<PAGE>
Registration Nos. 33-50208
811-7062
As filed with the Securities and Exchange Commission on April 26, 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. 12 /X/
---
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13 /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
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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X 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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On _________________ pursuant to Paragraph (a)(1)
- -----
75 days after filing pursuant to Paragraph (a)(2)
- -----
On _________________ pursuant to Paragraph (a)(2) of Rule 485.
- -----
The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its five series under the Securities Act of 1933
pursuant to Section 24(f) under the Investment Company Act of 1940.
<PAGE>
PACIFIC GLOBAL FUND, INC.
d/b/a PACIFIC ADVISORS FUND INC.
CROSS-REFERENCE SHEET
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PART A
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FORM N-1A ITEM NO. CAPTION IN PROSPECTUS
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1 Front and Back Cover Pages Cover Page and Back Cover
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2 Risk/Return Summary; Investments, Introducing Our Funds; The Overview;
Risks, and Performance Which of our Funds is right for you;
What are the main risks in investing
in our Funds; Past Performance
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3 Risk/Return Summary; Fee Table Understanding Expenses; Fee Table; Fee
example
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4 Investment Objectives, Principal Understanding Each Fund; Risk Factors;
Investment Strategies, and Other Investment Practices and
Related Risks Policies of the Funds
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5 Management's Discussion of Fund Provided in the Funds' Annual Reports
Performance
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6 Management, Organization, and Management of the Fund
Capital Structure
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7 Shareholder Information Understanding Earnings and Taxes;
Account Policies and Valuation; How to
Buy, Sell, and Exchange Shares
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8 Distribution Arrangements Understanding Expenses; Rule 12b-1
fees; Sales charges for Class A
shares; How can you reduce sales
charges
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9 Financial Highlights Information Financial Highlights
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PART B
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CAPTION IN
FORM N-1A ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION
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10 Cover Page and Table of Contents Cover Page and Table of Contents
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11 Fund History The Company and the Funds
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12 Description of the Fund and Its The Company and the Funds; Additional
Investments and Risks Information Concerning Investment
Strategies And Risks; Investment
Policies and Restrictions
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13 Management of the Fund Management of the Company and Its
Funds; Directors and Officers;
Committees of the Board of Directors;
Principal Holders of Securities;
Waiver of Initial Sales Charge on
Class A Shares
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<PAGE>
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14 Control Persons and Principal Principal Holders of Securities;
Holders of Securities Directors and Officers
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15 Investment Advisory and Other Investment Management and Other
Services Services; Investment Manager, Co-
Manager, and Advisers; Distribution of
Fund Shares; Transfer Agent and
Administrative Services Agent;
Custodian; Independent Auditors
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16 Brokerage Allocation and Other Portfolio Transactions; Distribution
Practices of Fund Shares
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17 Capital Stock and Other Capital Stock
Securities
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18 Purchase, Redemption, and Pricing Distribution of Fund Shares;
of Shares Additional Information Concerning
Purchase, Redemption, and Pricing of
Shares; Valuation of Fund Shares;
Specimen Price Make Up Sheet
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19 Taxation of the Fund Taxes
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20 Underwriters Distribution of Fund Shares
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21 Calculation of Performance Data Performance Information
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22 Financial Statements Financial Statements
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PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE>
[GRAPHIC]
PROSPECTUS -- may 1, 2000
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 9
UNDERSTANDING EXPENSES PAGE 10
Fee table 10
Fee example 13
SALES CHARGES AND 12b-1 FEES PAGE 14
Two classes of shares 14
Sales charges for Class A shares 14
How can you reduce sales charges? 15
Rule 12b-1 fees 16
UNDERSTANDING EACH FUND PAGE 17
Government Securities Fund 17
Income and Equity Fund 18
Balanced Fund 20
Growth Fund 21
Small Cap Fund 22
RISK FACTORS, OTHER INVESTMENT PRACTICES, AND POLICIES OF
THE FUNDS PAGE 23
MANAGEMENT OF THE FUND PAGE 25
UNDERSTANDING EARNINGS AND TAXES PAGE 28
HOW TO BUY, SELL, AND EXCHANGE SHARES PAGE 29
Buying shares 29
Selling shares 30
Exchanging shares 31
Automatic plans 33
ACCOUNT POLICIES PAGE 34
PERFORMANCE QUOTATIONS PAGE 35
FINANCIAL HIGHLIGHTS PAGE 36
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
---------------------------------------
- ----------------------------------------------------------------------
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). There is no information for the Growth Fund because it began operations
on May 3, 1999.
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%
</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%
</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%
</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%
</TABLE>
8
<PAGE>
BEST AND WORST QUARTERLY RETURNS (CLASS A SHARES)
<TABLE>
<CAPTION>
BEST QTR. WORST QTR.
DATE CHANGE DATE CHANGE
<S> <C> <C> <C> <C>
Government Securities Fund 1997/4th Q 9.74% 1999/1st Q -6.33%
Income and Equity Fund 1997/2nd Q 5.49% 1996/2nd Q -1.73%
Balanced Fund 1997/2nd Q 10.41% 1998/3rd Q -7.46%
Small Cap Fund 1995/2nd Q 24.73% 1998/3rd Q -23.07%
</TABLE>
The sales charge is not included in the figures shown in the bar chart. If it
were included, each Fund's returns would be lower than those shown.
