the
U.S. Government, its agencies and instrumentalities, and such repurchase
agreements are fully collateralized by such securities. A Fund will not with
respect to 75% of its total assets invest in more than 10% of the outstanding
voting securities of any one issuer (other than U.S. Government Securities); and
(17) CONCENTRATION: Except for the Government Securities Fund, purchase
the securities of issuers conducting their principal business activity in the
same industry if, immediately after the purchase and as a result thereof, the
value of the investments of a Fund in that industry would exceed 25% of the
current value of the total assets of that Fund. In those instances in which the
Government Securities Fund invests more than 25% of its total assets in
dividend-paying common stocks, the Government Securities Fund will concentrate
its investments in securities of issuers in the public utilities industry.
The Government Securities Fund may invest more than 25% of its total assets
in dividend-paying common stocks when Spectrum anticipates that interest rates
will decline. Thus, investments in dividend-paying common stocks of issuers in
the public utility industry will serve as substitutes for investment in
long-term bonds. Concentration in securities in the public utility industry
will occur when utilizing such securities as substitutes for long-term bonds is
consistent with managing the Fund to increase the Fund's total rate of return.
Thus, concentration of investments in this area are made when the current yield
on U.S. Government 30-year bonds declines 60 basis points (6/10 of 1%) from
previous yield peaks for the period of the last 50 trading days. The Fund would
reverse its concentration of investments when the current yield on U.S.
Government bonds rises 60 basis points (6/10 of 1%) from previous yield lows for
the period of the last 50 trading days.
S-17
<PAGE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER, CO-MANAGER, AND ADVISERS
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 and the Growth 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
August 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.
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. Siegfried Kagawa owns more than 5% of the outstanding shares of the
Manager.
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, 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
S-18
<PAGE>
charges, office space, office equipment, and office services properly allocable
to the shareholder services described directly above.
THE MANAGER'S, CO-MANAGER'S AND ADVISERS' 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 years
ending December 31, 1996, 1997, and 1998, the Manager received the fees shown in
the table below for its services as Investment Manager to the Funds. The
Manager did not receive any fees with respect to the Growth Fund in any of those
years, because the Growth Fund had not yet commenced operations.
<TABLE>
<CAPTION>
Government Income and
Year Securities Fund Equity Fund Balanced Fund Small Cap Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $16,345 $0 $0 $46,424
1997 $0 $0 $12,970 $75,003
1998 $0 $0 $21,798 $80,152
</TABLE>
For the fiscal years ending December 31, 1996, 1997, and 1998, the Advisers
received for their services to the Government Securities Fund and the Balanced
Fund the fees shown in the table below.
<TABLE>
<CAPTION>
Year Government Securities Fund Balanced Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $8,800 $0
1997 $0 $0
1998 $0 $0
</TABLE>
For the period ended December 31, 1997, and the fiscal year ending
December 31, 1998, no fees were paid to Hamilton & Bache for its services as
Co-Manager to the Income and Equity Fund. However, the Manager gave shares
of its common stock to Hamilton & Bache in lieu of cash fees for its services
(a) as Adviser to the Balanced Fund during the fiscal years ending
December 31, 1997 and 1998 and (b) as Co-Manager to the Income and Equity
Fund for the period ended December 31, 1997 and the fiscal year ending
December 31, 1998. The Manager anticipates giving additional shares to
Hamilton & Bache for its services as Adviser and Co-Manager to be provided
in fiscal year 1999.
MANAGEMENT AND ADVISORY FEE RATES
<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
S-19
<PAGE>
INCOME AND EQUITY FUND
<CAPTION>
Average Daily Net Assets Management Fee Sub-Advisory 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
BALANCED FUND AND GROWTH FUND
<CAPTION>
Average Daily Net Assets Management Fee Sub-Advisory Fee
------------------------ -------------- ----------------
<S> <C> <C>
First $200 million .75 .40
next $200 million .70 .37
next $200 million .65 .34
next $200 million .60 .31
next $200 million .55 .28
over $1 billion .50 .25
SMALL CAP FUND
<CAPTION>
Average Daily Net Assets Management Fee
------------------------ --------------
<S> <C>
First $200 million .75
next $200 million .72
next $200 million .69
over $600 million .66
</TABLE>
EXPENSE LIMITATION AGREEMENTS. The Company bears all expenses of its
operation, other than those assumed by the Manager. The Manager, Co-Manager and
the Advisers have voluntarily entered into Expense Limitation Agreements with
each Fund, pursuant to which they may waive their management and advisory fees,
respectively, and/or absorb certain expenses for each Fund. Pursuant to these
Agreements, the Manager currently (a) will waive its management fee and/or
absorb expenses to the extent necessary to maintain the total Fund Operating
Expenses of the Class A shares of the Government Securities Fund, the Income and
Equity Fund, and the Growth Fund at 1.65%, 1.85%, and 2.50%, respectively, of
average net assets, and to maintain the total Fund Operating Expenses of the
Class C shares of those three Funds at 2.40%, 2.60%, and 3.25% respectively, of
average net assets, (b) will waive its management fee for the Balanced Fund by
0.40% of average net assets, and (c) will not waive its fee or absorb expenses
of the Small Cap Fund. The Co-Manager of the Income and Equity Fund also has
agreed to waive its management fee to the extent necessary to enable that Fund
to meet the expense limitations set forth above. PGIS has also agreed to waive
the transfer agency fees on Class C shares of the Government Securities Fund,
the Income and Equity Fund, and the Growth Fund to the extent necessary to
enable those Funds to meet the expense limitations described above. These
Agreements continue from year to year unless terminated by one of the parties.
In addition, the Manager may discontinue or change these fee waiver and expense
reimbursement arrangements at any time upon 90 days notice to the relevant Fund.
The Company may reimburse the Manager and/or the Co-Manager for fees so
waived and expenses so assumed (except with respect to the Growth Fund) at such
time as such Fund's expenses do not exceed 2.5% of average net assets, the
assets of such Fund are $20 million or greater, and the payment of such
reimbursement would not cause such Fund's expenses to exceed 2.5% of average net
assets. Any such reimbursement payments will be determined separately for each
Class of shares and will cause the relevant Fund's operating expenses and
expense ratio to be higher than they would otherwise be. Transfer Agency fees
waived by PGIS with respect to Class C shares
S-20
<PAGE>
and any fees waived or expenses assumed with respect to the Growth Fund,
pursuant to the current Expense Limitation Agreements, will not be reimbursed.
DISTRIBUTION OF FUND SHARES
PRINCIPAL UNDERWRITER. Pacific Global Fund Distributors, Inc., a
wholly-owned subsidiary of the Manager, is the principal underwriter of our
shares. It is located at 206 North Jackson Street, Suite 201, Glendale,
California 91206. Under the Distribution Agreement, the Distributor has agreed
to use its best efforts to promote the Funds and to solicit orders for purchase
of Fund shares. The Funds engage in a continuous offering of their shares. The
Distributor may enter into Selling Group Agreements with unaffiliated
broker-dealers for the sale of Fund shares and may sell Fund shares through
banks and other financial services firms. The Distributor pays commissions to
broker-dealers selling Fund shares, as described below. Sales of Fund shares
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. For the fiscal years ending
December 31, 1996, 1997, and 1998, the aggregate amount of underwriting
commissions paid by the Funds and the amount retained by the Distributor are as
follows:
<TABLE>
<CAPTION>
Year Aggregate Underwriting Amount Retained by Distributor
Commissions
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $101,862 $17,127
1997 $225,703 $39,059
1998 $133,442 $22,593
</TABLE>
In the fiscal year ended December 31, 1998, the Funds paid the Distributor
$22,593 in net underwriting discounts and commissions, $474 in contingent
deferred sales charges, $61,315 in brokerage commissions, and $5,110 in Rule
12b-1 fees.
DEALER REALLOWANCES. Current sales charges and dealer concessions are:
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND AND INCOME AND EQUITY FUND
As
Percentage Amount
of Offering Reallowed
Amount of Purchase Price to Dealers*
------------------ ----- -----------
<S> <C> <C>
Less than $ 50,000 4.75% 4.00%
$ 50,000 - $ 99,999 4.50% 3.75%
$ 100,000 - $ 249,999 3.50% 2.75%
$ 250,000 - $ 499,999 2.50% 2.00%
$ 500,000 - $ 999,999 2.00% 1.60%
$ 1 million and over 0.00% see below
<CAPTION>
BALANCED FUND, GROWTH FUND, AND SMALL CAP FUND
As
Percentage Amount
of Offering Reallowed
Amount of Purchase Price to Dealers*
------------------ ----- -----------
<S> <C> <C>
Less than $ 25,000 5.75% 4.75%
$ 25,000 - $ 49,999 5.50% 4.75%
$ 50,000 - $ 99,999 4.75% 4.00%
$ 100,000 - $ 249,999 3.75% 3.00%
$ 250,000 - $ 499,999 2.50% 2.00%
$ 500,000 - $ 999,999 2.00% 1.60%
$ 1 million and over 0.00% see below
</TABLE>
S-21
<PAGE>
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.
On purchases by a "Single Purchaser" 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. For this purpose, the Distributor will consider a "Single Purchaser"
to be: (1) an individual and his or her spouse and minor children; and (2) a
trustee or other fiduciary purchasing for a single fiduciary account or trust
estate, including qualified employee benefit plans of the same employer.
DISTRIBUTION PLAN. The Company has adopted a Plan of Distribution for its
Class A Shares (the "Class A Plan") and a Plan of Distribution for its Class C
Shares (the "Class C Plan") pursuant to Rule 12b-1 under the 1940 Act. Pursuant
to the Class A Plan, the Company pays the Distributor quarterly at a rate
not to exceed .0625% of the Company's average daily net assets attributable to
Class A shares during the quarter. Pursuant to the Class C Plan, the Company
pays the Distributor quarterly at a rate not to exceed .25% of the Company's
average daily net assets attributable to Class C shares during the quarter. The
Distributor, in turn, pays certain securities dealers or brokers,
administrators and others ("Recipients") based on the average daily net asset
value of the Class A and Class C Shares, as appropriate, of the Company owned by
that Recipient or its customers during that quarter. The Distributor also
retains certain Rule 12b-1 fees based on the average daily net asset value of
the Fund shares owned by shareholders who are customers of the Distributor. No
such payments are made to any Recipient in any quarter if the aggregate
net asset value of the Class A and Class C Shares of the 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, is
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.
Other than fees paid to the Distributor with respect to its own
customers, all of the fees paid to the Distributor pursuant to the Class A
Plan will be used to pay Recipients for shareholder services rendered to the
shareholders of the Funds, and all of the fees paid to the Distributor
pursuant to the Class C Plan will be used to pay Recipients for shareholder
and distribution services. Any unreimbursed expenses incurred during any
quarter by the Distributor may not be recovered in later periods. The Class
A Plan has the effect of increasing annual expenses of the Company by up to
.25% of the Company's average daily net assets attributable to Class A
shares, while the Class C Plan has the affect of increasing annual expenses
of the Company by up to 1.00% of the Company's average daily net assets
attributable to Class C shares. For the fiscal year ended December 31, 1998,
the Funds made the following Rule 12b-1 payments:
<TABLE>
<CAPTION>
Government
Securities Income and
Fund Equity Fund Balanced Fund Small Cap Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $8,949 $5,080 $11,458 $26,377
Class C Shares $2,233 $2,368 $1,466 $1,993
</TABLE>
No Rule 12b-1 payments were made in 1998 by the Growth Fund, as it had not
commenced operations.
S-22
<PAGE>
TRANSFER AGENT AND ADMINISTRATIVE SERVICES AGENT
Pacific Global Investor Services, Inc. ("PGIS"), a wholly-owned subsidiary
of the Manager, acts as the Transfer Agent, Dividend Disbursing Agent, and
Administrative Services Agent for all of the Funds. PGIS is located at 206
North Jackson Street, Suite 201, Glendale, California 91206.
PGIS is compensated for these services by the Company pursuant to the
Transfer Agency, Dividend Disbursing Agency and Administrative Service
Agreement. These administrative 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 for administrative services 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. PGIS is compensated separately for transfer agency services. The
transfer agency fees depend on the number of shareholder accounts for the
relevant Fund, subject to a minimum annual fee of $15,000 per Fund for Class A
shares and $9,000 per Fund for Class C shares. As described above, PGIS has
agreed to waive its transfer agency fees on Class C shares of the Government
Securities Fund, the Income and Equity Fund, and the Growth Fund to the extent
necessary to enable those Funds to meet the applicable expense limitations. See
"Expense Limitation Agreements", at page [S-20 to S-21] above. For the previous
three fiscal years, PGIS received the following amounts from the Funds as fees
for its services as Administrative Agent:
<TABLE>
<CAPTION>
Government
Securities Income and
Year Fund Equity Fund Balanced Fund Small Cap Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $3,225 $543 $1,250 $3,086
1997 $2,795 $754 $2,292 $5,000
1998 $2,412 $1,254 $3,114 $5,343
</TABLE>
For the previous three fiscal years, PGIS received the following amounts from
the Funds as fees for its services as Transfer Agent:
<TABLE>
<CAPTION>
Government
Securities Income and
Year Fund Equity Fund Balanced Fund Small Cap Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $15,000 $0 $15,000 $15,000
1997 $15,000 $0 $15,000 $22,896
1998 $15,000 $0 $17,784 $31,016
</TABLE>
PGIS did not receive any fees with respect to the Growth Fund in any of those
years, because the Growth Fund had not yet commenced operations.
CUSTODIAN
United Missouri Bank, N.A. ("UMB, N.A."), P.O. Box 419226, Kansas City,
Missouri 64141-6226, 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
S-23
<PAGE>
value of the Funds, calculating each Fund's standardized performance
information, and performing other administrative duties, all as directed by
persons authorized by the Company. UMB, N.A. does not exercise any supervisory
function in such matters as the purchase and sale of portfolio securities,
payment of dividends, or payment of expenses of the Funds or the Company.
Portfolio securities of the Funds purchased in the U.S. are maintained in the
custody of UMB, N.A. and may be entered into the Federal Reserve Book Entry
System, or the security depository system of the Depository Trust Company or
Participants' Trust Company. Pursuant to the Custody Agreement, portfolio
securities purchased outside the U.S. are maintained in the custody of various
foreign branches of UMB, N.A. and such other custodians, including foreign banks
and foreign securities depositories, as are approved by the Board of Directors,
in accordance with regulations under the 1940 Act. The Funds may invest in
obligations of UMB, N.A. and may purchase or sell securities from or to UMB,
N.A.
