<PAGE>
Registration Nos. 33-50208
811-7062
As filed with the Securities and Exchange Commission on December 27, 2000
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
---
Post-Effective Amendment No. 13 /X/
---
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14 /X/
---
(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 301
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 301
Glendale, California 91206
(Agent for Service)
Copies to:
Joan E. Boros, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson, LLP
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)
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On May 1, 2000 pursuant to Paragraph (b)
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60 days after filing pursuant to Paragraph (a)(1)
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X On March 1, 2000 pursuant to Paragraph (a)(1)
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75 days after filing pursuant to Paragraph (a)(2)
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On _________________ pursuant to Paragraph (a)(2) of Rule 485.
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The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its five series under the Securities Act of 1933
pursuant to Section 24(f) under the Investment Company Act of 1940.
<PAGE>
[GRAPHIC]
PROSPECTUS -- march 1, 2001
class a and c
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
SMALL CAP FUND
This prospectus does not constitute an offering of any
class or series in any state in which such class or series
is not authorized for sale.
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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND SUMMARIES PAGE 1
PAST PERFORMANCE PAGE 8
Risk/return bar chart 8
Best and worst quarterly returns 9
Risk/return table 10
UNDERSTANDING EXPENSES PAGE 11
Fee table 11
Fee example 14
SALES CHARGES AND 12b-1 FEES PAGE 15
Two classes of shares 15
Sales charges for Class A shares 15
How can you reduce sales charges? 16
Rule 12b-1 fees 17
UNDERSTANDING EACH FUND PAGE 18
Government Securities Fund 18
Income and Equity Fund 19
Balanced Fund 21
Growth Fund 22
Small Cap Fund 23
RISK FACTORS, OTHER INVESTMENT PRACTICES, AND POLICIES OF
THE FUNDS PAGE 24
MANAGEMENT OF THE FUND PAGE 26
UNDERSTANDING EARNINGS AND TAXES PAGE 30
HOW TO BUY, SELL, AND EXCHANGE SHARES PAGE 31
Buying shares 31
Selling shares 32
Exchanging shares 33
Automatic plans 35
ACCOUNT POLICIES PAGE 36
PERFORMANCE QUOTATIONS PAGE 37
FOR MORE INFORMATION (BACK COVER)
</TABLE>
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MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
FUND SUMMARIES
---------------------------------------
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GOVERNMENT SECURITIES FUND
<TABLE>
<S> <C>
INVESTMENT
OBJECTIVE: High current income, preservation of capital, and rising future income, consistent with prudent
investment risk.
PRINCIPAL INVESTMENT
STRATEGIES INCLUDE: - Investing primarily in U.S. government fixed income securities.
- Investing in zero-coupon bonds, foreign securities (primarily through American Depositary
Receipts ("ADRs"), and high quality money-market securities.
- Investing in dividend paying stocks. If we invest more than 25% of the Fund's total assets in
stocks, we concentrate our stock holdings in high quality public utility stocks.
- Using a proprietary timing model to try to predict whether interest rates will go up or down.
We tend to invest a higher proportion of the Fund's assets in short-term bonds when we
believe interest rates will rise, and a higher proportion in longer-term bonds when we
believe interest rates will fall.
PRINCIPAL INVESTMENT
RISKS: - 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.
- FOREIGN SECURITIES, INCLUDING ADRS, 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.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
- STOCK PRICES MAY FLUCTUATE MORE THAN OTHER SECURITIES. Stock prices can decline significantly
in response to adverse market conditions, company-specific events, and other domestic and
international developments. Because this Fund may have a significant stock component, it may
be more subject to this risk than other government securities funds. We try to reduce this
risk by buying stocks of companies that have established operating histories, strong or
improving balance sheets, and growth potential.
- PUBLIC UTILITIES STOCKS may be affected by environmental conditions, energy conservation
programs, fuel shortages, and federal, state, and local legislative and regulatory actions.
INCOME AND EQUITY FUND
INVESTMENT
OBJECTIVE: Current income and, secondarily, long-term capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES INCLUDE: - Investing primarily in high quality U.S. corporate bonds and in dividend paying stocks.
- Investing in U.S. government securities, zero-coupon bonds, and high quality money-market
securities.
- Investing a majority of the Fund's assets in fixed income securities while the general level
of interest rates exceeds the dividend yields available on common stock. Investing a higher
proportion of the Fund's assets in stocks when the economic outlook is favorable.
- Using fundamental analysis of each issuer's financial condition and prospects, and of
economic conditions, in evaluating stocks. We focus on total return in selecting stocks.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT
RISKS - 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.
- STOCK PRICES MAY FLUCTUATE MORE THAN OTHER SECURITIES. Stock prices can decline significantly
in response to adverse market conditions, company-specific events, and other domestic and
international developments. Different parts of the market can react differently to these
developments. We try to reduce this risk by buying stocks of companies that have established
operating histories, strong or improving balance sheets, and growth potential.
BALANCED FUND
INVESTMENT
OBJECTIVE: Long-term capital appreciation and income consistent with reduced risk.
PRINCIPAL INVESTMENT
STRATEGIES INCLUDE: - Investing in a flexible mix of common stocks, dividend paying stocks, and high quality fixed
income securities. When the economy appears to be growing and strong, we tend to invest a
higher proportion of the Fund's assets in stocks; when the economy appears to be contracting
or weak, we tend to invest a higher proportion in fixed income securities.
- Usually weighting the portfolio toward stocks. The Fund's stocks will consist primarily of
companies with market capitalization over $500 million.
- Investing at least 25% of the Fund's assets in fixed income securities and preferred stocks.
- Evaluating economic and market conditions, price trends, and expected returns. We use a
combination of fundamental and technical analysis in selecting which stocks to buy.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
- Focusing on total return by seeking to sell securities at a profit, and earning dividends and
interest.
PRINCIPAL INVESTMENT
RISKS: - STOCK PRICES MAY FLUCTUATE MORE THAN OTHER SECURITIES. Stock prices can decline significantly
in response to adverse market conditions, company-specific events, and other domestic and
international developments. Different parts of the market can react differently to these
developments. We try to reduce this risk by buying stocks of companies that have established
operating histories, strong or improving balance sheets, and growth potential.
- 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.
GROWTH FUND
INVESTMENT
OBJECTIVE: - Long-term capital appreciation through investment in medium to large capitalization
companies.
PRINCIPAL INVESTMENT
STRATEGIES INCLUDE: - Investing in established, growing companies whose stocks are part of the S&P 500 Composite
Index or the NASDAQ 100 Index, with market capitalizations of $1 billion or higher.
- Investing in other domestic companies.