RISK/RETURN TABLE (CLASS A SHARES)
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
<S> <C> <C> <C>
Government Securities Fund -9.46% 7.45% 5.05%
Lehman Intermediate T-Bond Index* 0.44% 7.10% 5.32%
Income and Equity Fund -4.61% 6.48% 4.63%
Lehman Intermediate T-Bond Index* 0.44% 7.10% 5.32%
Balanced Fund 6.17% 10.76% 7.25%
S&P 500 Index 19.53% 28.60% 21.71%
Lehman Intermediate T-Bond Index* 0.44% 7.10% 5.32%
Small Cap Fund -20.60% 4.92% 5.66%
Russell 2000 Index 19.62% 16.70% 14.36%
</TABLE>
The figures above include the sales charge.
* The Lehman Intermediate Treasury Bond Index has replaced the Lehman Long-Term
Treasury Bond Index as the benchmark for the Government Securities, Income and
Equity and Balanced Funds. The Lehman Intermediate Treasury Bond Index was
selected because it more accurately reflects the average maturity of the bond
position in each of the funds. As of December 31, 1999, the Lehman Long-Term
Treasury Bond Index had a 1-year return of -8.08%, a 5-year return of 9.24% and
a return of 6.9% since the Funds' inception.
Note: Standard & Poor's 500 Index (S&P 500-Registered Trademark-) is a widely
recognized unmanaged index of common stocks. Russell 2000 Index is an unmanaged
index of 2,000 small company stocks. Lehman 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.
9
<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
<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 2.69% 2.69%
Total Annual Fund Operating
Expenses 3.57% 4.34%
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 3.06% 2.55%
Total Annual Fund Operating
Expenses 4.06% 4.30%
</TABLE>
10
<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 2.69% 2.72%
Total Annual Fund Operating
Expenses 3.62% 4.47%
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(2) 8.84% 8.53%
Total Annual Fund Operating
Expenses 9.75% 10.28%
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 2.94% 2.63%
Total Annual Fund Operating
Expenses 3.92% 4.38%
</TABLE>
1 We charge the deferred sales charge only if you sell your Class C Shares
within one year of purchase.
2 "Other Expenses" for the Growth Fund are based on annualized expenses from
inception to 12/31/99.
11
<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>
PGIMC will reduce its management fees for the Balanced Fund by 0.40% of average
daily net assets for both Class A and Class C shares. Net of this fee reduction,
the Balanced Fund's total fund operating expenses are 3.22% for Class A shares
and 4.07% for Class C shares. Hamilton & Bache ("H&B") 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 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 H&B 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.
12
<PAGE>
EXAMPLE
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 $ 815 $1,510 $2,225 $ 4,103
SECURITIES FUND Class C 534 1,411 2,299 4,571
INCOME AND Class A $ 862 $1,646 $2,445 $ 4,510
EQUITY FUND Class C 530 1,399 2,280 4,538
BALANCED FUND Class A $ 916 $1,613 $2,329 $ 4,207
Class C 547 1,448 2,359 4,678
GROWTH FUND Class A $1,494 $3,203 $4,753 $ 8,029
Class C 1,128 3,024 4,725 8,252
SMALL CAP FUND Class A $ 944 $1,695 $2,463 $ 4,454
Class C 538 1,422 2,317 4,604
</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.
13
<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>
14
<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
15
<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.
16
<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>
17
<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>
18
<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>
19
<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>
20
<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>
21
<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>
22
<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
23
<PAGE>
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.
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
Hamilton & Bache (the "co-manager");
- - are solely responsible for the administrative management of the Income and
Equity Fund;
- - continuously evaluate, recommend, and monitor the co-manager's and each
adviser's performance;
- - are responsible for managing the Company's operations and business affairs and
supervising our administrative services agent; and
- - are ultimately responsible for all the Funds.
PGIMC began operations on December 17, 1991. They are located at 206 North
Jackson Street, Suite 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.
26
<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.
HAMILTON & BACHE, INC. ("Hamilton & Bache") is the adviser to the Balanced Fund
and co-manager of the Income and Equity Fund. Mary N. Hamilton and
Stephen K. Bache are portfolio managers for the Balanced Fund. Mr. Bache is also
co-portfolio manager of the Income and Equity Fund.
Hamilton & Bache is wholly-owned by Mary N. Hamilton, founder and President, and
Stephen K. Bache, CFA, Chief Investment Officer. They have been associated with
the firm since it began operations in 1990. Hamilton & Bache had $133 million in
assets under management, as of December 31, 1999. Hamilton & Bache is located at
206 North Jackson Street, Suite 201, Glendale, CA 91206.
DISTRIBUTOR
PACIFIC GLOBAL FUND DISTRIBUTORS, INC. ("PGFD") is a wholly owned subsidiary of
PGIMC and is the exclusive distributor of our shares. They are located at 206
North Jackson Street, Suite 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.
27
<PAGE>
MANAGEMENT AND ADVISORY FEES
The Fund pays PGIMC and Hamilton and Bache (as co-manager of the Income and
Equity Fund only) directly for their services to the Funds. The management fee
paid by each Fund is as follows:
- - 0.65% from the Government Securities Fund;
- - 0.75% from the Income and Equity Fund;
- - 0.75% from the Balanced Fund;
- - 0.75% from the Growth Fund;
- - 0.75% from the Small Cap Fund.
As described above (see Fee Table, page 11), PGIMC and Hamilton & Bache (with
respect to the Income and Equity Fund only), are waiving their management fees
and are absorbing or reimbursing expenses in order to keep the Fund expenses of
the Government Securities Fund, Income and Equity Fund, and Growth Fund below
certain levels. In addition, PGIMC will reduce its management fee on the
Balanced Fund by 0.40% of average daily net assets. PGIMC may change this
arrangement on any Fund with 90 days' notice.
28
<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.
29
<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
29
<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.
30
<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
31
<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.
32
<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.