MANAGEMENT OF THE COMPANY AND ITS FUNDS
DIRECTORS AND OFFICERS
Under Maryland law, the Board of Directors is responsible for the overall
management and supervision of its affairs. The directors and officers of the
Company, together with information as to their ages, 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 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 (65) President, Fringe Benefits, Inc./Financial Foresight, Ltd., d/b/a The Brinker
Director Organization (Financial services companies)
1 North Ormond Avenue
Havertown, Pennsylvania 19083
*Victoria Breen (47) Assistant Secretary and Director, Pacific Global Investment Management Company,
Director Pacific Global Investor Services, Inc.; General Agent, Transamerica Life Companies
603 West Ojai Avenue and Registered Principal, Transamerica Financial Resources, Inc.; Branch Manager,
Ojai, California 93023 Derby & Derby, Inc./Pacific Asset Group, Inc./Financial West Group (Financial
services companies)
Kathleen M. Fishkin (51) Certified Public Accountant, Murchison & Marek (Public Accounting)
Director
3780 Kilroy Airport Way
Suite 820
Long Beach, California 90806
L. Michael Haller, III (55) Senior Vice President, THQ Inc.; President, International Media Group, Inc.;
Director Consultant, Asahi Broadcasting Corp. (Entertainment companies)
5016 N. Parkway
Suite 100
Calabasas, California 91302
*Thomas H. Hanson (49) Executive Vice President and Director, Pacific Global Investment Management Company;
Vice President and Secretary 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.; Vice President and Director,
Pacific Global Investment Fund, Ltd.
S-24
<PAGE>
*George A. Henning (51) Chairman, President, and Director, Pacific Global Investment Management Company;
President and Chairman Chairman and Director, Pacific Global Fund Distributors, Inc.; Chairman and Director,
Pacific Global Investor Services, Inc.; Chairman and Director, Pacific Global
Investment Fund, Ltd.
*Paul W. Henning (41) Treasurer, Pacific Global Investment Management Company; Treasurer and Director,
Treasurer Pacific Global Fund Distributors, Inc.; Treasurer, Pacific Global Investor Services,
Inc.; Treasurer, Pacific Global Investment Fund, Ltd.; Assistant Controller,
AdminaStar Defense Services, Inc. (Financial services company)
*Siegfred S. Kagawa (67) Chairman, Occidental Underwriters of Hawaii, Ltd.; General Agent, Transamerica Life
Director Companies, (Financial services companies); Director, Pacific Global Investment
1163 S. Beretania Street Management Company
Honolulu, Hawaii 96814
Takashi Makinodan, Ph.D. (74) Associate Director of Research, Geriatric Research Education Clinic Center, VA
Director Medical Center; Director, Medical Treatment Effectiveness Program (MEDTEP), Center
107 S. Barrington Place on Asian and Pacific Islanders; Professor of Medicine, University of California, Los
Los Angeles, California 90049 Angeles; Adjunct Professor of Biology, University of Southern California (Medical
Research)
Gerald E. Miller (69) Consultant for Securities Related Matters
Director
5262 Bridgetown Place
Westlake Village, CA 91362
Louise K. Taylor, Ph.D. (52) Superintendent, Monrovia Unified School District
Director
325 East Huntington Drive
Monrovia, California 91016
</TABLE>
Mr. Kagawa is an interested person of the Fund because he is a director of
the Manager, he owns more than 5% of the Manager's voting shares, and he is a
part owner of a company that acts as distributor for an offshore investment
company managed by the Manager. George A. Henning and Paul A. Henning are
brothers.
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 is not an interested person during the fiscal year
ended December 31, 1998, was $5,150. The Company does not maintain any
retirement or pension plans.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and an Executive Committee. The
respective duties and current 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.
S-25
<PAGE>
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 class of any
Fund's shares as of January 31, 1999, are listed below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FUND SHAREHOLDER PERCENTAGE
<S> <C> <C>
Balanced Fund (A) Charles Schwab Investment 58.85%
Account
101 Montgomery Street
San Francisco, CA 94104
- ---------------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette Corp. 7.42%
P.O. Box 2052
Jersey City, NJ 07303
- ---------------------------------------------------------------------------------------
Balanced Fund (C) Richard A. Haan 7.16%
6960 N. Greene Lane
Flagstaff, AZ 86001
- ---------------------------------------------------------------------------------------
William Burkhardt 6.80%
1305 Parkview Circle
Downingtown, PA 19335
- ---------------------------------------------------------------------------------------
Dale Dimond 12.71%
134 E. Third Street
Media, PA 19063
- ---------------------------------------------------------------------------------------
Maarten S. Sibinga 8.44%
249 Bortondale Road
Media, PA 19063
- ---------------------------------------------------------------------------------------
Anita M. Bovo 7.28%
352 Trevor Lane
Bala Cynwyd, PA 19004
- ---------------------------------------------------------------------------------------
Don DiSanti 5.59%
8630 Ditman Street #2
Philadelphia, PA 19136-2102
- ---------------------------------------------------------------------------------------
Joseph Moschella 5.55%
108 Sutton Road
Ardmore, PA 19003
- ---------------------------------------------------------------------------------------
Government Securities Donaldson Lufkin & Jenrette Corp. 15.98%
Fund (A) P.O. Box 2052
Jersey City, NJ 07303
- ---------------------------------------------------------------------------------------
Charles Schwab Investment 40.19%
Account
101 Montgomery Street
San Francisco, CA 94104
- ---------------------------------------------------------------------------------------
Michael Marcus 5.40%
1505 Rockclife Road
Austin, TX 78746
- ---------------------------------------------------------------------------------------
Government Securities Richard A. Haan 7.13%
Fund (C) 6960 N. Greene Lane
Flagstaff, AZ 86001
- ---------------------------------------------------------------------------------------
Robert & Patricia Schramm 9.27%
416 Cherry Lane
Havertown, PA 19083
- ---------------------------------------------------------------------------------------
Mun Cham Wong 28.08%
1163 S. Beretania Street
Honolulu, HI 96814
- ---------------------------------------------------------------------------------------
Don DiSanti 5.38%
8630 Ditman Street #2
Philadelphia, PA 19136-2102
- ---------------------------------------------------------------------------------------
Charles Rein 18.41%
107 Deer Path Drive
Churchville, PA 18066
- ---------------------------------------------------------------------------------------
Income & Equity Fund Donaldson Lufkin & Jenrette Corp. 25.70%
(A) P.O. Box 2052
Jersey City, NJ 07303
- ---------------------------------------------------------------------------------------
Charles Schwab Investment 9.26%
Account
101 Montgomery Street
San Francisco, CA 94104
- ---------------------------------------------------------------------------------------
Wedbush Morgan Securities 10.82%
P.O. Box 30014
Los Angeles, CA 90030
- ---------------------------------------------------------------------------------------
Income & Equity Fund Nina C. Suominen 6.60%
(C) 139 Conards Mill Road
Lincoln University, PA 19352
- ---------------------------------------------------------------------------------------
Maarten S. Sibinga 5.22%
249 Bortondale Road
Media, PA 19063
- ---------------------------------------------------------------------------------------
Mun Cham Wong 33.42%
1163 S. Beretania Street
Honolulu, HI 96814
- ---------------------------------------------------------------------------------------
Elizabeth T. Donohue 6.25%
7816 Oak Lane Road
Chetenham, PA 19012
- ---------------------------------------------------------------------------------------
Small Cap Fund (A) Donaldson Lufkin & Jenrette Corp. 21.24%
P.O. Box 2052
Jersey City, NJ 07303
- ---------------------------------------------------------------------------------------
Small Cap Fund (C) Janet M. Ellefson 7.04%
RR1 Box 73
Woodville, WI 54208
- ---------------------------------------------------------------------------------------
Richard A. Haan 6.99%
6980 N. Greene Lane
Flagstaff, AZ 86001
- ---------------------------------------------------------------------------------------
Dale Dimond 8.09%
134 E. Third Street
Media, PA 19063
- ---------------------------------------------------------------------------------------
Maarten S. Sibinga 13.24%
249 Bortondale Road
Media, PA 19063
- ---------------------------------------------------------------------------------------
Mun Cham Wong 6.41%
1163 S. Beretania Street
Honolulu, HI 96814
- ---------------------------------------------------------------------------------------
Don DiSanti 10.29%
8630 Ditman Street #2
Philadelphia, PA 19136-2102
- ---------------------------------------------------------------------------------------
</TABLE>
The Fund believes that the shares held by the financial institutions listed
above were held by the persons indicated in accounts for their fiduciary,
agency or custodial clients.
As of January 31, 1999, the Directors and Officers of the Company, as
a group, owned 1.92% of the outstanding shares of the Small Cap Fund, 3.07%
of the outstanding shares of the Income and Equity Fund, and 3.58% of the
outstanding shares of the Government Securities Fund. As of January 31,
1999, the Directors and Officers of the Company, as a group, owned less than
1% of the Balanced Fund.
As of the date of this Statement of Additional Information, Manabi Hirasaki
owned 100% of the outstanding shares of the Growth Fund and, as a result, may
be deemed to be a control person of the Growth Fund. Once the Growth Fund
begins to sell its shares to the public, however, we anticipate that public
shareholders will soon own sufficient Growth Fund shares that Mr. Hirasaki's
shareholding, as a percentage of the shares outstanding, will no longer be
deemed to constitute "control".
CAPITAL STOCK
SERIES AND CLASSES OF SHARES.
The Company is authorized to issue one billion shares of common stock, $.01
par value per share. The Company has designated 250 million shares as Class A
shares and 250 million shares as Class C shares. 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 of Directors has the power to establish additional series or
classes of shares.
In the interest of economy and efficiency, the Company does not issue stock
certificates. Shareholders of uncertificated shares have the same ownership
rights as if certificates had been issued.
The Company currently offers two Classes of shares for each Fund: Class A
and Class C. Each Class represents an identical interest in a Fund's investment
portfolio. Under the Company's multi-class system, shares of each Class of
shares of each Fund represent an equal pro rata interest in the Fund and,
generally, have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications and terms and
conditions, except that: (a) each Class shall have a different designation; (b)
each Class of shares shall bear its "Class Expenses;" (c) each Class shall have
exclusive voting rights on any matter submitted to shareholders that relates
solely to its distribution arrangements; (d) each Class shall have separate
voting rights on any matter submitted to shareholders in which the interests of
one Class differ from the interests of any other Class; (e) each Class may have
separate exchange privileges; and (f) each Class may have different conversion
features, although a conversion feature is not currently contemplated. The
Board of Directors does not anticipate that there will be any conflicts among
the interests of the holders of the different Classes and will take appropriate
action if any such conflict arises.
Prior to the effective date of the Company's multi-class plan, the Company
had one Class of shares, which was redesignated Class A. The redesignation did
not change the rights and privileges of the Class A shares. For more
information about the different Classes of shares of the Fund, please call
1-800-282-6693.
S-26
<PAGE>
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. Shareholders of the Funds
shall vote together on any matter, except to the extent otherwise required by
the 1940 Act, or when the Board of Trustees has determined that the matter
affects only the interest of shareholders of one or more Classes, in which case
only the shareholders of such Class or Classes shall be entitled to vote
thereon. Accordingly, shares of a Fund usually 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
1940 Act, 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. Any
matter shall be deemed to have been effectively acted upon with respect to the
Fund if acted upon, as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Articles of Incorporation.
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.
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.
ADDITIONAL INFORMATION CONCERNING
PURCHASE, REDEMPTION, AND PRICING OF SHARES
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.
S-27
<PAGE>
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).
SIGNATURES AND SIGNATURE GUARANTEES. The signature on a redemption or
exchange request must be exactly as shown on the Application. In the interest
of safety, signature guarantees are required for certain transactions. If
redemption proceeds are in excess of $50,000 or are to be sent to someone other
than the registered shareholder or to other than the registered address or if
the transaction is an exchange of shares, a signature guarantee is required. A
guarantor must be: (i) a bank; (ii) a securities broker or dealer, including a
government or municipal securities broker or dealer, that is a member of a
clearing corporation or has net capital of at least $100,000; (iii) a credit
union having authority to issue signature guarantees; (iv) a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities exchange, a registered
securities exchange or a clearing agency. Notary publics are not acceptable
guarantors.
TRANSACTIONS EFFECTED THROUGH CERTAIN AUTHORIZED DEALERS. We have
authorized certain brokers ("Authorized Dealers") to accept purchase and
redemption orders on our behalf. These Authorized Dealers are authorized to
designate other intermediaries to accept purchase and redemption orders on our
behalf. PGIS will be deemed to have received a purchase or redemption order
placed with certain of these Authorized Dealers or designees when the Authorized
Dealer or, if applicable, its authorized designee, accepts the order. If an
order is accepted by such a Dealer or authorized designee before 4:00 pm., New
York time, the order becomes effective as of 4:00 p.m., New York time. If the
order is accepted after 4:00 p.m., New York time, the order becomes effective as
of 4:00 p.m., New York time, on the next business day. The order will be priced
at the relevant Fund's net asset value per share next computed after the order
is accepted by the Authorized Dealer or the Authorized Dealer's designee.
Orders placed with other Authorized Dealers, however, are not effective
until received by PGIS. These Authorized Dealers may require that you place
your order no later than a specified time before 4:00 p.m. New York time, so
that your order can be transmitted to PGIS by 4:00 p.m. New York Time and
receive that day's price.
You may be charged a fee if you effect transactions in Fund shares through
an Authorized Dealer or an Authorized Dealer's designee.
REDUCING YOUR SALES CHARGE -- CLASS A SHARES
The sales charge you pay on Class A shares is affected by the size of your
total investment in the Funds as shown in the fee table in the Prospectus.
Under the programs described below, we will combine qualifying purchases and
thereby reduce the applicable sales charge. In addition, certain categories of
Fund purchases also will be made at net asset value, as described below.
SINGLE PURCHASER. In determining the front-end sales charge on Class A
shares, we will combine the total amount being invested by any "Single
Purchaser" in Class A shares of the Funds at any one time. A "Single
Purchaser," eligible for a discount based on combining purchases, includes: (1)
an individual and his or her spouse and minor children; or (2) 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
Class A shares of the Funds for several accounts at the same time, you may
combine these investments to reduce the applicable sales charge. You also may
combine concurrent purchases of Class A shares of two or more Funds. To qualify
for this discount, you must notify PGIS at the time of purchase.
RIGHT OF ACCUMULATION. You may reduce the sales charge by combining the
amount being invested in Class A shares of any Fund with certain previous
purchases of Class A shares of any of the 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. We will take into
account your Class A shares in any Fund previously purchased 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 Class A shares
S-28
<PAGE>
of the Funds that are still held in one of the Funds will be included in the
calculation. If you wish to use this right of accumulation, you must notify
PGIS at the time your order is placed, and when each subsequent order is placed.
When you send your payment to PGIS, you must specify by account number all
accounts to be included under "Right of Accumulation".