- Using a combination of fundamental and technical analysis to evaluate each issuer's financial
soundness and future growth prospects.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT
RISKS: - STOCK PRICES MAY FLUCTUATE MORE THAN OTHER SECURITIES. Stock prices can decline significantly
in response to adverse market conditions, company-specific events, and other domestic and
international developments. Different parts of the market can react differently to these
developments. We try to reduce this risk by buying stocks of companies that have established
operating histories, strong or improving balance sheets, and growth potential.
- GROWTH STOCKS CAN PERFORM DIFFERENTLY. Growth stocks can perform differently than the market
as a whole and other types of stocks and can be more volatile than other types of stocks.
SMALL CAP FUND
INVESTMENT
OBJECTIVE: Capital appreciation through investment in small market capitalization companies.
PRINCIPAL INVESTMENT
STRATEGIES INCLUDE: - Investing in small, growing companies, primarily companies with market capitalizations under
$500 million. We generally invest a significant proportion of the Fund's assets in companies
with market capitalizations under $200 million.
- Identifying growth companies with unique or proprietary advantages in their industries and
strong earnings growth potential.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT
RISKS: - STOCK PRICES MAY FLUCTUATE MORE THAN OTHER SECURITIES. Stock prices can decline significantly
in response to adverse market conditions, company-specific events, and other domestic and
international developments. Different parts of the market can react differently to these
developments. We try to reduce this risk by buying stocks of companies that have established
operating histories, strong or improving balance sheets, and growth potential.
- GROWTH STOCKS CAN PERFORM DIFFERENTLY. Growth stocks can perform differently than the market
as a whole and other types of stocks and can be more volatile than other types of stocks.
- 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.
GENERAL INVESTMENT RISKS
- 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.
- 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. When you sell your shares, they may be
worth more or less than you paid for them.
- 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.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
HOW WE REDUCE RISKS In all of our Funds we may use strategies that try to reduce risks. One way is that most of the
securities the Funds own 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, high liquid
investments. This may help protect against temporary changes in the investment markets due to
economic, political or other adverse conditions. However, if a Fund makes temporary defensive
investments, it may not meet its investment objective.
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.
</TABLE>
7
<PAGE>
PAST PERFORMANCE
--------------------
--------------------------------------------------------------------
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).
A Fund's past performance is not necessarily indicative of how it will perform
in the future.
RISK/RETURN BAR CHART (CLASS A SHARES)
Government Securities Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -0.15%
1995 20.32%
1996 -3.15%
1997 11.72%
1998 17.82%
1999 -5.04%
2000 [ ]
</TABLE>
Income and Equity Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 0.99%
1995 11.98%
1996 1.79%
1997 9.60%
1998 12.11%
1999 0.19%
2000 [ ]
</TABLE>
Balanced Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -2.41%
1995 8.70%
1996 15.92%
1997 15.24%
1998 7.76%
1999 12.61%
2000 [ ]
</TABLE>
Growth Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
2000 [ ]
</TABLE>
Small Cap Fund
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -3.97%
1995 17.27%
1996 43.70%
1997 6.95%
1998 -16.66%
1999 -15.75%
2000 [ ]
</TABLE>
8
<PAGE>
BEST AND WORST QUARTERLY RETURNS (CLASS A SHARES) [TO BE UPDATED]
<TABLE>
<CAPTION>
BEST QTR. WORST QTR.
DATE CHANGE DATE CHANGE
<S> <C> <C> <C> <C>
Government Securities Fund
Income and Equity Fund
Balanced Fund
Growth Fund
Small Cap Fund
</TABLE>
The sales charge is not included in the figures shown in the bar chart. If it
were included, each Fund's returns would be lower than those shown.
9
<PAGE>
RISK/RETURN TABLE (CLASS A SHARES) [TO BE UPDATED]
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
<S> <C> <C> <C>
Government Securities Fund
Lehman Intermediate T-Bond Index
Income and Equity Fund
Lehman Intermediate T-Bond Index
Balanced Fund
S&P 500 Index
Lehman Intermediate T-Bond Index
Growth Fund
Nasdaq 100 Stock Index
S&P 500 Index
Small Cap Fund
Russell 2000 Index
</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. The Nasdaq 100 Stock Index is an
unmanaged, weighted measure of the 100 largest non-financial domestic and
international common stocks listed on The Nasdaq Stock Market. Russell 2000
Index is an unmanaged index of 2,000 small company stocks. Lehman Intermediate
T-Bond Index is an unmanaged index of intermediate 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.
10
<PAGE>
UNDERSTANDING EXPENSES
----------------------------
--------------------------------------------------------------------
The information in this section will help you understand what expenses you will
pay if you buy and hold shares of the Funds.
FEE TABLE [TO BE UPDATED]
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND CLASS A CLASS C
<S> <C> <C>
Shareholder Fees (paid by you
directly)
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)(1) None 1.00%
Annual Fund Operating Expenses (paid
from Fund assets)
Management Fees 0.65% 0.65%
Distribution and/or Service
(12b-1) Fees 0.23% 1.00%
Other Expenses
Total Annual Fund Operating
Expenses
INCOME AND EQUITY FUND
Shareholder Fees (paid by you
directly)
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)(1) None 1.00%
Annual Fund Operating Expenses (paid
from Fund assets)
Management Fees 0.75% 0.75%
Distribution and/or Service
(12b-1) Fees 0.25% 1.00%
Other Expenses
Total Annual Fund Operating
Expenses
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
BALANCED FUND CLASS A CLASS C
<S> <C> <C>
Shareholder Fees (paid by you
directly)
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)(1) None 1.00%
Annual Fund Operating Expenses (paid
from Fund assets)
Management Fees 0.75% 0.75%
Distribution and/or Service
(12b-)1 Fees 0.18% 1.00%
Other Expenses
Total Annual Fund Operating
Expenses
GROWTH FUND
Shareholder Fees (paid by you
directly)
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)(1) None 1.00%
Annual Fund Operating Expenses (paid
from Fund assets)
Management Fees 0.75% 0.75%
Distribution and/or Service
(12b-1) Fees 0.16% 1.00%
Other Expenses
Total Annual Fund Operating
Expenses
SMALL CAP FUND
Shareholder Fees (paid directly by
you)
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)(1) None 1.00%
Annual Fund Operating Expenses (paid
from Fund assets)
Management Fees 0.75% 0.75%
Distribution and/or Service
(12b-1) Fees 0.23% 1.00%
Other Expenses
Total Annual Fund Operating
Expenses
</TABLE>
1 We charge the deferred sales charge only if you sell your Class C Shares
within one year of purchase.
12
<PAGE>
WAIVING FEES TO KEEP COSTS DOWN
Pacific Global Investment Management Company ("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>
Bache Capital Management, Inc. ("BCM") is also participating in the expense
limitation arrangements for the Income and Equity Fund. Pacific Global Investor
Services, Inc. ("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
Balanced Fund or the Small Cap Fund. We may end or change the fee waiver or
expense reimbursement arrangements on any Fund with 90 days' notice.