33
<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.
34
<PAGE>
PERFORMANCE QUOTATIONS
- ---------------------------
- --------------------------------------------------------------------
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.
35
<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 Ernst & Young LLP, our
independent auditors, whose report, along with the Fund's financial statements
are included in the Annual Report, which is available upon request. This is the
financial history for Class A and Class C shares of each Fund.
36
<PAGE>
GOVERNMENT SECURITIES FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A SHARES
FOR THE YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.59 $ 9.87 $ 9.30 $10.16 $ 8.82
------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income 0.30 0.34 0.35 0.33 0.31
Net realized and
unrealized gain
(loss) on securities (0.84) 1.38 0.71 (0.65) 1.53
------ ------ ------ ------ ------
Total from Investment
Operations (0.54) 1.72 1.06 (0.32) 1.84
------ ------ ------ ------ ------
Less Distributions
Distributions from net
investment income (0.29) (0.33) (0.35) (0.32) (0.31)
Distributions from net
capital gains (0.02) (0.67) (0.14) (0.22) (0.19)
------ ------ ------ ------ ------
Total Distributions (0.31) (1.00) (0.49) (0.54) (0.50)
------ ------ ------ ------ ------
Net Asset Value, End of
Period $ 9.74 $10.59 $ 9.87 $ 9.30 $10.16
------ ------ ------ ------ ------
Total Investment
Return(b) (5.04%) 17.82% 11.72% (3.15%) 20.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's) $5,220 $5,456 $3,939 $7,096 $5,837
Ratio of net investment
income to average net
assets
With expense
reductions 2.99% 3.32% 3.36% 3.46% 3.75%
Without expense
reductions 1.02% 1.04% 1.51% (2.17%) (2.60%)
Ratio of expenses to
average net assets
With expense
reductions 1.60% 1.66% 1.65% 1.66% 1.65%
Without expense
reductions 3.57% 3.94% 3.51% 2.95% 2.80%
Fund portfolio turnover
rate 147.01% 41.98% 68.52% 50.49% 57.85%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES
FOR THE YEAR ENDED APRIL 2, 1998(C) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
Net Asset Value, Beginning of Period $10.50 $10.24
------ ------
Income from Investment Operations
Net Investment Income 0.27 0.23
Net realized and unrealized gain
(loss) on securities (0.88) 1.02
------ ------
Total from Investment Operations (0.61) 1.25
------ ------
Less Distributions
Distributions from net investment
income (0.24) (0.32)
Distributions from net capital gains (0.02) (0.67)
------ ------
Total Distributions (0.26) (0.99)
------ ------
Net Asset Value, End of Period $ 9.63 $10.50
------ ------
Total Investment Return(b) (5.77%) 12.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $1,923 $ 795
Ratio of net investment income to
average net assets
With expense reductions 2.18% 2.05%(a)
Without expense reductions 0.22% 0.63%(a)
Ratio of expenses to average net
assets
With expense reductions 2.38% 1.06%(a)
Without expense reductions 4.34% 2.48%(a)
</TABLE>
(a) Not Annualized
(b) The Fund's maximum sales charge is not included in the total return
computation.
(c) Commencement of Operations
37
<PAGE>
INCOME AND EQUITY FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A SHARES
FOR THE YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.74 $ 9.98 $ 9.42 $ 9.67 $ 8.98
------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income 0.43 0.37 0.33 0.35 0.31
Net realized and
unrealized gain
(loss) on securities (0.39) 0.83 0.56 (0.19) 0.72
------ ------ ------ ------ ------
Total from Investment
Operations 0.04 1.20 0.89 0.16 1.03
------ ------ ------ ------ ------
Less Distributions
Distributions from net
investment income (0.37) (0.34) (0.33) (0.35) (0.31)
Distributions from net
capital gains (0.02) (0.10) - (0.06) (0.03)
------ ------ ------ ------ ------
Total Distributions (0.39) (0.44) (0.33) (0.41) (0.34)
------ ------ ------ ------ ------
Net Asset Value, End of
Period $10.39 $10.74 $ 9.98 $ 9.42 $ 9.67
------ ------ ------ ------ ------
Total Investment
Return(b) 0.19% 12.14% 9.60% 1.78% 11.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's) $2,664 $2,646 $1,894 $1,211 $1,071
Ratio of net investment
income to average net
assets
With expense
reductions 4.08% 3.68% 3.56% 3.75% 4.06%
Without expense
reductions 1.86% 0.83% (0.96%) (1.69%) (2.32%)
Ratio of expenses to
average net assets
With expense
reductions 1.85% 1.83% 1.85% 1.85% 1.86%
Without expense
reductions 4.06% 4.67% 6.38% 7.29% 8.25%
Fund portfolio turnover
rate 37.34% 16.72% 42.30% 28.23% 33.40%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES
FOR THE YEAR ENDED APRIL 2, 1998(C) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
Net Asset Value, Beginning of Period $10.62 $10.39
------ ------
Income from Investment Operations
Net Investment Income 0.41 0.22
Net realized and unrealized gain
(loss) on securities (0.43) 0.43
------ ------
Total from Investment Operations (0.02) 0.65
------ ------
Less Distributions
Distributions from net investment
income (0.43) (0.32)
Distributions from net capital gains (0.02) (0.10)
------ ------
Total Distributions (0.45) (0.42)
------ ------
Net Asset Value, End of Period $10.15 $10.62
------ ------
Total Investment Return(b) (0.02%) 6.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $1,850 $ 702
Ratio of net investment income to
average net assets
With expense reductions 3.45% 2.16%(a)
Without expense reductions 1.65% 0.31%(a)
Ratio of expenses to average net
assets
With expense reductions 2.51% 1.43%(a)
Without expense reductions 4.30% 3.28%(a)
</TABLE>
(a) Not Annualized
(b) The Fund's maximum sales charge is not included in the total return
computation.