LETTER OF INTENT. The Letter of Intent provides an opportunity for you
(or any Single Purchaser as described above) to reduce your sales charge on
Class A shares by permitting you to aggregate your investments in qualifying
accounts to be included over a thirteen-month period. Your initial purchase
of Class A shares must be at least 5% of the stated investment goal. When
you submit a Letter of Intent to PGIS, each investment made during the
thirteen-month period in Class A shares of any Fund will receive the sales
charge applicable to the total amount of the investment goal indicated in
your Letter of Intent. PGIS will hold in escrow Class A shares equal to the
dollar amount of the maximum sales charge applicable to the Fund(s) invested
in, until your purchases of Class A shares reach the total stated investment
goal. If your purchases do not reach that goal, PGIS will apply the escrowed
shares to pay the applicable sales charge. Each payment sent directly to
PGIS 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.
("Eligible Funds" are explained at page S-32 below.) 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.
WAIVER OF INITIAL SALES CHARGE ON CLASS A SHARES. We will not charge the
initial sales charge on Class A shares of the Funds to the following categories
of transactions:
(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 PGIS, 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; 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.
To qualify for this waiver, transactions in categories (2) through (5) must
also meet the following conditions: (a) the order must originate with the member
of the category 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 agree that any such purchase is for investment purposes only and
the securities purchased will not be resold except to that Fund.
In addition, purchases of Class A shares 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.
S-29
<PAGE>
Class A shares are offered at net asset value in the circumstances
described above because of anticipated economies in sales efforts and sales
related expenses. We may terminate, or amend the terms of, the offering of
Class A shares of the Funds at net asset value at any time. Also see
"Exchanges of Shares" at pages [S-31 to S-32] below.
ADDITIONAL SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN. You may make regular monthly investments
through automatic withdrawals from your bank account. Your monthly investment
amount must be at least $25 to purchase Class A shares and $100 to purchase
Class C shares. Once a plan is established, your bank account will usually be
debited by the 5th or 20th day of the month.
AUTOMATIC REINVESTMENT. We automatically reinvest your dividends and
capital gain distributions on Fund shares in additional shares of the same Class
of shares of the same Fund, at no sales charge, unless you advise us otherwise
in writing. You also may elect to have dividends and/or capital gain
distributions paid in cash or reinvested in the Eligible Funds.
ACCOUNT STATEMENTS. We will send you a statement of all account activity
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.
AUTOMATIC WITHDRAWAL PLANS. If your account value is at least $10,000, you
may establish an Automatic Withdrawal Plan. We automatically will transfer the
proceeds from scheduled redemptions of shares 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, because of the initial sales charge, it may not be advisable for
you to purchase additional Class A shares while you are participating in an
Automatic Withdrawal Plan. You 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.
AUTOMATIC EXCHANGE PLANS. If your account value is at least $50,000,
you may establish an Automatic Exchange Plan. We automatically will exchange
shares between the Funds that you designate, including the Eligible Funds, on
either the 15th or the 30th of each month. The amounts exchanged must equal
at least $100. Each exchange will be for the same dollar amount. All
dividends and distributions on shares covered by an Automatic Exchange Plan
must be reinvested in additional Fund shares. Exchanges under an Automatic
Exchange Plan are subject to the requirements and conditions described in
"Exchange of Shares" on pages S-31 to S-32 below. Requests to establish an
Automatic Exchange Plan must be submitted in writing.
TELEPHONE EXCHANGES AND REDEMPTIONS
EXCHANGES. To place a telephone exchange request, call PGIS at
1-800-282-6693. PGIS may record your call. By exchanging shares by telephone,
you are 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. You and your dealer representative of record automatically have
telephone exchange privileges unless and until you give PGIS written
instructions canceling those 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
S-30
<PAGE>
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. 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. You may redeem shares by telephone. We will mail the
proceeds to your registered address or wire them to your predesignated bank
account. Our 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 call. If all lines are busy, telephone redemptions may not be
available and you may need to use the Funds' other redemption procedures
instead. 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 shares purchased
within the prior 15 days, or shares for UMB Bank, N.A.-sponsored retirement
plans. You and your dealer representative of record automatically have
telephone redemption privileges, unless PGIS receives cancellation
instructions from you. If an account has multiple owners, PGIS may rely on
the instructions of any one owner. PGIS and the Fund will not be responsible
for any loss, damage, cost or expense arising out of any telephone
instructions for an account that PGIS reasonably believes to be authentic,
based on its procedures for verification.
For redemptions paid by check, you may redeem up to $25,000 by telephone,
once in each 30-day period. The check must be payable to you and any joint
shareholder and sent to the address of record for the account. You may not
exercise this privilege 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 UMB Bank, N.A. serves as trustee may not be redeemed by
telephone, telex, fax or telegraph.
EXCHANGES OF SHARES
EXCHANGE PRIVILEGE. You may exchange shares into other Funds. However,
Class A shares of a Fund may be exchanged only for Class A shares of the other
Funds or shares of the Reserve Fund Portfolios. Class C shares of a Fund may be
exchanged only for Class C shares of the other Funds and shares of the Reserve
Fund Portfolios. In the future, the Distributor may make arrangements for
exchanges of Class A and Class C Fund shares for shares of other mutual funds.
We process exchange redemptions and purchases simultaneously at the share prices
next determined after the exchange order is received in proper form, as noted
below. You may make an exchange by mail or by telephone. The first five
exchanges in each calendar year are free. After that, a $5.00 service fee
applies to each exchange; however, PGIS currently is waiving that fee.
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," on pages [S-29 to S-30] above.
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 for Class A shares are subject to applicable sales
charges on the Fund being purchased, unless those Reserve Fund Portfolios shares
were acquired by an exchange from Class A Fund shares or by reinvestment of
dividends or capital gain distributions on such Reserve Fund Portfolio shares.
S-31
<PAGE>
The following conditions must be met for all exchanges: (1) shares of the
Fund selected for exchange must be available for sale in the shareholder's state
of residence; and (2) 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 Reserve Fund Portfolios purchased without a sales charge may be
exchanged for Class A 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 Class C shares of the Funds or shares of Eligible Funds subject to a
contingent deferred sales charge ("CDSC"); and Class A shares of the Funds
acquired by reinvestment of dividends or distributions from any Eligible Fund
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 Class C shares of
another Fund. However, the shares so acquired will continue to be subject to a
CDSC on the terms and for the period applicable to the exchanged shares.
We 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. We reserve 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. Only
shares available for exchange without restriction will be exchanged.
Shares to be exchanged are redeemed on the business day PGIS
receives an exchange request in proper form (the "Redemption Date").
Normally, shares of the Fund to be acquired are purchased on the Redemption
Date, but such purchases may be delayed by either Fund up to five business
days if it determines that it would be disadvantaged by an immediate transfer
of the redemption proceeds. In our discretion we may refuse any exchange
request that will disadvantage a Fund, 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 ("Eligible Funds") to be available in exchange for
either Class A or Class C 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. PGIS 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.
REDEMPTION
REDEMPTION PAYMENTS. Each Fund intends to pay all redemptions of its
shares in cash. However, each Fund may make full or partial payment to
shareholders of portfolio securities of the applicable Fund (i.e., by
redemption-in-kind), at the value of such securities used in determining the
redemption price. The Company, nevertheless, pursuant to Rule 18f-1 under the
1940 Act, has filed a notification of election under which each Fund is
committed to pay in cash to any shareholder of record, all requests for
redemption made by such shareholder during any 90-day period, up to the lesser
of $250,000 or 1% of the applicable Fund's net asset value at the beginning of
such period. The securities to be paid in-kind to any shareholders will be
readily marketable securities selected in such manner as the Company's Board
deems fair and equitable. If shareholders were to receive redemptions-in-kind,
they would incur
S-32
<PAGE>
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. We may suspend the right to redeem shares or to
receive payment with respect to any redemption of shares of the Funds: (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.
STANDARD PROCEDURES. To redeem some or all of your shares in a Fund,
generally you must send PGIS a signed written request that specifies the
account number and either the dollar amount or the number of shares to be
redeemed. We 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 Redemptions" on pages
S-29 to S-30 above and "Signatures and Signature Guarantees," on page S-27
above.
WIRE TRANSFERS OF REDEMPTION PROCEEDS. For the protection of shareholders
and the Company, you must place wire transfer instructions on file with us prior
to executing any request for the wire transfer of redemption proceeds. You 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 -- CLASS A SHARES. We generally will
deduct a contingent deferred sales charge ("CDSC") from your redemption proceeds
of Class A shares purchased in amounts aggregating $1 million or more if they
are redeemed within 18 months of the end of the calendar month of their
purchase. The CDSC will equal 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, your
total CDSC will not exceed the total dealer reallowances paid on your Class A
shares that are subject to a CDSC. In calculating the CDSC, we will combine all
redemptions of a "Single Purchaser" (as defined in "Reducing Your Sales Charge
- -- Class A Shares" on pages S-27 to S-29 above). We will not charge a CDSC on
Class A shares that you acquired through transactions described in "Waiver of
Initial Sales Charge on Class A Shares" on pages S-28 to S-29 above. We also
will not charge a CDSC in the case of redemptions of Class A 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 Class A 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.
Class A 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 Class A 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 Class A shares, the CDSC will apply. In determining
whether a CDSC is payable, and the amount of any such CDSC, Class A shares not
subject to a CDSC are redeemed first, including Class A shares purchased by
reinvestment of dividends and distributions, and then other Class A shares are
redeemed in the order of purchase.
CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES. A CDSC of 1% of the
offering price (net asset value at the time of purchase) or the net asset value
of the shares at the time of sale by the shareholder, whichever is less, is
charged on sales of Class C shares made within one year of the purchase date.
We will waive the CDSC on Class C shares in the case of redemptions of Class C
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)
S-33
<PAGE>
Automatic Withdrawal Plan payments limited to no more than 12% of the original
account value annually; and (4) involuntary redemptions of Class C 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.
Class C shares on which 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 Class C Fund shares
purchased subject to a CDSC, except that if the shares acquired by exchange are
redeemed within 12 months of the end of the calendar month of the initial
purchase of the exchanged Class C shares, the CDSC will apply. In determining
whether a CDSC is payable, and the amount of any such CDSC, Class C shares not
subject to CDSC are redeemed first, including Class C shares purchased by
reinvestment of dividends and distributions, and then other Class C shares are
redeemed in the order of purchase.
REINVESTMENT PRIVILEGE. In addition, you may reinvest, in a Fund from
which you redeemed, the proceeds of a full or partial redemption of your Class A
Fund shares without payment of a sales charge upon such reinvestment in Class A
shares 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.
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.
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 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 defined 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
S-34
<PAGE>
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 the prior three fiscal years, the total brokerage commissions paid by
each Fund were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Government Income and
Securities Fund Equity Fund Balanced Fund Small Cap Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $7,572 $757 $5,093 $81,150
- --------------------------------------------------------------------------------
1997 $7,076 $2,157 $8,126 $68,467
- --------------------------------------------------------------------------------
1998 $5,656 $1,629 $13,207 $88,021
- --------------------------------------------------------------------------------
</TABLE>
Of these amounts, no amounts were paid to brokers that provided research and
brokerage services. No brokerage commissions were paid by the Growth Fund in
any of these years, because it had not commenced operations.
For the prior three fiscal years, the total brokerage commissions paid
by each Fund to the Distributor were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Government Income and
Securities Fund Equity Fund Balanced Fund Small Cap Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $0 $0 $584 $55,227
- --------------------------------------------------------------------------------
1997 $0 $314 $0 $43,400
- --------------------------------------------------------------------------------
1998 $0 $126 $937 $60,252
- --------------------------------------------------------------------------------
</TABLE>
Of these amounts, no amounts were paid to brokers that provided research
and brokerage services. For the fiscal year ending December 31, 1998,
brokerage commissions paid to the Distributor constituted 7.73% of all
brokerage commissions paid by the Income and Equity Fund, 7.09% of all
brokerage commissions paid by the Balanced Fund, and 68.45% of all
brokerage commissions paid by the Small Cap Fund. For the fiscal year ended
December 31, 1998, the dollar value of commissionable portfolio transactions
effected through the Distributor constituted 46.61% of all such transactions
effected by the Income and Equity Fund, 3.88% of all such transactions
effected by the Balanced Fund, and 72.66% of all such transactions effected by
the Small Cap Fund. The percentage of the Income and Equity Fund's total
brokerage commissions paid to Distributor in 1998 was much lower than the
relative dollar volume of the Fund's commissionable transactions effected by
the Distributor, primarily because the commission charged by the Distributor
on certain transactions was low in comparison to the dollar amount of those
transactions.
VALUATION OF FUND SHARES
Class A Fund shares are sold at their offering price, which is the net
asset value per share plus the applicable front-end sales charge. As described
elsewhere in this SAI, however, certain purchases of Class A shares are made at
net asset value. The public offering price of Class C shares is the next
determined net asset value per share.
The net asset value of per share of each Fund is usually 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.
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 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 an amortized cost basis. When a security is valued at amortized
cost, it is valued at its cost when purchased and thereafter by assuming a
constant amortization to maturity of any discount or premium.
SHORT-TERM DEBT INSTRUMENTS WITH A REMAINING MATURITY OF MORE THAN 60 DAYS,
BONDS, CONVERTIBLE BONDS, AND OTHER DEBT SECURITIES are generally valued at
prices obtained from a bond pricing service. Where such prices are
S-35
<PAGE>
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.
PERFORMANCE INFORMATION
From time to time a Fund may publish its average annual total return in
its advertising, marketing material and communications to shareholders. 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.
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.
Shown below are calculations of the Funds' average annual total
return calculated as of December 31, 1998. This information is calculated as
described above, in accordance with applicable
S-36
<PAGE>
SEC requirements. Investors should note that the investment results of a Fund
will fluctuate over time, and any presentation of a Fund's 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 total
return may be in any future period.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fund 1-Year 5-Years Since inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Government Securities 12.25% 8.13% 6.86%
- --------------------------------------------------------------------------------
Income and Equity 6.79% 6.27% 5.41%
- --------------------------------------------------------------------------------
Balanced 1.53% 7.57% 6.35%
- --------------------------------------------------------------------------------
Growth NA NA NA
- --------------------------------------------------------------------------------
Small Cap -21.46% 6.37% 9.83%
- --------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS
Ernst & Young LLP, whose address is 725 South Figueroa Street, Suite 200,
Los Angeles, California 90099, 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.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1998 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. Financial statements for the Growth Fund are not
provided, because it had not commenced operations.