Except for the Growth Fund, a Fund may reimburse PGIMC and/or BCM for fees so
waived and expenses so assumed, and for fees waived and expenses assumed in past
years with respect to the Funds, 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. We will determine any such
reimbursement payments separately for each Fund and Class of shares. If such
reimbursement were paid, it would 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 and any fees waived or
expenses assumed with respect to the Growth Fund will not be reimbursed.
13
<PAGE>
EXAMPLE [TO BE UPDATED]
This example is intended to help you compare the cost of investing in our Funds
with the cost of investing in other mutual funds. The Example assumes 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. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, 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> <C> <C>
GOVERNMENT Class A
SECURITIES FUND Class C
INCOME AND Class A
EQUITY FUND Class C
[To be updated]
BALANCED FUND Class A
Class C
GROWTH FUND Class A
Class C
SMALL CAP FUND Class A
Class C
</TABLE>
The Example reflects that 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.
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.
14
<PAGE>
SALES CHARGES AND 12B-1 FEES
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.
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> <C>
Less than $ 50,000 4.75% 4.98%
GOVERNMENT
SECURITIES $ 50,000 - $ 99,999 4.50% 4.71%
FUND & INCOME $ 100,000 - $ 249,999 3.50% 3.63%
AND EQUITY $ 250,000 - $ 499,999 2.50% 2.56%
FUND $ 500,000 - $ 999,999 2.00% 2.04%
$ 1 million and over** 0.00% 0.00%
Less than $ 25,000 5.75% 6.10%
BALANCED FUND,
GROWTH $ 25,000 - $ 49,999 5.50% 5.82%
FUND, & SMALL $ 50,000 - $ 99,999 4.75% 4.99%
CAP FUND $ 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%
**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.
</TABLE>
15
<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. The CSDC will be the lesser of 1% of (a) the purchase
price of the Class C shares you exchanged for Reserve Fund Shares, or (b) the
sale price of those Class C shares as of the date of the exchange. 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
16
<PAGE>
individuals who have business relationships with us or certain other investment
professionals. We reserve the right to change this policy at any time.
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.
17
<PAGE>
UNDERSTANDING EACH FUND
-------------------------------------------------
-------------------------------------------------------------------------
This section takes a closer look at our five Funds.
GOVERNMENT SECURITIES FUND
<TABLE>
<S> <C>
INVESTMENT This Fund seeks to provide high current income,
OBJECTIVE: preservation of capital, and rising future income,
consistent with prudent investment risk.
IS THIS FUND This Fund is for investors looking first, to earn
FOR YOU? current income that could increase over time, and
second, to protect the value of the money they invest.
WHAT DO WE INVEST We usually invest at least 65% of the Fund's assets in
IN? 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 common stocks and fixed income securities
of foreign issuers. Investment 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. For temporary
defensive purposes, we may invest without limitation in
high quality money market instruments. If we make
defensive investments, we may not meet this Fund's
investment objective.
HOW DO WE MAKE Our overall strategy is to focus on U.S. government
INVESTMENT securities because they are low risk, of high intrinsic
DECISIONS? 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.
The PRINCIPAL INVESTMENT RISKS of investing in this
Fund, and certain other investment practices and
policies of this Fund, are described in the "Fund
Summary" for this Fund and in "Risk Factors, Other
Investment Practices, and Policies of the Funds"
beginning on page 23 of this prospectus.
</TABLE>
18
<PAGE>
INCOME AND EQUITY FUND
<TABLE>
<S> <C>
INVESTMENT This Fund seeks to provide current income and,
OBJECTIVE: secondarily, long-term capital appreciation.
IS THIS FUND This Fund is for investors looking first, to earn
FOR YOU? 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 We usually invest at least 65% of the Fund's assets in
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. Subject to that limit, if the
ratings for investment grade securities held by the
Fund fall below investment grade, the Fund will not be
obligated to sell such securities if, in the opinion of
the Fund's Manager and Co-Manager, continuing to hold
these securities is considered appropriate under the
circumstances. We may also buy U.S. government
securities and high quality money market securities.
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. While
it is not a principal investment strategy, the Fund
also may invest in zero coupon bonds and foreign
securities (primarily through ADRs), as described in
the SAI. For temporary defensive purposes, the Fund may
invest without limitation in high quality money market
securities. If we make temporary defensive investments,
we may not meet this Fund's investment objective.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
HOW DO WE MAKE Our overall strategy is to focus on a core group of
INVESTMENT corporate fixed income securities that we consider to
DECISIONS? 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.
The PRINCIPAL INVESTMENT RISKS of investing in this
Fund, and certain other investment practices and
policies of this Fund, are described in the "Fund
Summary" for this Fund and in "Risk Factors, Other
Investment Practices, and Policies of the Funds"
(except the section headed "Foreign Securities")
beginning on page 23 of this prospectus.
</TABLE>
20
<PAGE>
BALANCED FUND
<TABLE>
<S> <C>
INVESTMENT This Fund seeks to achieve long-term capital
OBJECTIVES: appreciation and income consistent with reduced risk.
IS THIS FUND This Fund is for investors looking to combine long-term
FOR YOU? growth, current income, and liquidity, while seeking to
reduce the risk of price fluctuations.
WHAT DO WE INVEST We usually invest in a flexible combination of stocks,
IN? 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. The equity securities in which the Fund
invests may be listed on a national securities exchange
or traded in an established OTC market. At least 25% of
the Fund's assets, however, must always be invested in
fixed income securities and preferred stocks. While it
is not a principal investment strategy, the Fund also
may invest in U.S. government securities and foreign
securities (primarily through ADRs), as described in
the SAI.
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. If
we make temporary defensive investments, we may not
meet this Fund's investment objective.
HOW DO WE MAKE We evaluate economic and market conditions, price
INVESTMENT trends, and expected returns. We also analyze a
DECISIONS? 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.
The PRINCIPAL INVESTMENT RISKS of investing in this
Fund, and certain other investment practices and
policies of this Fund, are described in the "Fund
Summary" for this Fund and in "Risk Factors, Other
Investment Practices, and Policies of the Funds" (other
than the section headed "Foreign Securities") beginning
on page 23 of this prospectus.
</TABLE>
21
<PAGE>
GROWTH FUND
<TABLE>
<S> <C>
INVESTMENT This Fund seeks to achieve long-term capital
OBJECTIVE: appreciation through investment in medium to large
capitalization companies. (i.e., companies with market
capitalization in excess of $1 billion).