(c) Commencement of Operations
38
<PAGE>
BALANCED FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A SHARES
FOR THE YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.69 $12.06 $10.66 $ 9.31 $ 8.75
------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income 0.12 0.03 - 0.09 0.18
Net realized and
unrealized gain
(loss) on securities 1.47 0.90 1.62 1.39 0.57
------ ------ ------ ------ ------
Total from Investment
Operations 1.59 0.93 1.62 1.48 0.75
------ ------ ------ ------ ------
Less Distributions
Distributions from net
investment income (0.12) - (0.01) (0.09) (0.18)
Distributions from net
capital gains (0.12) (0.30) (0.21) (0.04) (0.01)
------ ------ ------ ------ ------
Total Distributions (0.24) (0.30) (0.22) (0.13) (0.19)
------ ------ ------ ------ ------
Net Asset Value, End of
Period $14.04 $12.69 $12.06 $10.66 $ 9.31
------ ------ ------ ------ ------
Total Investment
Return(b) 12.61% 7.76% 15.24% 15.92% 8.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's) $7,008 $6,420 $5,593 $3,187 $2,219
Ratio of net investment
income to average net
assets
With expense
reductions 0.91% 0.22% (0.03%) 1.12% 2.46%
Without expense
reductions 0.51% (0.18%) (0.50%) (0.76%) (0.62%)
Ratio of expenses to
average net assets
With expense
reductions 3.22% 3.48% 3.28% 2.48% 2.24%
Without expense
reductions 3.62% 3.88% 3.75% 4.36% 5.31%
Fund portfolio turnover
rate 52.47% 53.97% 64.13% 65.94% 41.23%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES
FOR THE YEAR ENDED APRIL 2, 1998(C) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
Net Asset Value, Beginning of Period $12.61 $13.09
------ ------
Income from Investment Operations
Net Investment Income 0.03 (0.04)
Net realized and unrealized gain
(loss) on securities 1.42 (0.13)
------ ------
Total from Investment Operations 1.45 (0.17)
------ ------
Less Distributions
Distributions from net investment
income (0.03) (0.01)
Distributions from net capital gains (0.12) (0.30)
------ ------
Total Distributions (0.15) (0.31)
------ ------
Net Asset Value, End of Period $13.91 $12.61
------ ------
Total Investment Return(b) 11.57% (1.28%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $1,552 $ 378
Ratio of net investment income to
average net assets
With expense reductions 0.01% (0.64%)(a)
Without expense reductions (0.39%) (0.91%)(a)
Ratio of expenses to average net
assets
With expense reductions 4.07% 3.12%(a)
Without expense reductions 4.47% 3.39%(a)
</TABLE>
(a) Not Annualized
(b) The Fund's maximum sales charge is not included in the total return
computation.
(c) Commencement of Operations
39
<PAGE>
GROWTH FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A SHARES
MAY 3, 1999(C) TO
DECEMBER 31, 1999
<S> <C>
Net Asset Value, Beginning of Period $10.00
------
Income from Investment Operations
Net Investment Income (0.02)
Net realized and unrealized gain (loss) on
securities 1.69
------
Total from Investment Operations 1.67
------
Less Distributions
Distributions from net investment income -
Distributions from net capital gains -
------
Total Distributions -
------
Net Asset Value, End of Period $11.67
------
Total Investment Return(b) 16.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 328
Ratio of net investment income to average net
assets
With expense reductions (0.27%)(a)
Without expense reductions (8.40%)(a)
Ratio of expenses to average net assets
With expense reductions 1.63%(a)
Without expense reductions 9.75%(a)
Fund portfolio turnover rate 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES
MAY 3, 1999(C) TO
DECEMBER 31, 1999
<S> <C>
Net Asset Value, Beginning of Period $10.00
------
Income from Investment Operations
Net Investment Income (0.04)
Net realized and unrealized gain (loss) on
securities 1.65
------
Total from Investment Operations 1.61
------
Less Distributions
Distributions from net investment income -
Distributions from net capital gains -
------
Total Distributions -
------
Net Asset Value, End of Period $11.61
------
Total Investment Return(b) 16.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 278
Ratio of net investment income to average net
assets
With expense reductions (0.61%)(a)
Without expense reductions (8.74%)(a)
Ratio of expenses to average net assets
With expense reductions 2.16%(a)
Without expense reductions 10.28%(a)
</TABLE>
(a) Not Annualized
(b) The Fund's maximum sales charge is not included in the total return
computation.