The financial highlights for the period February 8, 1993 (commencement of
operations) through December 31, 1993 and for the fiscal years ended December
31, 1994, 1995, 1996, 1997, and 1998 that are included in the Prospectus and the
financial statements for the fiscal year ended December 31, 1998, that are
incorporated by reference into this Statement of Additional Information have
been audited by Ernst & Young LLP, whose report
S-37
<PAGE>
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.
SPECIMEN PRICE MAKE UP SHEET
The following table illustrates how we calculate the offering price of each
Fund, based on the Funds' assets and total shares outstanding as of December
31, 1998. The Growth Fund is not included, because it had not sold any shares
as of December 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------------------------------------------------
VALUE OF
REGISTRANT'S
PORTFOLIO NUMBER OF NET ASSET MAXIMUM
SECURITIES AND OUTSTANDING VALUE PER INITIAL SALES TOTAL OFFERING
FUND OTHER ASSETS SHARES SHARE CHARGE PRICE PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government $5,456,251 515,194 $10.59 $.53 $11.12
Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
Income and Equity $2,646,044 246,282 $10.74 $.54 $11.28
Fund
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Fund $6,419,364 506,045 $12.69 $.77 $13.46
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Fund $9,330,324 655,549 $14.23 $.87 $15.10
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
- ---------------------------------------------------------------------------------------------------------------------------
VALUE OF REGISTRANT'S
PORTFOLIO SECURITIES AND NUMBER OF TOTAL OFFERING PRICE
OTHER ASSETS OUTSTANDING SHARES PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government Securities Fund $794,724 75,655 $10.50
- ---------------------------------------------------------------------------------------------------------------------------
Income and Equity Fund $701,890 66,115 $10.62
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Fund $378,476 30,010 $12.61
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Fund $239,225 16,798 $14.24
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-38
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The ratings of certain debt instruments in which the Funds may invest are
described below.
MOODY'S INVESTORS SERVICE, INC. - BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered to be medium grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have speculative elements, and
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
STANDARD & POOR'S CORPORATION - BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances 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
S-39
<PAGE>
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-40
<PAGE>
PART C. OTHER INFORMATION
Item 23. 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.
# 1(d) Articles Supplementary to Articles of Incorporation
dated December 10, 1997.
1(e) Articles Supplementary to Articles of Incorporation
dated February 8, 1999.
** 2 Amended and Restated By-Laws.
3 See Exhibits 1 and 2.
** 4(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.
** 4(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.
C-1
<PAGE>
** 4(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.
** 4(d) 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.
**** 4(e) 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.
** 4(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.
++++ 4(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.
4(h) Investment Management Agreement by and between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund Inc., on
behalf of the Growth Fund, and Pacific Global
Investment Management Company.
** 5(a) Distribution Agreement between Pacific Global Fund,
Inc. d/b/a Pacific Advisors Fund Inc. and Pacific
Global Fund Distributors, Inc.
C-2
<PAGE>
# 5(b) Amendment to Distribution Agreement between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund Inc. and
Pacific Global Fund Distributors, Inc.
5(c) Amendment to Distribution Agreement between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund Inc. and
Pacific Global Fund Distributors, Inc.
6 Not applicable.
+ 7(a) Custody Agreement by and between Pacific Global Fund,
Inc. d/b/a Pacific Advisors Fund Inc. and UMB Bank,
N.A.
7(b) Amendment to Appendix B to Custody Agreement by and
between Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc. and UMB Bank, N.A.
*** 8(a)(1) 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.
# 8(a)(2) Amendment to 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.
+ 8(b) Accounting Services Agreement by and between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund, Inc. and
Pacific Global Investors Services, Inc.
C-3
<PAGE>
+++++ 8(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, Pacific
Global Investment Management Company, and Pacific
Global Investors Services, Inc.
+++++ 8(d) Expense Limitation 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, Hamilton & Bache, Inc.,
and Pacific Global Investors Services, Inc.
+++++ 8(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.
+++++ 8(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.
# 8(g) Amendment to 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.
8(h) Form Of Expense Limitation Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific Advisors Fund
Inc., on behalf of the Growth Fund, Pacific Global
Investment Management Company, and Pacific Global
Investors Services, Inc.
9 Opinion and Consent of Counsel regarding the legality
of the securities being
C-4
<PAGE>
registered.
10 Consent of Ernst & Young LLP, Independent Auditors.
11 Form of Subscription Agreement.
* 12 Stock Subscription Agreement by and between Pacific
Global Investment Management Company and Pacific Global
Fund, Inc. d/b/a Pacific Advisors Fund Inc.
** 13(a) Plan of Distribution Pursuant to Rule 12b-1 for Class A
Shares.
** 13(b) Agreement Pursuant to Plan of Distribution for Class A
Shares.
+++++ 13(c) Plan of Distribution Pursuant to Rule 12b-1 for Class C
Shares.
+++++ 13(d) Agreement Pursuant to Plan of Distribution for Class C
Shares.
13(e) Form Of Amendment to Agreement Pursuant to the Plan of
Distribution.
13(f) Form Of Amendment to Agreement Pursuant to the Plan of
Distribution for Class C Shares.
C-5
<PAGE>
14 Financial Data Schedule (Ex. 27 in this Filing on
EDGAR)
+++++ 15(a) Rule 18f-3 Multiple Class Plan.
15(b) Amended Schedule A to Rule 18f-3 Multiple Class Plan.
15(c) Amended Schedule B-1 to Rule 18f-3 Multiple Class Plan.
__________________________
* 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).
C-6
<PAGE>
+++ Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Form N-1A Registration Statement (File No. 33-50208).
++++ Incorporated herein by reference to Post-Effective Amendment No. 7 to
Registrant's Form N-1A Registration Statement (File No. 33-50208).
+++++ Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Form N-1A Registration Statement (File No. 33-50208).
# Incorporated herein by reference to Post-Effective Amendment No. 9 to
Registrant's Form N-1A Registration Statement (File No. 33-50208).
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE COMPANY
Pacific Global Fund Distributors, Inc. ("Pacific Distributors"), a
California corporation, is the Company's distributor and is a wholly-owned
subsidiary of Pacific Management. Pacific Global Investor Services, Inc., a
California corporation, is the Company's transfer agent and also is a
wholly-owned subsidiary of Pacific Management.
Item 25. INDEMNIFICATION
(a) GENERAL.
C-7
<PAGE>
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]
(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
C-8
<PAGE>
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, 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
C-9
<PAGE>
otherwise, both as to action in an official capacity and as to action
in another capacity while holding such office. [MGCL Section
2-418(g)]
(g) INSURANCE. The Company may purchase and maintain insurance on its
behalf and on behalf of any director, officer, employee, or agent of
the Company, or who is or was serving at the request of the Company as
a director, officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust, or
other enterprise against any liability asserted against him and
incurred by him in or arising out of his position, whether or not the
Company would have the power to indemnify him against such liability.
[By-Laws, Article 10, Section 10.03]
(h) PUBLIC POLICY PRESUMPTION UNDER THE SECURITIES ACT OF 1933 (THE "1933
ACT") AND UNDERTAKING PURSUANT TO RULE 484(b)(1) UNDER THE 1933 ACT.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers, and controlling persons of
the Company pursuant to the Company's By-Laws or otherwise, the
Company has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a
director, officer, or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, then the Company will, unless in the
opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question
of whether indemnification by it is against public policy as expressed
in the 1933 Act and will be governed by the final adjudication of such
issue. [1933 Act, Rule 484(b)]
Item 26. 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 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.
C-10
<PAGE>
<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
Director Planner
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
John Perry Willoughby Chairman, Registered Representative
Director Financial West Group
600 Hampshire Road
Thousand Oaks, CA
Thomas H. Hanson Owner, Chairman, President, and CEO
Executive Vice President, TriVest Capital Management, Inc.
Director P.O. Box 30
Santa Barbara, CA 93102
Paul H. Henning, Accountant & Treasurer
Treasurer Pacific Management
206 North Jackson Street, Suite 201
Glendale, CA 91206
Siegfred Kagawa, Chairman
Director Occidental Underwriters of Hawaii,
Ltd.
1163 South Beretania Street
Honolulu, HI 96814
Manabi Hirasaki, Owner
Director Manabi Farms, Inc.
C-11
<PAGE>
2292 East Hueneme Road
Oxnard, CA 93033
Spectrum Management Roland D. Kelly 450 Newport Center Drive, Suite 420
Chairman of the Board and Newport Beach, CA 92660
Director
Marc D. Kelly
President and Director
Ryan L. Kelly
Vice President
Marilyn M. Clyburn
Secretary
Hamilton & Bache, Inc. Mary Hamilton 206 North Jackson, Suite 201
Chairman Glendale, CA 91206
Stephen Bache
Chief Investment Officer
</TABLE>
Item 27. 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.
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER WITH THE COMPANY
------------------ --------------------- ----------------
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
__________________
* The principal business address of each person listed in the table is 206
North Jackson Avenue, Suite 201 Glendale, CA 91206.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
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<PAGE>
The following entities prepare, maintain, and preserve the records required
by Section 31(a) of the Investment Company Act of 1940 (the "1940 Act") for the
Company. These services are provided to the Company through written agreements
between the parties to the effect that such services will be provided to the
Company for such periods prescribed by the rules and regulations of the
Securities and Exchange Commission under the 1940 Act and such records are the
property of the entity required to maintain and preserve such records and will
be surrendered promptly on request.
UMB Bank, N.A. serves as custodian for the Company and in such capacity
keeps records regarding securities and other assets in custody and in transfer,
bank statements, cancelled checks, financial books and records, and other
records relating to its duties in its capacity as custodian and accounting
services agent. Pacific Global Investor Services, Inc. ("PGIS") serves as the
transfer agent, dividend disbursing agent, and administrative services agent for
the Company and in such capacity is responsible for records regarding each
shareholder's account and all disbursements made to shareholders. PGIS also
serves as accounting services agent for the Company pursuant to an Accounting
Services Agreement and maintains all records required pursuant to such
agreement. Pacific Management, pursuant to its Investment Management Agreements
with respect to each Fund, maintains all records required pursuant to such
agreements. Pacific Distributors, as principal underwriter for the Company,
maintains all records required pursuant to the Distribution Agreement with the
Company.
Item 29. 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 30. UNDERTAKINGS
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-13
<PAGE>
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. 10
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Glendale and State of California, on the 12th day of February, 1999.
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. 10 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 February 12, 1999
- ----------------------------
Victoria Breen
/s/ Thomas M. Brinker, Sr. Director February 12, 1999
- ----------------------------
Thomas M. Brinker, Sr.
/s/ Kathleen M. Fishkin Director February 12, 1999
- ----------------------------
Kathleen M. Fishkin
/s/ L. Michael Haller, III Director February 12, 1999
- ----------------------------
L. Michael Haller, III
/s/ Thomas H. Hanson Vice President and Secretary February 12, 1999
- ----------------------------
Thomas H. Hanson
C-14
<PAGE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ George A. Henning President and Chairman of February 12, 1999
- ---------------------------- the Board (Principal
George A. Henning Executive Officer)
/s/ Paul W. Henning Treasurer (Principal February 12, 1999
- ---------------------------- Financial and
Paul W. Henning Accounting Officer)
/s/ Siegfred Kagawa Director February 12, 1999
- ----------------------------
Siegfred Kagawa
/s/ Takashi Makinodan Director February 12, 1999
- ----------------------------
Takashi Makinodan
/s/ Gerald E. Miller Director February 12, 1999
- ----------------------------
Gerald E. Miller
/s/ Louise K. Taylor Director February 12, 1999
- ----------------------------
Louise K. Taylor
</TABLE>
C-15
<PAGE>
EXHIBITS
1(e) Articles Supplementary to Articles of Incorporation dated
February 8, 1999.
4(h) Investment Management Agreement by and between Pacific Global Fund,
Inc. d/b/a Pacific Advisors Fund Inc., on behalf of the Growth Fund,
and Pacific Global Investment Management Company.
5(c) Form of Amendment to Distribution Agreement between Pacific Global
Fund, Inc. d/b/a Pacific Advisors Fund Inc. and Pacific Global Fund
Distributors, Inc.
7(b) Amendment to Appendix B to Custody Agreement by and between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund Inc. and UMB Bank, N.A.
8(h) Form Of Expense Limitation Agreement by and between Pacific Global
Fund, Inc. d/b/a Pacific Advisors Fund Inc., on behalf of the Growth
Fund, Pacific Global Investment Management Company, and Pacific Global
Investors Services, Inc.
9 Opinion and Consent of Counsel regarding the legality of the
securities being registered.
10 Consent of Ernst & Young LLP, Independent Auditors.
11 Form of Subscription Agreement.
13(e) Form Of Amendment to Agreement Pursuant to the Plan of Distribution.
13(f) Form Of Amendment to Agreement Pursuant to the Plan of Distribution
for Class C Shares.
15(b) Amended Schedule A to Rule 18f-3 Multiple Class Plan.
15(c) Amended Schedule B-1 to Rule 18f-3 Multiple Class Plan.
27 Financial Data Schedule.
C-16
<PAGE>
EXHIBIT 1(e)
ARTICLES SUPPLEMENTARY
TO THE
ARTICLES OF INCORPORATION
PACIFIC GLOBAL FUND, INC.
Pacific Global Fund, Inc., a Maryland corporation doing business as Pacific
Advisors Fund Inc. (the "Corporation"), having its principal office in Baltimore
City, Maryland, hereby certifies that:
FIRST: The Corporation's Board of Directors in accordance with Section
2-105(a) of the Maryland General Corporation Law and Article Fifth of the
Articles of Incorporation, has adopted a resolution adding a new series of
shares as the Growth Fund. Such series of shares has the same voting powers,
preferences, other rights, qualifications, restrictions, limitations and terms
and conditions of redemption, as currently set forth in Article Fifth of the
Articles of Incorporation.
SECOND: The Corporation's Board of Directors in accordance with Section
2-105(a) of the Maryland General Corporation Law, Article Fifth of the Articles
of Incorporation and Section 3.09(b) of the Amended and Restated By-Laws of the
Corporation, has adopted a resolution to abolish and cease the offering of the
Money Market Fund series of the Corporation and the establishment and
designation thereof.
THIRD: The Corporation's Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law and Article Fifth of the
Articles of Incorporation has adopted a resolution classifying and redesignating
Five Hundred Million (500,000,000) shares of the Corporation's One Billion
(1,000,000,000) Shares of Common Stock, par value one cent ($.01) per share,
having an aggregate par value of Ten Million Dollars ($10,000,000), as set forth
below.