IS THIS FUND This Fund is for investors who want to profit from
FOR YOU? rising stock prices. It is generally for more
conservative stock investors, who want to invest in
large, well established companies.
WHAT DO WE INVEST We usually invest at least 65% of our assets in stocks
IN? of U.S. companies that are part of the S&P 500
Composite Index or the NASDAQ 100 Index. We may also
invest in other U.S. companies. While it is not a
principal investment strategy, the Fund may also invest
in foreign securities (primarily through ADRs), as
described in the SAI. For temporary defensive purposes,
this Fund may invest without limitation in high quality
money market instruments. If we make temporary
defensive investments, we may not meet this Fund's
investment objective.
HOW DO WE MAKE We evaluate economic and market conditions, price
INVESTMENT trends, and the anticipated growth potential of the
DECISIONS? 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.
The PRINCIPAL INVESTMENT RISKS of investing in this
Fund, and certain other investment practices and
policies of this Fund, are described in the "Fund
Summary" for this Fund and in "Risk Factors, Other
Investment Practices, and Policies of the Funds"
beginning on page 23 of this prospectus, under the
headings "Equity Securities", "Cash Reserves and
Repurchase Agreements", and "Diversification".
</TABLE>
22
<PAGE>
SMALL CAP FUND
<TABLE>
<S> <C>
INVESTMENT This Fund seeks to provide capital appreciation through
OBJECTIVE: investment in small market capitalization companies.
IS THIS FUND This Fund is for investors who want to profit from
FOR YOU? rising stock prices. It is generally for more
aggressive stock investors, who want to invest in
small, growing companies.
WHAT DO WE INVEST We invest at least 65% of our assets in stocks of small
IN? 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 We focus on companies with unique characteristics or
INVESTMENT proprietary advantages in their industry that may give
DECISIONS? 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 Investing in small capitalization companies generally
BE MORE VOLATILE. 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.
Other PRINCIPAL INVESTMENT RISKS of investing in this
Fund, and certain other investment practices and
policies of this Fund, are described in the "Fund
Summary" for this Fund and in "Risk Factors, Other
Investment Practices, and Policies of the Funds"
beginning on page 23 of this prospectus under the
headings "Equity Securities", "Cash Reserves and
Repurchase Agreements", and "Diversification".
</TABLE>
23
<PAGE>
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 conditions.
The stock prices of smaller companies, such as the
companies in which the Small Cap Fund principally
invest, can be particularly volatile. Each Fund has
diversification guidelines that are intended to prevent
a concentration of Fund assets in only a few companies
or industry sectors. These guidelines may cause a Fund
to under-perform market indices when an index is
over-weighted in a few companies or industry sectors.
CASH RESERVES AND Each Fund may purchase U.S. dollar denominated money
REPURCHASE market instruments. The Funds will only buy high
AGREEMENTS. 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 In a repurchase agreement, a Fund buys a security at
AGREEMENTS. one price and simultaneously agrees to sell it back at
a higher price. The Funds' repurchase agreements will
be fully collateralized. Nevertheless, if the
24
<PAGE>
other party defaults or becomes insolvent, the Fund
could suffer a loss or a delay in repayment.
FIXED INCOME Fixed income securities include bonds, debentures, and
SECURITIES. 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. 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.
THE MARKET VALUE OF High grade debt instruments are rated at least A or its
DEBT INSTRUMENTS equivalent by any NRSRO or are unrated debt instruments
ALSO REFLECT of equivalent quality. The issuers of high grade debt
THE CREDIT QUALITY instruments are considered to have a very strong
OF THE ISSUER. 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 more than 5% of its total assets in any one
issuer and will not purchase more than 10% of the
outstanding voting securities of such issuer. A Fund
may not change this policy unless its shareholders
approve.
25
<PAGE>
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. (the "Company") is an investment company, of which
each Fund is a separate series with its own investment portfolio. It is located
at 206 North Jackson Street, Suite 301, Glendale, CA 91206.
26
<PAGE>
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 Growth and Small
Cap Fund;
- co-manage the investment activities of the Income and Equity Fund with Bache
Capital Management, Inc. ("BCM" or 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 301, Glendale, CA 91206.
GEORGE A. HENNING. Mr. Henning is co-portfolio manager of the Small Cap Fund.
Mr. Henning is Chairman of the Company and is Chairman, principal stockholder
and President 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 Vice President, and Secretary of the Company and serves as
Executive Vice President and Director of PGIMC, President and Director of PGFD,
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.
27
<PAGE>
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 Ryan Kelly, its
President and Director, are portfolio managers for the Government Securities
Fund.
Spectrum had $91 million in assets under management, as of December 31, 1999. 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 Ryan 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.
BACHE CAPITAL MANAGEMENT, INC. ("BCM") is the sub-adviser to the Balanced Fund
and co-manager of the Income and Equity Fund. Stephen K. Bache is the portfolio
manager of the Balanced Fund and co-portfolio manager of the Income and Equity
Fund.
BCM is wholly-owned by Stephen K. Bache, CFA, founder and Chief Investment
Officer. He founded the firm in 2000. Prior to founding BCM, Stephen K. Bache,
CFA, was Chief Investment Officer of Hamilton & Bache, Inc., the former
sub-adviser to the Balanced Fund and co-manager of the Income and Equity Fund.
As of December 31, 2000, BCM had $ million in assets under management. BCM is
located at 3 Berkshire Place, La Canada, CA 91011.
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 301, 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 301, Glendale, CA 91206.
28
<PAGE>
MANAGEMENT AND ADVISORY FEES
The Fund pays PGIMC and Bache Capital Management (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 Bache Capital Management
(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. PGIMC may change this arrangement on any Fund with 90
days' notice.
29
<PAGE>
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 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 32-33.)
NO SALES CHARGE. There is no sales charge for reinvesting dividends.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS 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.
30
<PAGE>
HOW TO BUY, SELL, AND EXCHANGE SHARES
--------------------------------------------
--------------------------------------------------------------------
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, Inc.
P.O. Box 2048
Glendale, California 91209-2048
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.
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
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<PAGE>
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.
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 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;
you may, however, sell newly purchased shares by written request. 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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<PAGE>
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.
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 $1,000 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
33
<PAGE>
- 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.
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.
34
<PAGE>
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.
35
<PAGE>
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, which usually is Mondays through Fridays,
except certain national and other holidays.
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. However, as described on page 16 above, you
may be charged a contingent deferred sales charge if you sell Class C shares
within one year of purchase.
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.
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.
36
<PAGE>
PERFORMANCE QUOTATIONS
---------------------------
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From time to time we may publish a Fund's average 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.
37
<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. The results for the
Growth Fund reflect operations since its inception on May 3, 1999. 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 ______________, 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.