(c) Commencement of Operations
40
<PAGE>
SMALL CAP FUND
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A SHARES
FOR THE YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $14.23 $ 17.51 $ 16.47 $11.82 $10.35
------ ------- ------- ------ ------
Income from Investment
Operations
Net Investment Expense (0.61) (0.58) (0.38) (0.21) (0.08)
Net realized and
unrealized gain
(loss) on securities (1.63) (2.34) 1.52 5.35 1.89
------ ------- ------- ------ ------
Total from Investment
Operations (2.24) (2.92) 1.14 5.14 1.81
------ ------- ------- ------ ------
Less Distributions
Distributions from net
capital gains (0.01) (0.36) (0.10) (0.49) (0.34)
------ ------- ------- ------ ------
Total Distributions (0.01) (0.36) (0.10) (0.49) (0.34)
------ ------- ------- ------ ------
Net Asset Value, End of
Period $11.98 $ 14.23 $ 17.51 $16.47 $11.82
------ ------- ------- ------ ------
Total Investment
Return(b) (15.75%) (16.66%) 6.95% 43.70% 17.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's) $6,976 $ 9,331 $11,125 $8,549 $4,279
Ratio of net investment
income to average net
assets
With expense
reductions (3.36%) (3.71%) (2.82%) (2.06%) (0.71%)
Without expense
reductions (3.36%) (3.71%) (2.99%) (2.39%) (1.88%)
Ratio of expenses to
average net assets
With expense
reductions 3.92% 4.02% 3.18% 2.91% 2.49%
Without expense
reductions 3.92% 4.02% 3.35% 3.24% 3.64%
Fund portfolio turnover
rate 68.18% 49.63% 30.72% 51.83% 44.95%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES
FOR THE YEAR ENDED APRIL 2, 1998(C) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
Net Asset Value, Beginning of Period $14.24 $19.70
------ ------
Income from Investment Operations
Net Investment Expense (0.18) (0.29)
Net realized and unrealized gain
(loss) on securities (2.12) (4.81)
------ ------
Total from Investment Operations (2.30) (5.10)
------ ------
Less Distributions
Distributions from net capital gains (0.01) (0.36)
------ ------
Total Distributions (0.01) (0.36)
------ ------
Net Asset Value, End of Period $11.93 $14.24
------ ------
Total Investment Return(b) (16.16%) (25.88%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 459 $ 239
Ratio of net investment income to
average net assets
With expense reductions (3.78%) (3.68%)(a)
Without expense reductions (3.78%) (3.68%)(a)
Ratio of expenses to average net
assets
With expense reductions 4.38% 3.85%(a)
Without expense reductions 4.38% 3.85%(a)
</TABLE>
(a) Not Annualized
(b) The Fund's maximum sales charge is not included in the total return
computation.
(c) Commencement of Operations
41
<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 May 1, 2000. You may
obtain a copy of the Prospectus by calling Pacific Global Investor Services,
Inc., at the telephone number above.
The date of this Statement of Additional Information is May 1, 2000.
<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-21
Transfer Agent and Administrative Services Agent......................................................S-23
Custodian.............................................................................................S-24
Management of the Company and Its Funds........................................................................S-24
Directors and Officers................................................................................S-24
Committees of the Board of Directors..................................................................S-25
Code of Ethics........................................................................................S-26
Principal Holders of Securities.......................................................................S-26
Capital Stock..................................................................................................S-30
Series and Classes of Shares..........................................................................S-30
Meetings and Voting Rights............................................................................S-30
Taxes..........................................................................................................S-31
Additional Information Concerning Purchase, Redemption, and Pricing of Shares..................................S-31
Trade Date Procedures.................................................................................S-31
Reducing Your Sales Charge -- Class A Shares..........................................................S-32
Additional Shareholder Services.......................................................................S-33
Telephone Exchanges and Redemptions...................................................................S-34
Exchanges of Shares...................................................................................S-35
Redemption............................................................................................S-36
Retirement Plans......................................................................................S-38
Portfolio Transactions.........................................................................................S-38
Valuation of Fund Shares.......................................................................................S-40
Performance Information........................................................................................S-41
Independent Auditors...........................................................................................S-41
Financial Statements...........................................................................................S-42
S-2
<PAGE>
Specimen Price Makeup Sheet....................................................................................S-42
Appendix.......................................................................................................S-43
</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.
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
S-4
<PAGE>
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 strategies that may be used by the Funds and
the risks of those investments and strategies.
S-5
<PAGE>
MONEY MARKET INSTRUMENTS
Each Fund may use U.S. dollar denominated money market instruments
rated within the two highest credit categories by any NRSRO or, if not rated,
of comparable investment quality as determined by the Manager or the Fund's
Adviser, as appropriate. The money market instruments that may be used by
each Fund may include:
UNITED STATES GOVERNMENT OBLIGATIONS. These consist of various types
of marketable securities issued by the United States Treasury, I.E., bills,
notes and bonds. These securities are direct obligations of the United States
Government and differ mainly in the length of their maturity. Treasury bills,
the most frequently issued marketable government security, have a maturity of
up to one year and are issued on a discount basis.
UNITED STATES GOVERNMENT AGENCY SECURITIES. These consist of debt
securities issued by agencies and instrumentalities of the United States
Government. These securities are either; (i) backed by the full faith and
credit of the United States Government (E.G., United States Treasury Bills);
(ii) guaranteed by the United States Treasury (E.G., Government National
Mortgage Association mortgage-backed securities); (iii) supported by the
issuing agency's or instrumentality's right to borrow from the United States
Treasury (E.G., Federal National Mortgage Association Discount Notes); or
(iv) supported only by the issuing agency's or instrumentality's own credit
(E.G., securities issued by the Farmer's Home Administration).
BANK AND SAVINGS AND LOAN OBLIGATIONS. These include certificates of
deposit, bankers' acceptances, and time deposits. Certificates of deposit
generally are short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in the
issuing institution. Bankers' acceptances are time drafts drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction (E.G., to finance the import, export, transfer, or storage of
goods). With a bankers' acceptance, the borrower is liable for payment as is the
bank, which unconditionally guarantees to pay the draft at its face amount on
the maturity date. Most bankers' acceptances have maturities of six months or
less and are traded in secondary markets prior to maturity. Time deposits are
generally short-term, interest-bearing negotiable obligations issued by
commercial banks against funds deposited in the issuing institutions. The Funds
will not invest in any security issued by a commercial bank or a savings and
loan association unless the bank or savings and loan association is organized
and operating in the United States, has total assets of at least one billion
dollars, and is a member of the Federal Deposit Insurance Corporation ("FDIC"),
in the case of banks, or insured by the FDIC in the case of savings and loan
associations; provided, however, that such limitation will not prohibit
investments in foreign branches of domestic banks which meet the foregoing
requirements. The Funds will not invest in time-deposits maturing in more than
seven days.