Immediately before the classification and redesignation, Five Hundred
Million (500,000,000) shares of the Corporation's One Billion (1,000,000,000)
shares of Common Stock, par value one cent ($.01) per share, having an aggregate
par value of Ten Million Dollars ($10,000,000) were designated and classified as
follows:
PRIOR DESIGNATION PRIOR NUMBER OF SHARES
- ----------------- ----------------------
Government Securities Fund Class A Shares 50,000,000
Income and Equity Fund Class A Shares 50,000,000
Balanced Fund Class A Shares 50,000,000
Small Cap Fund Class A Shares 50,000,000
Money Market Fund Class A Shares 50,000,000
Government Securities Fund Class C Shares 50,000,000
Income and Equity Fund Class C Shares 50,000,000
Balanced Fund Class C Shares 50,000,000
Small Cap Fund Class C Shares 50,000,000
Money Market Fund Class C Shares 50,000,000
<PAGE>
As a result of the classification and redesignation, the Five Hundred
Million (500,000,000) shares of the Corporation's One Billion (1,000,000,000)
shares of Common Stock are now classified and designated as follows:
NEW DESIGNATION NEW NUMBER OF SHARES
- --------------- --------------------
Government Securities Fund Class A Shares 50,000,000
Income and Equity Fund Class A Shares 50,000,000
Balanced Fund Class A Shares 50,000,000
Small Cap Fund Class A Shares 50,000,000
Growth Fund Class A Shares 50,000,000
Government Securities Fund Class C Shares 50,000,000
Income and Equity Fund Class C Shares 50,000,000
Balanced Fund Class C Shares 50,000,000
Small Cap Fund Class C Shares 50,000,000
Growth Fund Class C Shares 50,000,000
FOURTH: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, Pacific Advisors Fund Inc. has caused these Articles
Supplementary to be executed by its President and witnessed by its Secretary on
this 8th day of February, 1999.
PACIFIC ADVISORS FUND INC.
Witness: /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
2
<PAGE>
The undersigned, President of Pacific Advisors Fund Inc., who executed on
behalf of said Corporation the foregoing Articles Supplementary to the Articles
of Incorporation of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the foregoing Articles
Supplementary to the Articles of Incorporation 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
----------------------------------
Date: February 8, 1999 George A. Henning
Chairman of the Board of Directors
3
<PAGE>
EXHIBIT 4(h)
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT made as of the ____ day of _____________,
199_ by and between Pacific Global Fund, Inc., a Maryland corporation doing
business as Pacific Advisors Fund Inc. (the "Corporation"), on behalf of the
Growth Fund (the "Fund"), and Pacific Global Investment Management Company, a
California corporation (the "Investment Manager").
W I T N E S S E T H:
WHEREAS, the Corporation intends to engage in business as an open-end
management investment company and register as such under the Investment Company
Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund is a separately designated series of shares of Common
Stock of the Corporation; and
WHEREAS, the Investment Manager is engaged principally in the business of
rendering investment management and investment advisory services and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended; and
WHEREAS, the Corporation desires to retain the Investment Manager to render
investment supervisory and administrative services to the Fund in the manner and
on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES OF THE INVESTMENT MANAGER.
1.1 INVESTMENT SUPERVISORY SERVICES. The Investment Manager shall, subject
to the supervision of the Board of Directors of the Corporation, act as
investment manager of the Corporation with respect to the Fund and, as such,
shall:
1.1.1 INVESTMENT OF FUND'S ASSETS. Supervise and direct the
investment of the Fund's assets in accordance with applicable law, and the
investment objectives, investment program, policies, and restrictions set
forth in the then-current prospectus ("Prospectus") and the then-current
Statement of Additional Information ("SAI") relating to the Fund contained
in the Corporation's Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended ("1933 Act"), and subject to such
further limitations as the Board of Directors of the Corporation may, from
time to time, impose by written notice to the Investment Manager.
1
<PAGE>
1.1.2 INVESTMENT PROGRAM. Formulate and implement a continuing
program for the management of the Fund's assets and resources.
In furtherance of these duties and responsibilities, the Investment
Manager is authorized, in its discretion and without prior consultation
with the Corporation to: (i) buy, sell, exchange, convert, lend, and
otherwise trade in any stocks, bonds, and other securities or assets for
the Fund; and (ii) place orders and negotiate the commissions (if any) for
the execution of transactions in securities with or through such brokers,
dealers, underwriters, or issuers as the Investment Manager may select for
the Fund.
1.2 RELATED SERVICES. The Investment Manager shall supervise the Transfer
Agent's performance of the administration of all aspects of the Corporation's
business and affairs with respect to the Fund as performed by the transfer agent
pursuant to an Administrative Services Agreement.
1.2.1 AGENTS. Assist the Corporation and transfer agent in
selecting, coordinating the activities of, supervising, and acting as
liaison with any other persons and agents engaged by the Corporation,
including the Corporation's custodian, accounting services agent, transfer
agent, dividend disbursing agent, shareholder servicing agent, independent
auditors, and independent legal counsel.
1.2.2 DIRECTORS AND OFFICERS. Authorize and permit the Investment
Manager's directors, officers and employees who may be elected or appointed
as directors or officers of the Corporation to serve in such capacities,
without remuneration from or additional cost to the Corporation.
1.2.3 REPORTS TO THE CORPORATION. Furnish to or place at the
disposal of the Corporation such information, reports, evaluations,
analyses, and opinions relating to its functions as the Corporation may, at
any time or from time to time, reasonably request or as the Investment
Manager may deem helpful to the Corporation.
2. ALLOCATION OF EXPENSES.
2.1 EXPENSES PAID BY THE INVESTMENT MANAGER.
2.1.1 SALARIES AND FEES OF DIRECTORS AND OFFICERS. As between the
Corporation, with respect to the Fund, and the Investment Manager, the
Investment Manager shall pay all salaries, expenses, and fees, if any, of
the directors, officers, and employees of the Investment Manager who are
directors, or employees of the Corporation.
2.1.2 WAIVER OR ASSUMPTION AND REIMBURSEMENT OF CORPORATION
EXPENSES BY THE INVESTMENT MANAGER. The waiver or assumption and
reimbursement by the Investment Manager of any expense of the Corporation
that the Investment Manager is not required by
2
<PAGE>
this Agreement to waive, or assume and reimburse, shall not obligate the
Investment Manager to waive, or assume or reimburse, the same or any
similar expense of the Corporation on any subsequent occasion, unless so
required pursuant to a separate agreement between the Corporation and the
Investment Manager.
2.2 EXPENSES PAID BY THE CORPORATION. The Corporation, with respect to
the Fund, shall bear all expenses of its organization, operations, and business
not specifically waived, assumed, or agreed to be paid by the Investment Manager
as provided in this Agreement or any other agreement between the Corporation and
the Investment Manager. In particular, the expenses that the Corporation, with
respect to the Fund, shall bear include, but are not limited to:
2.2.1 CUSTODY AND ACCOUNTING SERVICES. All fees and expenses of
depositories, custodians, accounting service agents, and other agents for
the transfer, receipt, safekeeping, servicing of, and accounting for the
Fund's cash, securities, and other property, including, among other things,
fees and expenses for the calculation of standardized effective and
compound yield quotations for the Fund, maintenance of ledgers, position
and income reports, and settlement of Fund purchases and sales.
2.2.2 DISTRIBUTION EXPENSES. Distribution expenses of the Fund
paid pursuant to any plan of distribution adopted in accordance with the
provision of Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan").
2.2.3 TRANSFER AGENCY, SHAREHOLDER SERVICING, AND DIVIDED
DISBURSEMENT. All costs of establishing, maintaining, and servicing
accounts of shareholders of the Fund, including the Fund's proportionate
share of all fees and expenses of the Corporation's transfer agent,
administrative services agent, shareholder services agent, dividend
disbursing agent, and any other agents engaged by the Corporation to
service such Fund accounts. In addition, the Corporation shall reimburse
the Investment Manager and charge to the Fund the Fund's proportionate
share of all expenses incurred by the Investment Manager in responding to
telephonic and written inquiries from, and in mailing information to Fund
shareholders and others requesting information on behalf of Fund
shareholders, regarding matters such as shareholder account or transaction
status, net asset value of Fund shares, Fund performance and general
information about the Fund.
2.2.4 SHAREHOLDER REPORTS AND OTHER COMMUNICATIONS. All costs of
preparing, setting in type, printing, and distributing reports and other
communications to shareholders of the Fund.
2.2.5 PROSPECTUSES. All cost of preparing, setting in type,
printing, and mailing to shareholders of the Fund annual or more frequent
revisions of the Corporation's Prospectus and SAI and any supplements
thereto.
3
<PAGE>
2.2.6 SHAREHOLDER MEETINGS. All costs incidental to holding
meetings of shareholders of the Fund, including the printing of notices and
proxy materials, and proxy solicitations therefor.
2.2.7 PRICING AND PORTFOLIO VALUATION. All costs of daily
valuation of the individual portfolio securities of the Fund and daily
computation of the net asset value per share of the Fund, including a
proportionate share of the cost of any equipment obtained by the
Corporation, the Investment Manager, or agents of the Corporation, or
proportionate share of the cost of any equipment currently owned by the
Investment Manager, that will be used to price the Fund's shares or value
the Fund's assets or the cost of the services of any agents engaged by the
Corporation for the purpose of pricing Fund shares or valuing the assets of
the Fund.
2.2.8 COMMUNICATIONS. All charges for equipment or services used
for communications with respect to the Fund between the Investment Manager
or the Corporation and the custodian, accounting services agent, transfer
agent, shareholder servicing agent, dividend disbursing agent, or any other
agent engaged by the Corporation to provide services to the Fund.
2.2.9 INDEPENDENT LEGAL AND ACCOUNTING FEES. The Fund's
proportionate share of all charges for services and expenses of the
Corporation's independent legal counsel and independent auditors.
2.2.10 DIRECTORS' FEES AND EXPENSES. The Fund's proportionate
share of all compensation of Directors (other than those directors
affiliated with the Investment Manager), all expenses incurred in
connection with their services as directors, and all expenses of meetings
of the Board of Directors of the Corporation and committees of the Board of
Directors.
2.2.11 FEDERAL REGISTRATION FEES. The Fund's proportionate share
of all fees and expenses of maintaining the registration of the Corporation
under the 1940 Act and maintaining the registration of the Fund's shares or
registering additional shares of the Fund under the 1933 Act, including all
fees and expenses incurred in connection with the preparation, setting in
type, printing, and filing of any post-effective amendments or supplements
to the Registration Statement, Prospectus, and SAI for the Corporation
under the 1933 Act or the 1940 Act that may be prepared from time to time.
2.2.12 STATE REGISTRATION FEES. The Fund's proportionate share of
all fees and expenses of (i) maintaining the registration and qualification
of the Corporation or the Fund, as appropriate, and of the Fund's shares
for sale under the securities laws of various states and jurisdictions,
(ii) of registering and qualifying additional shares of the Fund, and (iii)
of maintaining the registration and qualification of the Corporation or the
Fund, as appropriate,
4
<PAGE>
under all other laws applicable to the Corporation or the Fund, as
appropriate, or its business activities.
2.2.13 ISSUE, REDEMPTION, AND TRANSFER OF THE FUND'S SHARES. All
expenses incurred in connections with the issue, redemption, and transfer
of the Fund's shares, including the expenses of confirming all share
transactions and of transmitting any share certificates for the Fund.
2.2.14 BONDING AND INSURANCE. All expenses of bond, liability, and
other insurance coverage required by law or regulation or deemed advisable
by the Board of Directors of the Corporation, including, without
limitation, such bond, liability, and other insurance expense that may from
time to time be allocated to the Fund in a manner approved by the Board of
Directors of the Corporation.
2.2.15 BROKERAGE COMMISSIONS. All brokers' commissions, if any,
and other charges incident to the purchase, sale, or lending of the Fund's
portfolio securities.
2.2.16 TAXES. The Fund's proportionate share of all taxes or
governmental fees payable to federal, state, or other governmental
agencies, domestic or foreign, including issue, stamp, or transfer taxes.
2.2.17 TRADE ASSOCIATION FEES. The Fund's proportionate share of
all fees, dues, costs of attendance at meeting and conferences, and other
expenses incurred in connection with the Corporation's membership in any
trade association or other investment organization.
2.2.18 PERFORMANCE INFORMATION. Industry performance reporting
services fees reasonably necessary for Board of Directors of the
Corporation to keep current regarding industry and regulatory requirements.
2.2.19 NONRECURRING AND EXTRAORDINARY EXPENSES. The Fund's
proportionate share of such nonrecurring and extraordinary expenses as may
arise, including the costs of actions, suits, or proceedings to which the
Corporation is a party and the expenses the Corporation may incur as a
result of its legal obligation to provide indemnification to its directors,
officers, and employees, and agents.
2.2.20 ORGANIZATIONAL EXPENSES. The Fund shall pay or assume all
its organizational expenses, subject to such expense limitation or
reimbursement arrangements as may be separately agreed to by the Investment
Manager and specified in the Registration Statement pursuant to which the
Fund makes the initial public offering of its shares.
5
<PAGE>
3. MANAGEMENT FEES.
3.1 COMPENSATION. The Corporation, with respect to the Fund, shall pay
the Investment Manager, as compensation for all services rendered, facilities
provided, and expenses waived or assumed and reimbursed by the Investment
Manager, investment management fees at the annual rate of .75% of the first $200
million of average daily net assets of the Fund; .70% of average daily net
assets of the Fund up to the next $200 million; .65% of average daily net assets
of the Fund up to the next $200 million; .60% of average daily net assets of the
Fund up to the next $200 million; .55% of average daily net assets of the Fund
up to the next $200 million; and .50% of average daily net assets of the Fund in
excess of $1 billion.
3.2 METHOD OF COMPUTATION. The investment management fee shall accrue on
each calendar day and the sum of the daily fee accruals for the Fund shall be
paid monthly to the Investment Manager on the first business day of the next
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 rates for the Fund, described in subparagraph 3.1. above, and multiplying
the product by the net assets of the Fund as determined in accordance with the
current Prospectus of the Corporation as of the close of business on the last
preceding business day on which the Corporation was open for business.
3.3 PRORATION OF FEE. If this Agreement becomes effective or terminates
before the end of any month, the fee for the period from the effective date to
the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
4. BROKERAGE.
Subject to seeking best execution, and subject to any policies or
procedures as then approved by the Board of Directors of the Corporation, the
Investment Manager, in carrying out its duties under Paragraph 1.1, may cause
the Corporation, on behalf of the Fund, to pay a broker-dealer that furnishes
brokerage or research services (as such services are defined under Section 28(e)
of the Securities Exchange Act of 1934, as amended (the "1934 Act")) a higher
commission than that which might be charged by another broker-dealer that does
not furnish brokerage or research services or that furnishes brokerage or
research services deemed to be of lesser value, if the Investment Manager
determines in good faith that the amount of such commission is reasonable in
relation to the value of the brokerage and research services provided by the
broker-dealer viewed in terms of either that particular transaction or the
overall responsibilities of the Investment Manager with respect to the other
accounts, if any, as to which it exercises investment discretion (as such term
is defined under Section 3(a)(35) of the 1934 Act).