38
<PAGE>
FOR MORE INFORMATION
More detailed information on subjects covered in this prospectus is contained in
the Statement of Additional Information (SAI). The SAI is incorporated by
reference (legally considered part of this document). Investors seeking more
in-depth explanations of the Fund should request the SAI and review it before
purchasing shares. Additional information about the Funds' investments is
available in the Funds' Annual and Semi-Annual Reports to shareholders. In the
Funds' annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Funds' performance during
the last fiscal year. 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 301
Glendale, California 91206
(800) 282-6693
Documents will be sent within 3 business days of receipt of your request.
Reports and other information about the Funds (including the SAI) may be
reviewed and copied:
- at the SEC's Public Reference Room in Washington, D.C.
- on the SEC's Internet site (http://www.sec.gov); or
- after payment of duplicating fee, by written request to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009, or by email to
[email protected].
Information about the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090.
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. As noted above, 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.
Investment Company Act file number: 811-7062
<PAGE>
PACIFIC ADVISORS FUND INC.
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
SMALL CAP FUND
206 NORTH JACKSON STREET
SUITE 301
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 March 1,
2001. 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 March 1,
2001.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
The Company and the Funds S-4
Additional Information Concerning Investment Strategies and Risks S-4
Government Securities Fund S-4
Income and Equity Fund S-4
Balanced Fund S-4
Growth Fund S-5
Small Cap Fund S-5
Information Concerning Specific Strategies and Instruments S-5
Portfolio Turnover S-15
Investment Policies and Restrictions S-15
Investment Management and Other Services S-18
Investment Manager, Co-Manager, and Advisers S-18
Distribution of Fund Shares S-22
Transfer Agent and Administrative Services Agent S-24
Custodian S-25
Management of the Company and Its Funds S-25
Directors and Officers S-25
Committees of the Board of Directors S-27
Code of Ethics S-27
Principal Holders of Securities S-27
Capital Stock S-28
Series and Classes of Shares S-28
Meetings and Voting Rights S-28
Taxes S-30
Additional Information Concerning Purchase, Redemption, and Pricing of Shares S-30
Trade Date Procedures S-30
Reducing Your Sales Charge -- Class A Shares S-31
Additional Shareholder Services S-32
Telephone Exchanges and Redemptions S-33
Exchanges of Shares S-34
Redemption S-35
Retirement Plans S-37
Portfolio Transactions S-37
Valuation of Fund Shares S-40
Performance Information S-41
Independent Auditors S-41
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C>
Financial Statements S-42
Specimen Price Makeup Sheet S-42
Appendix S-44
</TABLE>
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-[13] below.
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-[6] below.
INCOME AND EQUITY FUND
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 American
Depository Receipts ("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-[6] below.
BALANCED FUND
The fixed income portion of the Fund may also be invested in U.S.
government securities, asset-backed securities, mortgage-backed securities,
convertible debt securities, and CMOs.
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.
S-4
<PAGE>
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-[13] to S-[14] 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 securities. See "Money Market Instruments" beginning on page S-[6] 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-[13] 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-[13] to S-[14] 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 judgment 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-[6] 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
S-5
<PAGE>
strategies that may be used by the Funds and the risks of those investments
and strategies.
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,
S-6
<PAGE>
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 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
S-7
<PAGE>
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 (three to ten years), or short-term (two years
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.
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
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Loan Banks and now owned entirely by private stockholders. FHLMC issues
Participation Certificates ("Pcs") which represent interests in conventional
mortgages from FHLMC's national portfolio. FHLMC guarantees the timely
payment of interest and ultimate collection of principal, but Pcs are not
backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the
underlying mortgage loans as well as the guarantors of the mortgage-backed
securities. Pools created by such non-governmental issuers generally offer a
higher rate of interest than government and government-related pools, because
there are no direct or indirect government or agency guarantees of payments
in the former pools. Timely payment of interest and principal of these pools
may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private
insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-backed security meets each Fund's investment quality
standards. There can be no assurance that the private insurers or guarantors
can meet their obligations under the insurance policies or guarantee
arrangements. Each Fund may buy mortgage-backed securities without insurance
or guarantees if its Adviser determines that the securities meet that Fund's
quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may
not be readily marketable. Each Fund will limit its investment in
mortgage-backed securities or other securities which may be considered
illiquid or not readily marketable to no more than 15% of that Fund's net
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
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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 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
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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 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
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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. 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
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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.
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
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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 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.
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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.
PORTFOLIO TURNOVER
The Funds had the following portfolio turnover rates for the fiscal
years ended December 31, 1999 and 2000:
<TABLE>
<CAPTION>
Government Income and
Security Fund Equity Fund Balanced Fund Growth Fund Small Cap Fund
<S> <C> <C> <C> <C> <C>
2000 [ ]% [ ]% [ ]% [ ]% [ ]%
1999 147% 37% 52% 0% 68%
</TABLE>
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 increased
during 1999 as a result of the manager's need to reallocate capital from
intermediate and longer-term fixed income securities since interest rates
were in an upward trend. The Growth Fund had a portfolio turnover rate of 0%
because it commenced operations on May 3, 1999 and did not have any portfolio
sales for the year ended December 31, 1999. The Small Cap Fund's portfolio
turnover rate was higher in 1999, 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 during the second half of the year.
These transactions also enabled the Small Cap Fund to reduce its dividend and
capital gains distributions for the year.]
INVESTMENT POLICIES AND RESTRICTIONS
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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 redemption 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 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;
S-16
<PAGE>
(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;
(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
S-17
<PAGE>
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 utility company 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 would be 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.
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; Bache Capital Management, Inc. ("BCM") serves as Adviser to
the Balanced Fund; and Pacific Global serves
S-18
<PAGE>
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 BCM on November 10, 2000.
Under the Co-Management Agreement, the Manager and BCM ("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; Joseph Brinker, Manabi Hirasaki,
Siegfred S. Kagawa, Barbara A. Kelley, and William H. McCary (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. Thomas Hanson and Manabi Hirasaki own
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 Ryan Kelly.
BCM is a California corporation, all of the shares of which are owned by
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 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 BCM for its
services as Co-Manager to the Income and Equity Fund. For the fiscal years
ending December 31, 1998, 1999, and 2000, 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 for the
fiscal year ended December 31, 1998, because the
S-19
<PAGE>
Growth Fund had not yet commenced operations.
<TABLE>
<CAPTION>
Year Government Income and
Securities Fund Equity Fund Balanced Fund Growth Fund Small Cap Fund
<S> <C> <C> <C> <C> <C>
1998 $0 $0 $21,798 NA $80,152
1999 $0 $0 $26,397 $0 $60,844
2000 $[ ] $[ ] $[ ] $[ ] $[ ]
</TABLE>
For the fiscal years ending December 31, 1998, 1999, and 2000, the Advisers
received for their services to the Government Securities Fund and the
Balanced Fund the fees shown in the table below. Until November 10, 2000, the
Adviser to the Balanced Fund was Hamilton & Bache, Inc. ("H&B").