SHORT-TERM CORPORATE DEBT INSTRUMENTS. These include commercial paper,
which is short-term, unsecured promissory notes issued by corporations to
finance short-term credit needs. Commercial paper is usually sold on a discount
basis and has a maturity at the time of issuance not exceeding nine months. Also
included are non-convertible corporate debt securities (E.G., bonds and
debentures). Corporate debt securities with a remaining maturity of less than 13
months are liquid (and tend to become more liquid as their maturities lessen)
and are traded as money market securities. Each Fund may purchase corporate debt
securities having greater maturities.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements. A
repurchase agreement is an instrument under which the investor (such as a Fund)
acquires ownership of a security (known as the "underlying security") and the
seller (I.E., a bank or primary dealer) agrees, at the time of the sale, to
repurchase the underlying security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period,
unless the seller defaults on its repurchase obligations. The underlying
securities will consist only of high-grade money market instruments, including
securities issued by the U.S. Government, its agencies or instrumentalities
("U.S. Government Securities"). Repurchase agreements are, in effect,
collateralized by the underlying securities, and, during the term of a
repurchase agreement, the seller will be required to mark-to-market such
securities every business day and to provide such additional collateral as is
necessary to maintain the value of all collateral at a level at least equal to
the repurchase price. Repurchase agreements usually are for short periods, often
under one week. No Fund will enter
S-6
<PAGE>
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 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
S-7
<PAGE>
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 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
S-8
<PAGE>
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 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
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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 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
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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 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.
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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 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
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involved would have a material effect on that Fund's investment in the
securities being loaned. If the borrower fails to maintain the requisite amount
of collateral, the loan will automatically terminate, and the lending Fund will
be permitted to use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral.
As with any extensions of credit, there are risks of delay in receiving
additional collateral or in the recovery of the securities or, in some cases,
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will be made only when
the Company's Board of Directors considers the borrowing broker-dealers or
financial institutions to be creditworthy and of good standing and when the
Manager or a Fund's Adviser believes that the interest earned from such loans
justifies the attendant risks.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Government Securities Fund, the Balanced Fund and the Small Cap
Fund may each invest in other investment companies. Each Fund's investment in
other investment companies is limited in amount by the 1940 Act, so that each
Fund may purchase shares in another investment company unless (i) such a
purchase would cause the Fund to own, in the aggregate, more than 3% of the
total outstanding voting stock of the acquired company, (ii) such a purchase
would cause the Fund to have more than 5% of its total assets invested in one
investment company, (iii) such a purchase would cause the Fund to have more than
10% of its total assets invested in all other investment companies in the
aggregate, or (iv) all Funds in the Company would own more than 10% of the total
outstanding voting stock of such registered investment company. Such investments
may involve the payment of substantial premiums above the value of such
investment companies' portfolio securities. In addition, the return from such an
investment will be reduced by the operating expenses and fees of such other
investment companies, including applicable advisory fees. Although each Fund,
other than the Income and Equity Fund and the Growth Fund, is permitted to
invest in other investment companies, each Fund has no current intention (i.e.,
in the next year) of so doing.
DEPOSITARY RECEIPTS AND FOREIGN SECURITIES
Each of the Funds, as specified in its investment program, may invest
in foreign securities. Investments in foreign equity securities will be made
primarily through the purchase of ADRs. Certain Funds may also utilize European
Depositary Receipts ("EDRs") and may make direct market purchases of equity and
fixed-income securities of foreign issuers. ADRs are certificates issued by a
U.S. bank or trust company and represent the right to receive securities of a
foreign issuer deposited in a domestic bank or foreign branch of a U.S. bank and
traded on a U.S. exchange or in the OTC securities market. EDRs are receipts
issued in Europe generally by a foreign bank or trust company that evidence
ownership of foreign or domestic securities. Generally, ADRs are in registered
form and EDRs are in bearer form. There are no fees imposed on the purchase or
sale of ADRs or EDRs during an initial public offering, although the issuing
bank or trust company may impose charges for the collection of dividends and the
conversion of ADRs or EDRs into the underlying securities. Investment in ADRs
has certain advantages over direct investment in the underlying foreign
securities since (i) ADRs are U.S. dollar-denominated investments which are
easily transferable and for which market quotations are readily available, and
(ii) issuers whose securities are represented by ADRs are subject to the same
auditing, accounting and financial reporting standards as domestic issuers. EDRs
are not necessarily denominated in the currency of the underlying security.
To the extent that a fund invests in foreign securities, it may be
subject to risks that are different, in some respects, from the risks associated
with an investment in a mutual fund that invests only in securities of domestic
issuers. Those risks include: (i) less publicly available information about the
securities and about the foreign company or government issuing them; (ii) less
comprehensive accounting, auditing, and financial reporting standards,
practices, and requirements; (iii) stock markets outside the United States may
be less developed or efficient than those in the United States and government
supervision and regulation of those stock markets and brokers and the issuers in
those markets is less comprehensive than that in the United States; (iv) the
securities of some foreign issuers may be less liquid and more volatile than
securities of comparable domestic issuers; (v) settlement of transactions with
respect to foreign securities may sometimes be delayed beyond periods customary
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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.