6
<PAGE>
5. INVESTMENT MANAGER'S USE OF THE SERVICES OF OTHERS.
The Investment Manager may at its own cost (except as contemplated by
Paragraph 4 of this Agreement) employ, retain, or otherwise avail itself of the
services or facilities of other persons or organizations for the purpose of
providing the Investment Manager, the Corporation, or the Fund with (i) such
statistical and other factual information; (ii) such advice regarding economic
factors and trends; (iii) such advice as to occasional transactions in specific
securities; (iv) or such other information, advice, or assistance as the
Investment Manager may deem necessary, appropriate, or convenient for the
discharge of its obligations hereunder or otherwise helpful to the Investment
Manager, the Corporation, or the Fund, or in the discharge of the Investment
Manager's overall responsibilities with respect to the other accounts which it
serves as an investment manager.
6. OWNERSHIP OF RECORDS.
All records required to be maintained and preserved by the Corporation,
with respect to the Fund, pursuant to the provisions of rules and regulations of
the Securities and Exchange Commission under Section 31(a) of the 1940 Act and
maintained and preserved by the Investment Manager on behalf of the Corporation,
with respect to the Fund, are the property of the Corporation and shall be
surrendered by the Investment Manager promptly on request by the Corporation.
7. REPORTS TO THE INVESTMENT MANAGER.
The Corporation shall furnish or otherwise make available to the Investment
Manager such Prospectuses, Statements of Additional Information, financial
statements, proxy statements, reports, and other information relating to the
business and affairs of the Corporation, with respect to the Fund, as the
Investment Manager may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
8. REPORTS TO THE CORPORATION.
The Investment Manager shall furnish to or place at the disposal of the
Corporation such information, reports, evaluations, analyses, and opinions as
the Corporation may, at any time or from time to time, reasonably request with
respect to the Fund or as the Investment Manager may deem helpful to the Fund.
9. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Investment Manager
or any affiliated person of the Investment Manager to render investment
supervisory and corporate administrative services to other investment companies
(including but not limited to one or more series of the Corporation), to act as
investment adviser or investment counselor to other persons, firms, or
corporations, or to engage in other business activities; however, so long as
this Agreement or any
7
<PAGE>
extension, renewal, or amendment hereof shall remain in effect or until the
Investment Manager shall otherwise consent, the Investment Manager shall be the
only investment manager to the Corporation.
10. LIMITATION OF LIABILITY OF THE INVESTMENT MANAGER.
Neither the Investment Manager nor any of its directors, officers, or
employees performing services for the Corporation, with respect to the Fund, at
the direction or request of the Investment Manager in connection with the
Investment Manager's discharge of its obligations undertaken or reasonably
assumed with respect to this Agreement, shall be liable for any error of
judgment or mistake of law or for any loss suffered by the Corporation, with
respect to the Fund, in connection with the matters to which this Agreement
relates; PROVIDED, that nothing herein contained shall be construed to protect
the Investment Manager or any such persons against any liability to the
Corporation or its shareholders to which the Investment Manager or such persons
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its or their duties on behalf of the
Corporation or for failure by the Investment Manager or any such persons to
exercise due care in rendering other services to the Corporation.
11. RETENTION OF SUB-ADVISER.
Subject to the Fund's obtaining the initial and periodic approvals required
under Section 15 of the 1940 Act, the Investment Manager may retain a
Sub-Adviser to perform investment advisory and other services to the Fund. The
retention of a Sub-Adviser shall be at the risk, cost, and expense of the
Investment Manager. The retention of a Sub-Adviser shall in no way reduce the
responsibilities or obligations of the Investment Manager under this Agreement
and the Investment Manager shall be responsible to the Corporation for all acts
or omissions of the Sub-Adviser in connection with the performance of the
Investment Manager's duties hereunder. The Investment Manager shall pay and
shall be solely responsible for the payment of the fees of the Sub-Adviser for
the performance of its services for the Fund.
12. TERM OF AGREEMENT.
The term of this Agreement shall begin on the day and year first above
written, and unless sooner terminated as hereinafter provided, shall continue in
effect through _____________, ____________. Thereafter, this Agreement shall
continue in effect from year to year, subject to the termination provisions and
all other terms and conditions hereof; PROVIDED, that such continuance is
specifically approved at least annually by the Board of Directors of the
Corporation or by vote of a majority of the outstanding voting securities of the
Fund in accordance with the requirements of the 1940 Act; and PROVIDED FURTHER,
that in either event such continuance also is approved annually by vote, cast in
person at a meeting called for the purpose of voting on such approval of a
majority of the Board of Directors of the Corporation who are not parties to
this Agreement or "interested persons" (as defined in the 1940 Act and rules
thereunder) of any such party (hereinafter "non-interested Directors"). In any
event, continuance of this Agreement is subject to the approval of this
Agreement by a majority of the outstanding voting securities of the Fund, as a
"series" of the
8
<PAGE>
Corporation (as that term is defined in the 1940 Act and rules thereunder),
within sixteen months after the initial effectiveness of the Corporation's
Registration Statement under the 1933 Act pursuant to which the Corporation
makes the initial public offering of its shares.
Any approval of this Agreement by the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act and rules thereunder)
of the Fund shall be effective to continue this Agreement, notwithstanding (i)
that a comparable agreement has not been approved by the holders of a majority
of the outstanding shares of any other series of the Corporation and (ii) that
this Agreement has not been approved by the vote of a majority of the
outstanding shares of the Corporation, unless such approval shall be required by
any other applicable law or otherwise. The Investment Manager shall furnish to
the Corporation, promptly upon its request, such information as may be
reasonably necessary to evaluate the terms of this Agreement or any extension,
renewal or amendment thereof.
13. AMENDMENT AND ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; PROVIDED, that no such material amendment shall be effective
unless authorized on behalf of the Corporation (i) by resolution of the Board of
Directors of the Corporation, including a majority of the non-interested
Directors and (ii) if required by law, by vote of a majority of the outstanding
voting securities of the Fund. This Agreement shall automatically and
immediately terminate in the event of its assignment.
14. TERMINATION OF AGREEMENT.
This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon 60 days' prior written notice to the other party;
PROVIDED, that in the case of termination by the Corporation such action shall
have been authorized (i) by resolution of the Board of Directors of the
Corporation, including a majority of the non-interested Directors, or (ii) by
vote of a majority of the outstanding voting securities of the Fund; PROVIDED
FURTHER, that in the case of termination by the Investment Manager, such
termination shall not be effective until the Corporation shall have contracted
with one or more persons to serve as successor investment manager for the Fund
and such person(s) shall have assumed such position.
15. MISCELLANEOUS.
15.1 NOTICES. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, (a) if to the Investment Manager,
to Pacific Global Investment Management Company, 206 North Jackson Street,
Glendale, CA 91206, and (b) if to the Corporation, at the foregoing office of
the Investment Manager.
9
<PAGE>
15.2 CAPTIONS. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
15.3 INTERPRETATION. Nothing herein contained shall be deemed to require
the Corporation to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the
Corporation.
15.4 DEFINITIONS. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the Securities and Exchange Commission
validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested person,"
"assignment," and "affiliated person," shall have the meanings assigned to them
by Section 2(a) of the 1940 Act. In addition, where the effect of a requirement
of the 1940 Act reflected in any provision of this Agreement is relaxed by a
rule, regulation, or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to incorporate
the effect of such rule, regulation, or order.
15.5 GOVERNING LAW. Except insofar as the 1940 Act or other federal laws
and regulations may be controlling, this Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of Maryland.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PACIFIC GLOBAL FUND, INC.
d/b/a PACIFIC ADVISORS FUND INC.
ON BEHALF OF THE GROWTH FUND
By:
- --------------------------------- ---------------------------------
ATTEST: PACIFIC GLOBAL INVESTMENT
MANAGEMENT COMPANY
By:
- --------------------------------- ---------------------------------
40603
11
<PAGE>
EXHIBIT 5(c)
FORM OF
AMENDMENT TO DISTRIBUTION AGREEMENT
AMENDMENT TO DISTRIBUTION AGREEMENT dated as of this __ day of
____________, 199_, by and between Pacific Global Fund, Inc., a Maryland
Corporation doing business as Pacific Advisors Fund Inc. (the "Corporation"),
and Pacific Global Fund Distributors, Inc., a California Corporation (the
"Distributor").
WITNESSETH:
WHEREAS, the Corporation and the Distributor have entered into a
Distribution Agreement dated as of October 16, 1992, as amended (the
"Distribution Agreement"), under which the Corporation has engaged the services
of the Distributor as distributor of the Shares of the Funds; and
WHEREAS, the Corporation has added a new series of shares, the Growth Fund,
which comprises Class A and Class C Shares; and
WHEREAS, the Corporation wishes to continue to engage the services of the
Distributor as principal underwriter and distributor of the Classes of Shares of
the Funds that now exist and that hereafter may be established, which are listed
on Exhibit A to this Agreement as may be amended from time to time, and the
Distributor is willing to continue to serve in that capacity;
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein and in the Distribution Agreement, the parties hereto, intended to
be legally bound, hereby agree to amend the Distribution Agreement as follows:
1. The Distribution Agreement is hereby amended to include Exhibit A
hereto, as may be amended from time to time.
2. This Amendment shall not change any other term or provision of the
Distribution Agreement and such other terms and provisions shall remain in full
force and effect.
3. Except as otherwise stated herein, capitalized terms used herein shall
have the meaning set forth in the Distribution Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be herewith affirmed, as of the day and year first above
written.
ATTEST: PACIFIC GLOBAL FUND INC.
d/b/a PACIFIC ADVISORS FUND INC.
- ---------------------- ---------------------------------
ATTEST: PACIFIC GLOBAL FUND INC. DISTRIBUTORS, INC.
- ---------------------- ---------------------------------
40607
<PAGE>
EXHIBIT A
Balanced Fund
Government Securities Fund
Growth Fund
Income and Equity Fund
Small Cap Fund
<PAGE>
EXHIBIT 7(b)
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies or series therof
("Funds") are hereby made parties to the Custody Agreement dated October 11,
1995 with UMB Bank, n.a. ("Custodian") and Pacific Advisors Fund Inc., and agree
to be bound by all the terms and conditions contained in said Agreement:
Pacific Advisors Fund Inc. - - Government Securities Fund
Income and Equity Fund
Balanced Fund
Small Cap Fund
Growth Fund
ATTEST: PACIFIC ADVISORS FUND INC.
By:
- -------------------------------- --------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
ATTEST : UMB BANK, N.A.
By:
- -------------------------------- --------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
<PAGE>
EXHIBIT 8(h)
FORM OF
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, made as of the ___ day of ___________, 199_,
by and between Pacific Global Fund, Inc., a Maryland corporation doing business
as Pacific Advisors Fund Inc. (the "Corporation"), on behalf of the Growth Fund
(the "Fund"), Pacific Global Investment Management Company, a California
corporation (the "Investment Manager"), and Pacific Global Investors Services,
Inc., a California corporation (the "Transfer Agent").
W I T N E S S E T H:
WHEREAS, the Corporation, on behalf of the Fund, and the Investment Manager
have entered into an Investment Management Agreement, dated ___________________,
199_ (the "Management Agreement"), pursuant to which the Investment Manager will
render investment management and advisory services to the Fund for compensation
based on the value of the average daily net assets of the Fund; and
WHEREAS, the Corporation, on behalf of the Fund, and the Transfer Agent
have entered into a Transfer Agency, Dividend Disbursing Agency, and
Administrative Services Agreement, dated as of December 22, 1992 (the "Transfer
Agency Agreement"), pursuant to which the Transfer Agent will provide among
other things transfer agency services to the Fund and receive transfer agency
fees ("Transfer Agency Fees") in accordance with the Transfer Agency Fee
Schedule in Schedule A to the Transfer Agency Agreement; and
WHEREAS, the Corporation, the Investment Manager, and the Transfer Agent
have determined that it is appropriate and in the best interests of the Fund and
its shareholders to maintain Fund expenses at a level below the level to which
the Fund would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1 EXPENSE LIMITATION
1.1 APPLICABLE EXPENSE LIMIT. For each Class of the Fund, to the extent
that the Class Operating Expenses in any fiscal year exceed the applicable Class
Operating Expense Limit, such excess amount (the "Class Excess Amount") shall be
the liability of the Investment Manager, except as to certain Transfer Agency
Fees with respect to Class C, which shall be the liability of the Transfer Agent
as provided in Section 1.3.1 below. As used herein, "Class Operating Expenses"
of a Class shall mean that the aggregate expenses of every character incurred by
the Fund in any fiscal year, including but not limited to the Fund's
organizational expenses and investment advisory fees
1
<PAGE>
of the Investment Manager (but excluding interest, taxes, brokerage commissions,
and other expenditures which are capitalized in accordance with generally
accepted accounting principles, other extraordinary expenses not incurred in the
ordinary course of the Fund's business, and repayments pursuant to Section 2
hereof) attributable to such Class in accordance with the Corporation's
Multi-Class Plan pursuant to Rule 18f-3 under the 1940 Act, as such Plan is in
effect from time to time (the "Multi-Class Plan").
1.2 CLASS OPERATING EXPENSE LIMIT. The Class Operating Expense Limit for
the Fund's Class A Shares shall equal 2.50% of the average daily net assets of
the Fund attributable to Class A Shares. The Class Operating Expense Limit for
the Fund's Class C Shares shall equal 3.25% of the average daily net assets of
the Fund attributable to Class C Shares.
1.3 METHOD OF COMPUTATION.
1.3.1 FEE WAIVER. Fee Waivers will be determined separately for
each Class as follows. For each Class, as of the first day of each fiscal
quarter, the annual Class Operating Expenses for the Fund's current fiscal
year shall be estimated by adding (a) the Class Operating Expenses actually
incurred as of the first day of such quarter to (b) an estimate of the
Class Operating Expenses for the remainder of such fiscal year. If such
estimate exceeds the applicable Class Operating Expense Limit, the
Investment Manager shall waive or reduce its investment management fee for
each month of such quarter with respect to such Class by an amount
sufficient to reduce the estimated Class Operating Expenses for such
quarter to an amount no higher than the applicable Class Operating Expense
Limit. If a waiver of all of the investment management fees with respect
to Class A for such quarter will not reduce the estimated Class A Operating
Expenses below the Class A Operating Expense Limit, the Investment Manager
will reimburse the Fund, for the benefit of Class A, for the difference in
accordance with Section 1.3.2 herein. If a waiver of all of the investment
management fees with respect to Class C for such quarter will not reduce
the estimated Class C Operating Expenses below the Class C Operating
Expense Limit, then (a) the Transfer Agent shall waive or reduce its
Transfer Agency Fees for each month of such quarter with respect to Class C
by an amount sufficient to reduce the estimated Class C Operating Expenses
for such quarter to an amount no higher than the Class C Operating Expense
Limit, and if the waiver of all of the Transfer Agency Fees with respect to
Class C for such quarter will not reduce the estimated Class C Operating
Expenses below the Class C Operating Expense Limit, the Investment Manager
will reimburse the Fund, for the benefit of Class C, for the difference in
accordance with Section 1.3.2 herein.