<TABLE>
<CAPTION>
<S> <C> <C>
Year Government Securities Fund Balanced Fund
1998 $0 $0
1999 $0 $0
2000 $[ ] $[ ]
</TABLE>
For the fiscal years ending December 31, 1998, 1999 and the period ended
November 10, 2000, no fees were paid to Hamilton & Bache, the prior
Co-Manager to the Income and Equity Fund, for its services. However, the
Manager gave shares of its common stock to Hamilton & Bache in lieu of cash
fees for its services as Adviser to the Balanced Fund and Co-Manager to the
Income and Equity Fund during the fiscal years ending December 31, 1998 and
1999. For the period from November 10, 2000 through December 31, 2000, no
fees were paid to BCM for its services as Co-Manager to the Income and Equity
Fund and Sub-Adviser to the Balanced Fund. The Manager anticipates giving
shares to BCM in lieu of cash fees for its services as Co-Manager to be
provided in fiscal year 2001.
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
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
INCOME AND EQUITY FUND
AVERAGE DAILY NET ASSETS MANAGEMENT FEE CO-MANAGEMENT FEE
<S> <C> <C>
First $100 million .40 .35
next $100 million .37 .33
next $100 million .34 .31
next $100 million .31 .29
next $100 million .28 .27
over $500 million .25 .25
<CAPTION>
BALANCED FUND AND GROWTH FUND
AVERAGE DAILY NET ASSETS MANAGEMENT FEE SUB-ADVISORY FEE
<S> <C> <C>
First $200 million .75 .40
next $200 million .70 .37
next $200 million .65 .34
next $200 million .60 .31
next $200 million .55 .28
over $1 billion .50 .25
<CAPTION>
SMALL CAP FUND
AVERAGE DAILY NET ASSETS MANAGEMENT FEE
<S> <C>
First $200 million .75
next $200 million .72
next $200 million .69
over $600 million .66
</TABLE>
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 certain Funds, 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, and (b) will
not waive its fee or absorb expenses of the Small Cap Fund or the Balanced
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.
Except with respect to the Growth Fund, the Company may reimburse
the Manager and/or the Co-Manager for fees so waived and expenses so assumed,
and for fees waived and expenses assumed in past years with respect to the
Funds (including the Small Cap Fund and the Balanced 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
S-21
<PAGE>
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 Fund and 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 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 301, 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, 1998, 1999, and 2000, 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 Commissions Amount Retained by Distributor
<S> <C> <C>
1998 $133,442 $22,593
1999 $70,588 $11,989
2000 $[ ] $[ ]
</TABLE>
In the fiscal year ended December 31, 2000, the Funds paid the Distributor
$[ ]in net underwriting discounts and commissions, $[ ]in contingent deferred
sales charges, $[ ] in brokerage commissions, and $[ ] in Rule 12b-1 fees.
S-22
<PAGE>
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
</TABLE>
<TABLE>
<CAPTION>
BALANCED FUND, GROWTH FUND, AND SMALL CAP FUND
As A
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>
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
S-23
<PAGE>
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, 2000,
the Funds made the following Rule 12b-1 payments:
<TABLE>
<CAPTION>
Government Income and
Securities Fund Equity Fund Balanced Fund Growth Fund Small Cap Fund
<S> <C> <C> <C> <C> <C>
Class A Shares $[ ] $[ ] $[ ] $[ ] $[ ]
Class C Shares $[ ] $[ ] $[ ] $[ ] $[ ]
</TABLE>
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 301, 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:
S-24
<PAGE>
<TABLE>
<CAPTION>
Year Government Income and
Securities Fund Equity Fund Balanced Fund Growth Fund Small Cap Fund
<S> <C> <C> <C> <C> <C>
1998 $2,412 $1,254 $3,114 NA $5,343
1999 $3,024 $2,127 $3,766 $104 $4,049
2000 $[ ] $[ ] $[ ] $[ ] $[ ]
</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>
Year Government Income and
Securities Fund Equity Fund Balanced Fund Growth Fund Small Cap Fund
<S> <C> <C> <C> <C> <C>
1998 $15,000 $0 $17,784 NA $31,016
1999 $15,000 $0 $18,032 $0 $29,413
2000 $[ ] $[ ] $[ ] $[ ] $[ ]
</TABLE>
PGIS did not receive any fees with respect to the Growth Fund for the fiscal
year ended December 31, 1998, 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
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
S-25
<PAGE>
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 301, Glendale, California 91206.
<TABLE>
<S> <C>
*Thomas M. Brinker (67)
Director
1 North Ormond Avenue President, Fringe Benefits, Inc./Financial Foresight, Ltd., d/b/a The Brinker
Havertown, Pennsylvania 19083 Organization (Financial services companies)
*Victoria Breen (49) Assistant Secretary and Director, Pacific Global Investment Management
Director Company, Pacific Global Investor Services, Inc.; General Agent,
603 West Ojai Avenue Transamerica Life Companies and Registered Principal, Transamerica
Ojai, California 93023 Financial Resources, Inc.; Branch Manager, Derby & Derby, Inc./Pacific
Asset Group, Inc./Financial West Group (Financial services companies)
L. Michael Haller, III (57) President, International Media Group, Inc.; Consultant, Asahi
Director Broadcasting Corp. (Entertainment companies)
5924 Colodny
Agoura, California 91301
*Thomas H. Hanson (51) Executive Vice President and Director, Pacific Global Investment
Vice President and Secretary Management Company; President and Director, Pacific Global Fund
Distributors, Inc.; President and Director, Pacific Global Investor
Services, Inc.; Owner, Director, Chairman, President, and CEO of TriVest Capital
Management, Inc.; Vice President and Director, Pacific Global Investment
Fund, Ltd.
*George A. Henning (53) Chairman, President, and Director, Pacific Global Investment Management
President and Chairman Company; 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 (44) Treasurer, Pacific Global Investment Management Company; Treasurer
Treasurer and Director, 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)
Takashi Makinodan, Ph.D. (76) Associate Director of Research, Geriatric Research Education Clinic
Director Center, VA Medical Center; Director, Medical Treatment Effectiveness
107 S. Barrington Place Program (MEDTEP), Center on Asian and Pacific Islanders; Professor of
Los Angeles, California 90049 Medicine, University of California, Los Angeles; Adjunct Professor of
Biology, University of Southern California (Medical Research)
Gerald E. Miller (71) Consultant for Securities Related Matters Director
Director
5262 Bridgetown Place
Westlake Village, CA 91362
</TABLE>
S-26
<PAGE>
<TABLE>
<S> <C>
Louise K. Taylor, Ph.D. (54) Superintendent, Monrovia Unified School District Directo
Director
325 East Huntington Drive
Monrovia, California 91016
</TABLE>
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, 2000, was $[ ].