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
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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, 1998 and 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Government Income and
Security Fund Equity Fund Balanced Fund Growth Fund Small Cap Fund
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 147% 37% 52% 0% 68%
- -----------------------------------------------------------------------------------------------------------------------
1998 42% 17% 54% NA 50%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
No data is shown for the Growth Fund for the fiscal year ended
December 31, 1998, because it had not yet commenced operations.
Portfolio turnover rates reflect the investment manager's capital
allocation decision-making in response to market and economic conditions and
each Fund's stated investment philosophy and policies. The Government Securities
and Income and Equity Funds' portfolio turnover rates 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
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;
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(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;
(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;
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(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 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
S-17
<PAGE>
(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; Hamilton &
Bache, Inc. ("Hamilton & Bache") serves as Adviser to the Balanced Fund; and
Pacific Global serves as Adviser to the Small Cap Fund and the Growth Fund. The
Company, on behalf of the Income and Equity Fund, entered into a co-management
agreement ("Co-Management Agreement") with the Manager and Hamilton & Bache on
August 1, 1997. Under the Co-Management Agreement, the Manager and Hamilton &
Bache ("Co-Manager") co-manage the investment and reinvestment of the Fund's
shares. Each Agreement, Sub-Advisory Agreement and the Co-Management Agreement
were approved by the Board of Directors, including a majority of the
non-"interested" persons. Each Agreement, Sub-Advisory Agreement and the
Co-Management Agreement also have been approved by applicable shareholders.
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY. The directors and
principal executive officers of the Manager are: George A. Henning, Chairman,
President and Director; Thomas H. Hanson, Executive Vice President and Director;
Paul W. Henning, Treasurer; 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.
Hamilton & Bache is a California corporation all of the shares of which are
owned by Mary N. Hamilton and Stephen K. Bache.
MANAGER'S RESPONSIBILITIES. In addition to the duties set forth in the
Prospectus, the Manager, in furtherance of such duties and responsibilities, is
authorized in its discretion to perform or to cause or permit the Advisers to:
(i) buy, sell, exchange, convert, lend, or otherwise trade in portfolio
securities and other assets; (ii)
S-18
<PAGE>
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 Hamilton & Bache for
its services as Co-Manager to the Income and Equity Fund. For the fiscal years
ending December 31, 1997, 1998, and 1999, 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 years
ended December 31, 1997 and 1998, because the 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>
1997 $0 $0 $12,970 NA $75,003
- --------------------------------------------------------------------------------------------------------------------
1998 $0 $0 $21,798 NA $80,152
- --------------------------------------------------------------------------------------------------------------------
1999 $0 $0 $26,397 $0 $60,844
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years ending December 31, 1997, 1998, and 1999, the Advisers
received for their services to the Government Securities Fund and the Balanced
Fund the fees shown in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year Government Securities Fund Balanced Fund
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 $0 $0
- --------------------------------------------------------------------------------------------------------------------
1998 $0 $0
- --------------------------------------------------------------------------------------------------------------------
1999 $0 $0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For the period ended December 31, 1997, and the fiscal years ending December 31,
1998 and 1999, no fees were paid to Hamilton & Bache for its services as
Co-Manager to the Income and Equity Fund. However, the Manager gave shares of
its common stock to Hamilton & Bache in lieu of cash fees for its services (a)
as Adviser to the Balanced Fund during the fiscal years ending December 31,
1997, 1998 and 1999 and (b) as Co-Manager to the Income and Equity Fund for the
period ended December 31, 1997 and the fiscal years ending December 31, 1998
S-19
<PAGE>
and 1999. The Manager anticipates giving additional shares to Hamilton & Bache
for its services as Adviser and Co-Manager to be provided in fiscal year 2000.
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
INCOME AND EQUITY FUND
- ----------------------
Average Daily Net Assets Management Fee Co-Management Fee
- ------------------------ -------------- -----------------
First $100 million .40 .35
next $100 million .37 .33
next $100 million .34 .31
next $100 million .31 .29
next $100 million .28 .27
over $500 million .25 .25
BALANCED FUND AND GROWTH FUND
- -----------------------------
Average Daily Net Assets Management Fee Sub-Advisory Fee
- ------------------------ -------------- ----------------
First $200 million .75 .40
next $200 million .70 .37
next $200 million .65 .34
next $200 million .60 .31
next $200 million .55 .28
over $1 billion .50 .25
SMALL CAP FUND
- --------------
Average Daily Net Assets Management Fee
- ------------------------ --------------
First $200 million .75
next $200 million .72
next $200 million .69
over $600 million .66
</TABLE>
EXPENSE LIMITATION AGREEMENTS. The Company bears all expenses of its
operation, other than those assumed by the Manager. The Manager, Co-Manager and
the Advisers have voluntarily entered into Expense Limitation Agreements with
each Fund, pursuant to which they may waive their management and advisory fees,
respectively, and/or absorb certain expenses for each Fund. Pursuant to these
Agreements, the Manager currently (a) will waive its management fee and/or
absorb expenses to the extent necessary to maintain the total Fund Operating
Expenses of the Class A shares of the Government Securities Fund, the Income and
Equity Fund, and the
S-20
<PAGE>
Growth Fund at 1.65%, 1.85%, and 2.50%, respectively, of average net assets, and
to maintain the total Fund Operating Expenses of the Class C shares of those
three Funds at 2.40%, 2.60%, and 3.25% respectively, of average net assets, (b)
will waive its management fee for the Balanced Fund by 0.40% of average net
assets, and (c) will not waive its fee or absorb expenses of the Small Cap Fund.