1.3.2 EXPENSE REIMBURSEMENT. Expense reimbursement payments will
be determined separately for each Class as follows. For each Class, as of
the last day of each fiscal quarter, the Investment Manager shall determine
the actual year-to-date Class Operating Expenses and the actual
year-to-date average daily net assets of the Fund attributable to such
Class. If at that time the actual year-to-date Class Operating Expenses
(net of any fee waiver or reduction) exceed the year-to-date portion of the
applicable Class
2
<PAGE>
Operating Expense Limit, the Investment Manager shall pay to the Fund, for
the account of such Class, an amount sufficient to reduce the year-to-date
Class Operating Expenses (net of any fee waiver or reduction) to the
year-to-date portion of the applicable Class Operating Expense Limit. If
at that time the actual year-to-date Class Operating Expenses (net of any
fee waiver or reduction) are less than the year-to-date portion of the
applicable Class Operating Expense Limit, the Fund, on behalf of such
Class, shall repay to the Investment Manager and/or to the Transfer Agent
previously paid expense reimbursement amounts and/or fee waivers in an
amount such that the year-to-date Class Operating Expenses (net of any
remaining amount attributable to fee waiver or reduction) shall be no
greater than the year-to-date portion of the applicable Class Operating
Expense Limit, provided that the total of such repayments by the Fund shall
not exceed the total fee waivers and expense reimbursement previously made
by the Investment Manager and the Transfer Agent respectively with respect
to such Class for such fiscal year. Any such repayment amount with respect
to Class C shall be allocated first to the Investment Manager up to the
amount of its expense reimbursement payments (if any) in excess of its
investment management fee, second to the Transfer Agent up to the amount of
its waiver (if any) of Transfer Agency Fees, and third to the Investment
Manager up to the amount of its waiver of investment management fees (if
any). Each payment hereunder shall be due no later than 30 days after the
end of the relevant fiscal quarter.
1.4 YEAR-END ADJUSTMENT. Each year, if necessary, within 30 days after
the completion of the audit of the Company's financial statements for such
fiscal year, an adjustment payment shall be made by the appropriate party in
order that the amount of the investment management fees and Transfer Agency Fees
waived or reduced and other payments remitted by the Investment Manager to the
Fund with respect to each Class for such fiscal year shall equal the applicable
Class Excess Amount.
1.5 TERMINATION OF FEE WAIVER AND EXPENSE REIMBURSEMENTS. At any time
upon 30 days notice to the Fund, the Investment Manager and/or the Transfer
Agent may terminate their respective obligations to make fee waivers and/or pay
expense reimbursement payments pursuant to Section 1 hereof.
2 TERM AND TERMINATION OF AGREEMENT.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Corporation who
(i) are not "interested persons" of the Corporation or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Corporation or a vote of a majority of the
outstanding voting securities of the Fund.
3
<PAGE>
3 MISCELLANEOUS.
3.1 NOTICES. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, (a) if to the Investment Manager,
to Pacific Global Investment Management Company, 206 North Jackson Street, Suite
201, Glendale, CA 91206, (b) if to the Transfer Agent, to Pacific Global
Investors Services, Inc., 206 North Jackson Street, Suite 201, Glendale, CA
91206, and (c) if to the Corporation, at the foregoing office of the Investment
Manager.
3.2 CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
3.3 INTERPRETATION. Nothing herein contained shall be deemed to require
the Fund or the Corporation to take any action contrary to the its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Board of Directors of its responsibility for and control of the conduct of the
affairs of the Corporation or the Fund.
3.4 DEFINITIONS. Any question of interpretation of any term or provision
of this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Management Agreement, shall have the same meaning as and be resolved by
reference to such Agreement.
3.5 GOVERNING LAW. Except insofar as the 1940 Act or other federal laws
or regulations may be controlling, this Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of Maryland.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PACIFIC GLOBAL FUND, INC.
d/b/a PACIFIC ADVISORS FUND INC.
ON BEHALF OF THE GROWTH FUND
By:
- ---------------------------------- ----------------------------------
Secretary
ATTEST: PACIFIC GLOBAL INVESTMENT
MANAGEMENT COMPANY
By:
- ---------------------------------- ----------------------------------
Secretary
ATTEST: PACIFIC GLOBAL INVESTORS
SERVICES, INC.
By:
- ---------------------------------- ----------------------------------
Secretary
40597
5
<PAGE>
EXHIBIT 9
February 12, 1999
OPINION AND CONSENT OF COUNSEL
Pacific Advisors Fund Inc.
206 North Jackson Street, Suite 201
Glendale, California 91206
Gentlemen:
This opinion is given in connection with the filing by Pacific Global
Fund, Inc. d/b/a Pacific Advisors Fund Inc., a Maryland corporation ("Fund"),
of Post-Effective Amendment No. 10 to its Registration Statement on Form N-1A
(the "Registration Statement") under the Securities Act of 1933 ("1933 Act")
and Amendment No. 11 under the Investment Company Act of 1940 ("194- Act")
relating to the registration of an indefinite number of authorized shares of
common stock, at a par value of one cent ($.01) per share, of a new series of
the Fund, which is designated the "Growth Fund".
We have examined the following: the Fund's Articles of Incorporation;
the Fund's By-Laws; the Fund's Articles Supplementary to the Articles of
Incorporation, dated February 8, 1999, certifying that, among other things,
the Fund's Board of Directors has adopted a resolution authorizing the
establishment and designation of the Growth Fund; Post-Effective Amendment
No. 10 to the Registration Statement under the 1933 Act and Amendment No. 11
under the 1940 Act on Form N-1A to be filed with the Securities and Exchange
Commission on or about February 12, 1999; the Fund's Certificate of
Incorporation, as filed with the Secretary of State of the State of Maryland;
the Fund's By-Laws; pertinent provisions of the laws of the State of
Maryland; and such other corporate records, certificates, documents and
statutes that we have deemed relevant in order to render the opinion
expressed herein.
Based on such examination, we are of the opinion that:
1. The Fund is a Maryland corporation duly organized, validly
existing, and in good standing under the laws of the State of
Maryland; and
2. The Class A and Class C Growth Fund Shares to be offered for sale
by the Fund, when issued in the manner contemplated by the
<PAGE>
Registration Statement (including the post-effective amendments
thereto) will be legally issued, fully-paid and non-assessable.
This letter expresses our opinion as to the Maryland General Corporation
Code governing matters such as the due organization of the Fund and the
authorization and issuance of shares of common stock, but does not extend to
the securities or "Blue Sky" laws of the State of Maryland or to federal
securities or other laws.
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Jorden Burt Boros Cicchetti Berenson
& Johnson LLP
----------------------------------------
JORDEN BURT BOROS CICCHETTI
BERENSON & JOHNSON LLP
<PAGE>
EXHIBIT 10
CONSENT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" in Post-Effective Amendment No. 10
under the Securities Act of 1933 and Post-Effective Amendment No. 11 under
the Investment Company Act of 1940 to the Registration Statement (Form N-1A,
File No. 33-50208) and related Prospectus and Statement of Additional
Information of Pacific Global Fund, Inc. dba Pacific Advisors Fund Inc., and
to the incorporation by reference therein of our report dated January 29,
1999, with respect to the financial statements of Pacific Global Fund, Inc.
dba Pacific Advisors Fund Inc. included in its Annual Report for the year
ended December 31, 1998 filed with the Securities and Exchange Commission.
/s/ Ernst & Young, LLP
February 12, 1999
<PAGE>
EXHIBIT 11
FORM OF SUBSCRIPTION AGREEMENT
THIS AGREEMENT by and between _____________ ("Purchaser") and Pacific Global
Fund, Inc., d/b/a Pacific Advisors Fund Inc. (the "Company"), a corporation
organized and existing under and by virtue of the laws of the State of
Maryland.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Company agrees to sell to Purchaser and Purchaser hereby
subscribes to purchase _,000 Class A shares of the Company's Growth Fund (the
"Shares"), each with a par value of $.01 per Share, at a price of ten dollars
($10.00) per Share.
2. Purchaser agrees to pay $__,000 for such Shares at the time of
their issuance, which shall occur upon call of the President of the Company,
at any time on or before the effective date of Post-Effective Amendment 10 to
the Company's Registration Statement on Form N-1A filed with the Securities
and Exchange Commission ("Registration Statement") on or about February 12,
1999.
3. Purchaser acknowledges that the Shares have not been, and will not
be, registered under the federal securities laws and that, therefore, the
Company is relying on certain exemptions from such registration requirements,
including exemptions dependent on the intent of the Purchaser in acquiring
the Shares. Purchaser also understands that any resale of the Shares, or any
part thereof, may be subject to restrictions under the federal securities
laws, and that Purchaser may be required to bear the economic risk of any
investment in the Shares for an indefinite period of time.
4. Purchaser represents and warrants that he acquiring the Shares
solely for his own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that
Purchaser has no present plan or intention to sell or otherwise dispose of
the Shares or any part thereof.
5. Purchaser agrees not to sell or dispose of the Shares or any part
thereof unless the Registration Statement with respect to such Shares is then
in effect under the Securities Act of 1933, as amended.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this ____ day of ______, 1999.
PACIFIC GLOBAL FUND, INC.,
d/b/a PACIFIC ADVISORS FUND
By:________________________________
George A. Henning
Title: President and Chairman of the Board
PURCHASER
By:________________________________
<PAGE>
EXHIBIT 13(e)
FORM OF
AMENDMENT TO AGREEMENT
PURSUANT TO THE PLAN OF DISTRIBUTION
AMENDMENT TO AGREEMENT PURSUANT TO THE PLAN OF DISTRIBUTION, dated as of
this __ day of ____________, 199_, by and between Pacific Global Fund, Inc., a
Maryland Corporation doing business as Pacific Advisors Fund Inc. (the
"Corporation"), and Pacific Global Fund Distributors, Inc., a California
Corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Corporation and the Distributor have entered into an Agreement
Pursuant to the Plan of Distribution dated as of October 16, 1992 (the "Class A
Share Agreement"), under which the Corporation has agreed to reimburse the
Distributor for certain expenses incurred in connection with the distribution of
the Class A Shares of the Funds; and
WHEREAS, the Corporation has added a new series of shares, the Growth Fund,
which comprises Class A and Class C Shares; and
WHEREAS, the Corporation has adopted the Plan of Distribution with respect
to the Class A Shares of the Growth Fund, and authorized reimbursement payments
to the Distributor pursuant to the Class A Share Agreement with respect to the
Class A shares of the Growth Fund and the Class A Shares of the other Funds that
now exist or hereafter may be established, and are listed on Exhibit A to this
Agreement as may be amended from time to time;
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein and in the Class A Share Agreement, the parties hereto, intended to
be legally bound, hereby agree to amend the Class A Share Agreement as follows:
1. The Class A Share Agreement is hereby amended to include Exhibit A
hereto, as may be amended from time to time.
2. This Amendment shall not change any other term or provision of the
Class A Share Agreement and such other terms and provisions shall remain in full
force and effect.
3. Except as otherwise stated herein, capitalized terms used herein shall
have the meaning set forth in the Class A Share Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be herewith affirmed, as of the day and year first above
written.
ATTEST: PACIFIC GLOBAL FUND INC.
d/b/a PACIFIC ADVISORS FUND INC.
- -------------------------------- --------------------------------
ATTEST: PACIFIC GLOBAL FUND INC. DISTRIBUTORS, INC.
- -------------------------------- --------------------------------
40609
<PAGE>
EXHIBIT A
Balanced Fund
Government Securities Fund
Growth Fund
Income and Equity Fund
Small Cap Fund
<PAGE>
EXHIBIT 13(f)
FORM OF
AMENDMENT TO AGREEMENT
PURSUANT TO THE PLAN OF DISTRIBUTION
FOR CLASS C SHARES
AMENDMENT TO AGREEMENT PURSUANT TO THE PLAN OF DISTRIBUTION FOR CLASS C
SHARES, dated as of this __ day of ____________, 199_, by and between Pacific
Global Fund, Inc., a Maryland Corporation doing business as Pacific Advisors
Fund Inc. (the "Corporation"), and Pacific Global Fund Distributors, Inc., a
California Corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Corporation and the Distributor have entered into an Agreement
Pursuant to the Plan of Distribution for Class C Shares dated as of December __,
1997 (the "Class C Share Agreement"), under which the Corporation has agreed to
reimburse the Distributor for certain expenses incurred in connection with the
distribution of the Class C Shares of the Funds; and
WHEREAS, the Corporation has added a new series of shares, the Growth Fund,
which comprises Class A and Class C Shares; and
WHEREAS, the Corporation has adopted the Plan of Distribution with respect
to the Class C Shares of the Growth Fund, and authorized reimbursement payments
to the Distributor pursuant to the Class C Share Agreement with respect to the
Class C shares of the Growth Fund and the Class C Shares of the other Funds that
now exist or hereafter may be established, and are listed on Exhibit A to this
Agreement as may be amended from time to time;
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein and in the Class C Share Agreement, the parties hereto, intended to
be legally bound, hereby agree to amend the Class C Share Agreement as follows:
1. The Class C Share Agreement is hereby amended to include Exhibit A
hereto, as may be amended from time to time.
2. This Amendment shall not change any other term or provision of the
Class C Share Agreement and such other terms and provisions shall remain in full
force and effect.
3. Except as otherwise stated herein, capitalized terms used herein shall
have the meaning set forth in the Class C Share Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be herewith affirmed, as of the day and year first above
written.
ATTEST: PACIFIC GLOBAL FUND INC.
d/b/a PACIFIC ADVISORS FUND INC.
- -------------------------------- --------------------------------
ATTEST: PACIFIC GLOBAL FUND INC. DISTRIBUTORS, INC.
- -------------------------------- --------------------------------
40611
<PAGE>
EXHIBIT A
Balanced Fund
Government Securities Fund
Growth Fund
Income and Equity Fund
Small Cap Fund
<PAGE>
EXHIBIT 15(b)
SCHEDULE A
PACIFIC GLOBAL FUND, INC.