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. L. Michael
Haller, Gerald E. Miller, and Louise K. Taylor are members of the Audit
Committee.
EXECUTIVE COMMITTEE: During intervals between Board Meetings, the
Executive Committee possesses and may exercise all of the powers of the Board
in the management of the Company except as to matters when Board action is
specifically required; included within the scope of such powers are matters
relating to valuation of securities held in each Fund's portfolio and the
pricing of each Fund's shares for purchase and redemption. George A. Henning
and Victoria Breen are members of the Executive Committee.
CODE OF ETHICS
The Fund adheres to a Code of Ethics established pursuant to Rule
17j-1 under the 1940 Act. The Code is designed to prevent unlawful practices
in connection with the purchase or sale of securities by persons associated
with the Fund. The Manager and the Advisers have included similar provisions
in their Codes of Ethics (collectively the "Codes"). The Codes require all
access persons to obtain prior clearance before engaging in personal
securities transactions. The Codes also contain other restrictions applicable
to specified types of transactions. In addition, all employees must report
their personal securities transactions within 10 days after the end of the
calendar quarter. Any material violation of the Codes relating to the Fund is
reported to the Board of the Fund. The Board also reviews the administration
of the Codes on an annual basis.
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, 2001, are listed below: [ to be updated]
S-27
<PAGE>
<TABLE>
<CAPTION>
FUND SHAREHOLDER PERCENTAGES
<S> <C> <C>
Balanced Fund (A) [NEED TO UPDATE] [NEED TO UPDATE]
Balanced Fund (C)
Government Securities Fund (A)
Government Securities Fund (C)
Growth Fund (A)
Growth Fund (C)
Income & Equity Fund (A)
Income & Equity Fund (C)
Small Cap Fund (A)
Small Cap Fund (C)
</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, 2001, the Directors and Officers of the Company,
as a group, owned [ ]% of the outstanding shares of the Small Cap Fund, [ ]%
of the outstanding shares of the Income and Equity Fund, [ ]% of
S-28
<PAGE>
the outstanding shares of the Growth Fund, and [ ]% of the outstanding
shares of the Government Securities Fund. As of January 31, 2001, the
Directors and Officers of the Company, as a group, owned less than [ ]% of
the Balanced Fund.
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.
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
S-29
<PAGE>
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.
S-30
<PAGE>
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.
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
S-31
<PAGE>
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 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.
S-32
<PAGE>
("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 OF 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.
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.
S-33
<PAGE>
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 of its own negligence,
lack of good faith, or willful misconduct.
S-34
<PAGE>
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-35
<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
S-36
<PAGE>
selected in such manner as the Company's Board deems fair and equitable. If
shareholders were to receive redemptions-in-kind, they would incur brokerage
costs should they wish to liquidate the portfolio securities received in such
payment of their redemption request. The Company does not anticipate making
redemptions-in-kind.
SUSPENSION OF REDEMPTIONS. 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-33 to
S-34 above and "Signatures and Signature Guarantees," on page S-30 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
S-37
<PAGE>
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) 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 benefited
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
S-38
<PAGE>
services provided, viewed in terms of the Manager's, each Adviser's or the
Co-Manager's responsibilities to the Funds or other accounts, if any, as to
which it exercises investment discretion.
The Advisers' and the Co-Manager's other accounts may have
investment objectives and programs that are similar to those of the Funds
they advise. Accordingly, occasions may arise when an Adviser or Co-Manager
engages in simultaneous purchase and sale transactions of securities that are
consistent with the investment objectives and programs of the Fund it advises
and other accounts. On those occasions, the Advisers and Co-Manager will
allocate purchase and sale transactions in an equitable manner according to
written procedures approved by the Board of Directors. Such procedures may,
in particular instances, be either advantageous or disadvantageous to a Fund.
The Distributor, a registered broker-dealer, may act as broker for
the Company, in conformity with the securities laws and rules thereunder. The
Distributor is a fully owned subsidiary of the Manager. In order for the
Distributor to effect any portfolio transactions for the Company on an
exchange or board of trade, the commissions received by it must be reasonable
and fair compared to the commissions paid to other brokers in connection with
comparable transactions involving similar securities or futures being
purchased or sold on an exchange or board of trade during a comparable period
of time. This standard would allow the Distributor to receive no more than
the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. The Company's Board of
Directors has approved procedures for evaluating the reasonableness of
commissions paid to the Distributor and periodically reviews these
procedures. The Distributor will not act as principal in effecting any
portfolio transactions for the Company.
For 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 Growth Fund Small Cap Fund
<S> <C> <C> <C> <C> <C>
1998 $5,656 $1,629 $13,207 NA $88,021
1999 $5,309 $765 $9,480 $1,319 $73,489
2000 $[ ] $[ ] $[ ] $[ ] $[ ]
</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 for
the fiscal year ended December 31, 1998, 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 Growth Fund Small Cap Fund
<S> <C> <C> <C> <C> <C>
1998 $0 $126 $937 NA $60,252
1999 $0 $120 $706 $240 $54,177
2000 $[ ] $[ ] $[ ] $[ ] $[ ]
</TABLE>
Of these amounts, no amounts were paid to brokers that provided
research and brokerage services. For the
S-39
<PAGE>
fiscal year ending December 31, 2000, brokerage commissions paid to the
Distributor constituted [ ]% of all brokerage commissions paid by the Income
and Equity Fund, [ ]% of all brokerage commissions paid by the Growth Fund,
[ ]% of all brokerage commissions paid by the Balanced Fund, and [ ]% of all
brokerage commissions paid by the Small Cap Fund. For the fiscal year ended
December 31, 2000, the dollar value of commissionable portfolio transactions
effected through the Distributor constituted [ ]% of all such transactions
effected by the Income and Equity Fund, [ ]% of all such transactions
effected by the Growth Fund, [ ]% of all such transactions effected by the
Balanced Fund, and [ ]% of all such transactions effected by the Small Cap
Fund.
S-40
<PAGE>
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
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.
S-41
<PAGE>
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, 2000. This information is calculated as
described above, in accordance with applicable 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 [ ]% [ ]% [ ]%
Income and Equity [ ]% [ ]% [ ]%
Balanced [ ]% [ ]% [ ]%
Growth [ ]% NA [ ]%
Small Cap [ ]% [ ]% [ ]%
</TABLE>
INDEPENDENT AUDITORS
______________, whose address is ____________________________________,
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.