NAMES OF PORTFOLIOS
Government Securities Fund
Income and Equity Fund
Balanced Fund
Small Cap Fund
Growth Fund
Date: , 1999
-------------------
<PAGE>
EXHIBIT 15(c)
SCHEDULE B-1
PACIFIC GLOBAL FUND, INC.
CERTIFICATE OF CLASS DESIGNATION
Class A Shares
1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES.
Class A Shares are sold at net asset value plus a sales charge which varies
depending on the size of the purchase. The sales charges and dealer concessions
are as follows:
<TABLE>
<CAPTION>
AS PERCENTAGE OF AS PERCENTAGE OF AMOUNT REALLOWED
AMOUNT OF PURCHASE OFFERING PRICE NET INVESTMENT TO DEALERS*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT SECURITIES
FUND AND INCOME FUND
Less than $ 50,000 4.75% 4.98% 4.00%
$ 50,000 - $ 99,999 4.50% 4.71% 3.75%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1 million and over** 0.00% 0.00% **
BALANCED FUND, SMALL
CAP FUND AND GROWTH FUND
Less than $ 25,000 5.75% 6.10% 4.75%
$ 25,000 - $ 49,999 5.50% 5.82% 4.75%
$ 50,000 - $ 99,999 4.75% 4.99% 4.00%
$100,000 - $249,999 3.75% 3.90% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1 million and over** 0.00% 0.00% **
</TABLE>
* The amount reallowed to dealers is shown as a percentage of the offering
price. Under certain circumstances, commissions up to the full amount of
the sales charge may be reallowed to authorized dealers described in the
Prospectus. Dealers that receive 90% or more of the sales load may be
deemed to be underwriters under the Securities Act of 1933, as amended.
Additionally the Corporation's principal underwriter and distributor
("Distributor") may use payments under the Rule 12b-1 Plan or its own
resources to provide additional compensation in the form of promotional
merchandise, marketing support, travel or other incentive programs.
** On purchases by a "Single Purchaser", as described in the Prospectus,
aggregating $1 million or more, the Distributor will pay authorized
dealers described in the Prospectus 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.
<PAGE>
Class A Shares are also subject to service fees in connection with a Rule
12b-1 Plan, payable at an annual rate of 0.25% of the average daily net assets
of the Portfolios attributable to such shares.
Subject to limitations described in the Prospectus, a Contingent Deferred
Sales Charge ("CDSC") may apply to redemptions of Class A Shares. Generally, a
CDSC will be deducted from redemption proceeds of Class A Shares purchased in
amounts aggregating $1,000,000 or more and redeemed within 18 months of the end
of the calendar month of their purchase, at the rate of 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.
As described in the Prospectus, a $10.00 annual fee may be imposed on
accounts with a Class A Share value of less than $1,000 on the last business day
at the end of each calendar year. The $10.00 annual fee is currently being
waived and is expected to be waived in the future.
2. EXCHANGE PRIVILEGES.
Subject to conditions and limitations described in the Prospectus, Class A
Shares of each Portfolio may be exchanged for Class A Shares of each other
Portfolio of the Corporation, as well as two money market portfolios described
in the Prospectus and other funds which may become available by Distributor
arrangement for exchanges with Class A Shares of the Corporation. A $5.00
service fee may be imposed on each exchange, but currently is being waived, and
is expected to be waived in the future, by Pacific Global Investor Services,
Inc., the Corporation's transfer agent.
3. VOTING RIGHTS.
Each Class A shareholder will have one vote for each full Class A Share
held. Class A shareholders will be entitled to exclusive voting rights relating
to Class A Rule 12b-1 Fees (including the Rule 12b-1 Plan) and to separate
voting rights on any matter submitted to shareholders in which the interests of
Class A differ from the interests on any other class.
4. CONVERSION RIGHTS.
Class A Shares do not have a conversion feature.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> BALANCED FUND A SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,215,423
<INVESTMENTS-AT-VALUE> 6,705,311
<RECEIVABLES> 100,887
<ASSETS-OTHER> 8,290
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,814,488
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,648
<TOTAL-LIABILITIES> 16,648
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,557,514
<SHARES-COMMON-STOCK> 506,045
<SHARES-COMMON-PRIOR> 463,703
<ACCUMULATED-NII-CURRENT> 5,633
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,104
<ACCUM-APPREC-OR-DEPREC> 1,238,797
<NET-ASSETS> 6,419,364
<DIVIDEND-INCOME> 42,815
<INTEREST-INCOME> 187,061
<OTHER-INCOME> 0
<EXPENSES-NET> 217,864
<NET-INVESTMENT-INCOME> 12,012
<REALIZED-GAINS-CURRENT> 153,998
<APPREC-INCREASE-CURRENT> 277,926
<NET-CHANGE-FROM-OPS> 443,936
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 158,366
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 65,239
<NUMBER-OF-SHARES-REDEEMED> 33,511
<SHARES-REINVESTED> 10,614
<NET-CHANGE-IN-ASSETS> 1,205,247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 264
<OVERDISTRIB-NII-PRIOR> 6,207
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,776
<AVERAGE-NET-ASSETS> 6,098,536
<PER-SHARE-NAV-BEGIN> 12.06
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.90
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.69
<EXPENSE-RATIO> 3.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> BALANCED FUND-C SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,215,423
<INVESTMENTS-AT-VALUE> 6,705,311
<RECEIVABLES> 100,887
<ASSETS-OTHER> 8,290
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,814,488
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,648
<TOTAL-LIABILITIES> 16,648
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,557,514
<SHARES-COMMON-STOCK> 30,010
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,633
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,104
<ACCUM-APPREC-OR-DEPREC> 1,238,797
<NET-ASSETS> 378,476
<DIVIDEND-INCOME> 42,815
<INTEREST-INCOME> 187,061
<OTHER-INCOME> 0
<EXPENSES-NET> 217,864
<NET-INVESTMENT-INCOME> 12,012
<REALIZED-GAINS-CURRENT> 153,998
<APPREC-INCREASE-CURRENT> 277,926
<NET-CHANGE-FROM-OPS> 443,936
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 172
<DISTRIBUTIONS-OF-GAINS> 158,366
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,657
<NUMBER-OF-SHARES-REDEEMED> 303
<SHARES-REINVESTED> 656
<NET-CHANGE-IN-ASSETS> 1,205,247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 264
<OVERDISTRIB-NII-PRIOR> 6,207
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242,776
<AVERAGE-NET-ASSETS> 178,011
<PER-SHARE-NAV-BEGIN> 13.09
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.61
<EXPENSE-RATIO> 3.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 201
<NAME> GOVERNMENT FUND-A SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,191,622
<INVESTMENTS-AT-VALUE> 5,993,704
<RECEIVABLES> 259,641
<ASSETS-OTHER> 9,953
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,263,298
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,323
<TOTAL-LIABILITIES> 12,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,677,799
<SHARES-COMMON-STOCK> 515,194
<SHARES-COMMON-PRIOR> 399,114
<ACCUMULATED-NII-CURRENT> 1,075
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 572,068
<NET-ASSETS> 5,456,251
<DIVIDEND-INCOME> 36,244
<INTEREST-INCOME> 205,222
<OTHER-INCOME> 0
<EXPENSES-NET> 80,656
<NET-INVESTMENT-INCOME> 160,810
<REALIZED-GAINS-CURRENT> 378,940
<APPREC-INCREASE-CURRENT> 257,522
<NET-CHANGE-FROM-OPS> 797,272
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 146,241
<DISTRIBUTIONS-OF-GAINS> 379,294
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 218,063
<NUMBER-OF-SHARES-REDEEMED> 140,050
<SHARES-REINVESTED> 38,067
<NET-CHANGE-IN-ASSETS> 2,312,030
<ACCUMULATED-NII-PRIOR> 2,016
<ACCUMULATED-GAINS-PRIOR> 387
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33,771
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 190,951
<AVERAGE-NET-ASSETS> 4,585,682
<PER-SHARE-NAV-BEGIN> 9.87
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 1.38
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0.67
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.59
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 202
<NAME> GOVERNMENT FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,191,622
<INVESTMENTS-AT-VALUE> 5,993,704
<RECEIVABLES> 259,641
<ASSETS-OTHER> 9,953
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,263,298
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,323
<TOTAL-LIABILITIES> 12,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,677,799
<SHARES-COMMON-STOCK> 75,655
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,075
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 572,068
<NET-ASSETS> 794,724
<DIVIDEND-INCOME> 36,244
<INTEREST-INCOME> 205,222
<OTHER-INCOME> 0
<EXPENSES-NET> 80,656
<NET-INVESTMENT-INCOME> 160,810
<REALIZED-GAINS-CURRENT> 378,940
<APPREC-INCREASE-CURRENT> 257,522
<NET-CHANGE-FROM-OPS> 797,272
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15,510
<DISTRIBUTIONS-OF-GAINS> 379,294
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,090
<NUMBER-OF-SHARES-REDEEMED> 10,415
<SHARES-REINVESTED> 5,980
<NET-CHANGE-IN-ASSETS> 2,312,030
<ACCUMULATED-NII-PRIOR> 2,016
<ACCUMULATED-GAINS-PRIOR> 387
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33,771
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 190,951
<AVERAGE-NET-ASSETS> 417,726
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.67
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 301
<NAME> INCOME FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,986,335
<INVESTMENTS-AT-VALUE> 3,307,543
<RECEIVABLES> 84,304
<ASSETS-OTHER> 1,632
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,393,479
<PAYABLE-FOR-SECURITIES> 38,941
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,604
<TOTAL-LIABILITIES> 45,545
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,074,575
<SHARES-COMMON-STOCK> 246,282
<SHARES-COMMON-PRIOR> 189,873
<ACCUMULATED-NII-CURRENT> 2,676
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 40
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 270,643
<NET-ASSETS> 2,646,044
<DIVIDEND-INCOME> 12,297
<INTEREST-INCOME> 125,980
<OTHER-INCOME> 0
<EXPENSES-NET> 46,817
<NET-INVESTMENT-INCOME> 91,460
<REALIZED-GAINS-CURRENT> 30,423
<APPREC-INCREASE-CURRENT> 160,159
<NET-CHANGE-FROM-OPS> 282,042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 74,762
<DISTRIBUTIONS-OF-GAINS> 30,376
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 70,114
<NUMBER-OF-SHARES-REDEEMED> 19,249
<SHARES-REINVESTED> 5,544
<NET-CHANGE-IN-ASSETS> 1,453,650
<ACCUMULATED-NII-PRIOR> 463
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 7
<GROSS-ADVISORY-FEES> 20,070
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 118,197
<AVERAGE-NET-ASSETS> 2,282,760
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 0.82
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.74
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 302
<NAME> INCOME FUND-C SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,986,335
<INVESTMENTS-AT-VALUE> 3,307,543
<RECEIVABLES> 84,304
<ASSETS-OTHER> 1,632
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,393,479
<PAYABLE-FOR-SECURITIES> 38,941
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,604
<TOTAL-LIABILITIES> 45,545
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,074,575
<SHARES-COMMON-STOCK> 66,115
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,676
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 40
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 270,643
<NET-ASSETS> 701,890
<DIVIDEND-INCOME> 12,297
<INTEREST-INCOME> 125,980
<OTHER-INCOME> 0
<EXPENSES-NET> 46,817
<NET-INVESTMENT-INCOME> 91,460
<REALIZED-GAINS-CURRENT> 30,423
<APPREC-INCREASE-CURRENT> 160,159
<NET-CHANGE-FROM-OPS> 282,042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,485
<DISTRIBUTIONS-OF-GAINS> 30,376
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 65,537
<NUMBER-OF-SHARES-REDEEMED> 1,400
<SHARES-REINVESTED> 1,978
<NET-CHANGE-IN-ASSETS> 1,453,650
<ACCUMULATED-NII-PRIOR> 463
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 7
<GROSS-ADVISORY-FEES> 20,070
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 118,197
<AVERAGE-NET-ASSETS> 350,416
<PER-SHARE-NAV-BEGIN> 10.39
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 401
<NAME> SMALL CAP FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 7,894,440
<INVESTMENTS-AT-VALUE> 9,563,558
<RECEIVABLES> 63,844
<ASSETS-OTHER> 17,645
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,645,047
<PAYABLE-FOR-SECURITIES> 44,490
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,008
<TOTAL-LIABILITIES> 75,498
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,063,701
<SHARES-COMMON-STOCK> 655,549
<SHARES-COMMON-PRIOR> 635,339
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 406
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,505,442
<NET-ASSETS> 9,330,324
<DIVIDEND-INCOME> 19,389
<INTEREST-INCOME> 13,984
<OTHER-INCOME> 0
<EXPENSES-NET> 429,567
<NET-INVESTMENT-INCOME> (396,194)
<REALIZED-GAINS-CURRENT> 253,446
<APPREC-INCREASE-CURRENT> (1,816,090)
<NET-CHANGE-FROM-OPS> (1,976,838)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 235,509
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114,853
<NUMBER-OF-SHARES-REDEEMED> 107,128
<SHARES-REINVESTED> 12,485
<NET-CHANGE-IN-ASSETS> (1,555,411)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 469
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85,496
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 429,567
<AVERAGE-NET-ASSETS> 10,550,968
<PER-SHARE-NAV-BEGIN> 17.51
<PER-SHARE-NII> (0.58)
<PER-SHARE-GAIN-APPREC> (2.34)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.36
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.23
<EXPENSE-RATIO> 4.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 402
<NAME> SMALL CAP FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 7,894,440
<INVESTMENTS-AT-VALUE> 9,563,558
<RECEIVABLES> 63,844
<ASSETS-OTHER> 17,645
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,645,047
<PAYABLE-FOR-SECURITIES> 44,490
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,008
<TOTAL-LIABILITIES> 75,498
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,063,701
<SHARES-COMMON-STOCK> 16,798
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 406
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,505,442
<NET-ASSETS> 239,225
<DIVIDEND-INCOME> 19,389
<INTEREST-INCOME> 13,984
<OTHER-INCOME> 0
<EXPENSES-NET> 429,567
<NET-INVESTMENT-INCOME> (396,194)
<REALIZED-GAINS-CURRENT> 235,446
<APPREC-INCREASE-CURRENT> (1,816,090)
<NET-CHANGE-FROM-OPS> (1,976,838)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 235,509
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,103
<NUMBER-OF-SHARES-REDEEMED> 2,722
<SHARES-REINVESTED> 417
<NET-CHANGE-IN-ASSETS> (1,555,411)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 469
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85,496
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 429,567
<AVERAGE-NET-ASSETS> 132,846
<PER-SHARE-NAV-BEGIN> 19.70
<PER-SHARE-NII> (0.29)
<PER-SHARE-GAIN-APPREC> (4.81)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.36
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.24
<EXPENSE-RATIO> 3.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