S-42
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 2000
are included in each Fund's Annual Report, which are, except for pages 1
through 2 thereof, incorporated herein by reference and accompany this
Statement of Additional Information.
The financial highlights for the fiscal years ended December 31,
1996, 1997, 1998, 1999, and 2000 that are included in the Prospectus and the
financial statements for the fiscal year ended December 31, 2000, that are
incorporated by reference into this Statement of Additional Information have
been audited by ____________________, whose report thereon appears elsewhere
herein, have been included herein in reliance upon the report of such firm of
accountants, given upon their authority as experts in accounting and auditing.
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, 2000.
CLASS A SHARES
<TABLE>
<CAPTION>
Value of
Registrant's
Portfolio Number of Maximum
Securities and Outstanding Net Asset Initial Sales Total Offering
Fund Other Assets Shares Value per Share Charge Price per Share
<S> <C> <C> <C> <C> <C>
Government Securities Fund $[ ] [ ] $[ ] $.[ ] $[ ]
Income and Equity Fund $[ ] [ ] $[ ] $.[ ] $[ ]
Balanced Fund $[ ] [ ] $[ ] $.[ ] $[ ]
Growth Fund $[ ] [ ] $[ ] $.[ ] $[ ]
Small Cap Fund $[ ] [ ] $[ ] $.[ ] $[ ]
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
Value of Registrant's
Portfolio Securities and Number of Total Offering Price
Fund Other Assets Outstanding Shares per Share
<S> <C> <C> <C>
Government Securities Fund $[ ] [ ] $[ ]
Income and Equity Fund $[ ] [ ] $[ ]
Balanced Fund $[ ] [ ] $[ ]
Growth Fund $[ ] [ ] $[ ]
</TABLE>
S-43
<PAGE>
<TABLE>
<S> <C> <C> <C>
Small Cap Fund $[ ] [ ] $[ ]
</TABLE>
S-44
<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
S-45
<PAGE>
category than for debt in higher-rated categories.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
S-46
<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.
# # # 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.
C-1
<PAGE>
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 Bache Capital Management,
Inc. (Filed Herewith).
# # # 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 Bache Capital
Management, Inc. (Filed Herewith).
# # 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.
# 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.
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<PAGE>
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.
+++++ 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, Bache
Capital Management, Inc., and Pacific Global
Investors Services, Inc. (Filed Herewith).
8(e) [reserved]
+++++ 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) [reserved]
# # 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.
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<PAGE>
# # 9 Opinion and Consent of Counsel regarding the legality
of the securities being registered.
10 Consent of Ernst & Young LLP, Independent Auditors,
(to be filed by post-effective amendment).
11 Not applicable.
# # 12 Form of Subscription Agreement.
# # # 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.
+++++ 14(a) Rule 18f-3 Multiple Class Plan.
# # 14(b) Amended Schedule A to Rule 18f-3 Multiple Class Plan.
# # 14(c) Amended Schedule B-1 to Rule 18f-3 Multiple Class
Plan.
15 (Reserved)
# # # # # 16(a) Code of Ethics for Pacific Global Investment
Management Company.
# # # # # 16(b) Code of Ethics for Pacific Global Fund d/b/a Pacific
Advisors Fund, Inc. and Pacific Global Fund
Distributors, Inc.
16(c) Code of Ethics for Bache Capital Management, Inc
(Filed Herewith).
# # # # # 16(d) Code of Ethics for Spectrum Asset Management, Inc.
--------------------------
+ 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).
+++ Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Form N-1A Registration Statement (File No. 33-50208).
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<PAGE>
++++ 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).
# # Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Form N-1A Registration Statement (File No. 33-50208).
# # # # Incorporated herein by reference to Post-Effective Amendment No. 11
to Registrant's Form N-1A Registration Statement (File No. 33-50208).
# # # # # Incorporated herein by reference to Post-Effective Amendment No. 12
to Registrant's Form N-1A Registration Statement (File No. 33-50208).
C-5
<PAGE>
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.
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<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-7
<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-8
<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
Bache Capital Management, 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-9
<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 301
President, Director, Glendale, CA 91206
Secretary
William Hubbard McCary Agent, Representative, Financial
Director Planner
Capital Analysts, Inc.
21021 Ventura Blvd.
Suite 400
Woodland Hills, CA 91364
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
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 301
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-10
<PAGE>
2292 East Hueneme Road
Oxnard, CA 93033
Joseph Brinker Branch Manager
Director The Brinker Organization
One North Ormond Avenue
Havertown, Pa 19083
General Agent
Transamerica Financial Resources, Inc.
One North Ormond Avenue
Havertown, Pa 19083
Registered Principal
Transamerica Financial Resources, Inc.
One North Ormond Avenue
Havertown, Pa 19083
Barbara A. Kelley President
Director Transamerica Financial Services, Inc.
1150 S. Olive
Los Angeles, CA 90015
Consultant
437 West Walnut Street
Pasadena, CA 91103
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
Bache Capital Stephen Bache Formerly Chief Investment
Management, Inc. President officer of Hamilton & Bache,
Inc., an investment advisory
firm.
3 Berkshire Place
La Canada, CA 91011
</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 301 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.
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<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. 13 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Glendale and State of California, on the 27th
day of December, 2000.
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. 13 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Victoria Breen Director December 27, 2000
---------------------------
Victoria Breen
/s/ Thomas M. Brinker, Sr. Director December 27, 2000
---------------------------
Thomas M. Brinker, Sr.
/s/ L. Michael Haller, III Director December 27, 2000
---------------------------
L. Michael Haller, III
/s/ Thomas H. Hanson Vice President and December 27, 2000
--------------------------- Secretary
Thomas H. Hanson
/s/ George A. Henning President and December 27, 2000
--------------------------- Chairman of
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SIGNATURE TITLE DATE
--------- ----- ----
George A. Henning the Board (Principal
Executive Officer)
/s/ Paul W. Henning Treasurer (Principal December 27, 2000
--------------------------- Financial and
Paul W. Henning Accounting Officer)
/s/ Takashi Makinodan Director December 27, 2000
---------------------------
Takashi Makinodan
/s/ Gerald E. Miller Director December 27, 2000
---------------------------
Gerald E. Miller
/s/ Louise K. Taylor Director December 27, 2000
---------------------------
Louise K. Taylor
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<PAGE>
EXHIBITS
4(e) Sub-Advisory Agreement by and among Pacific Global Fund, Inc. d/b/a
Pacific Advisors Fund, Inc., on behalf of the Balanced Fund, Pacific
Global Investment Management Company, and Bache Capital Management, Inc.
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 Bache Capital
Management, 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, Bache Capital
Management, Inc., and Pacific Global Investors Services, Inc.
16(c) Code of Ethics for Bache Capital Management, Inc.
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