The Co-Manager of the Income and Equity Fund also has agreed to waive its
management fee to the extent necessary to enable that Fund to meet the expense
limitations set forth above. PGIS has also agreed to waive the transfer agency
fees on Class C shares of the Government Securities Fund, the Income and Equity
Fund, and the Growth Fund to the extent necessary to enable those Funds to meet
the expense limitations described above. These Agreements continue from year to
year unless terminated by one of the parties. In addition, the Manager may
discontinue or change these fee waiver and expense reimbursement arrangements at
any time upon 90 days notice to the relevant Fund.
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, at
such time as such Fund's expenses do not exceed 2.5% of average net assets, the
assets of such Fund are $20 million or greater, and the payment of such
reimbursement would not cause such Fund's expenses to exceed 2.5% of average net
assets. Any such reimbursement payments will be determined separately for each
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,
1997, 1998, and 1999, 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>
1997 $225,703 $39,059
- --------------------------------------------------------------------------------------------------------------------
1998 $133,442 $22,593
- --------------------------------------------------------------------------------------------------------------------
1999 $70,588 $11,989
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
In the fiscal year ended December 31, 1999, the Funds paid the Distributor
$11,989 in net underwriting discounts and commissions, $424 in contingent
deferred sales charges, $55,152 in brokerage commissions, and $5,919 in Rule
12b-1 fees.
S-21
<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
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 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
S-22
<PAGE>
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, 1999, the Funds made the
following Rule 12b-1 payments:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Government Income and Balanced Fund Growth Fund Small Cap Fund
Securities Fund Equity Fund
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $10,839 $7,426 $11,847 $261 $17,604
- -------------------------------------------------------------------------------------------------------------
Class C Shares $13,177 $13,358 $8,523 $960 $3,515
- -------------------------------------------------------------------------------------------------------------
</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-23
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year Government Income and Balanced Fund Growth Fund Small Cap Fund
Securities Fund Equity Fund
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $2,795 $754 $2,292 NA $5,000
- -----------------------------------------------------------------------------------------------------------------------
1998 $2,412 $1,254 $3,114 NA $5,343
- -----------------------------------------------------------------------------------------------------------------------
1999 $3,024 $2,127 $3,766 $104 $4,049
- -----------------------------------------------------------------------------------------------------------------------
</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 Balanced Fund Growth Fund Small Cap Fund
Securities Fund Equity Fund
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $15,000 $0 $15,000 NA $22,896
- -----------------------------------------------------------------------------------------------------------------------
1998 $15,000 $0 $17,784 NA $31,016
- -----------------------------------------------------------------------------------------------------------------------
1999 $15,000 $0 $18,032 $0 $29,413
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PGIS did not receive any fees with respect to the Growth Fund for the fiscal
years ended December 31, 1997 and 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 Director is considered an "interested person" of
the Company (as defined in the 1940 Act). Unless otherwise
S-24
<PAGE>
indicated the address for each Director or officer is 206 North Jackson Street,
Suite 301, Glendale, California 91206.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
*Thomas M. Brinker (66) President, Fringe Benefits, Inc./Financial Foresight, Ltd., d/b/a The
Director Brinker Organization (Financial services companies)
1 North Ormond Avenue
Havertown, Pennsylvania 19083
- --------------------------------------------------------------------------------------------------------------------
*Victoria Breen (48) 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 (56) Senior Vice President, THQ Inc.; President, International Media Group,
Director Inc.; Consultant, Asahi Broadcasting Corp. (Entertainment companies)
5016 N. Parkway
Suite 100
Calabasas, California 91302
- --------------------------------------------------------------------------------------------------------------------
*Thomas H. Hanson (50) 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 (52) 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 (43) Treasurer, Pacific Global Investment Management Company; Treasurer and
Treasurer 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. (75) 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 (70) Consultant for Securities Related Matters Director
Director
5262 Bridgetown Place
Westlake Village, CA 91362
- --------------------------------------------------------------------------------------------------------------------
Louise K. Taylor, Ph.D. (53) Superintendent, Monrovia Unified School District Director
Director
325 East Huntington Drive
Monrovia, California 91016
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
George A. Henning and Paul A. Henning are brothers.
S-25
<PAGE>
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, 1999, was $5,500. 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 March 31, 2000, are listed below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balanced Fund (A) Charles Schwab Investment 54.36%
Account
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette 8.38%
Corp.
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
S-26
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balanced Fund (C) Samuel P. Axe 5.62%
Riddle Village
414 Hampton House
Media, PA 19063
- --------------------------------------------------------------------------------------------------------------------
Government Securities Fund (A) Charles Schwab Investment 28.25%
Account
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette 19.62%
Corp.
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
Barbara A. Kelley 13.68%
437 W. Walnut Street
Pasadena, CA 91103
- --------------------------------------------------------------------------------------------------------------------
Government Securities Fund (C) Mun Charn Wong 7.36%
1163 S. Beretania Street
Honolulu, HI 96814
- --------------------------------------------------------------------------------------------------------------------
Samuel P. Axe 6.02%
Riddle Village
414 Hampton House
Media, PA 19063
- --------------------------------------------------------------------------------------------------------------------
Maarten S. Sibinga 5.72%
249 Bortondale Road
Media, PA 19063
- --------------------------------------------------------------------------------------------------------------------
Mary B. Dugan 5.48%
907 Capitol Road
Norristown, PA 19403
- --------------------------------------------------------------------------------------------------------------------
Growth Fund (A) Barbara A. Kelley 26.01%
437 W. Walnut Street
Pasadena, CA 91103
- --------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette 13.90%
Corp.
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
John H. & Mary Worsham 6.92%
266 Mileham Dr.
Orlando, FL 32835
- --------------------------------------------------------------------------------------------------------------------
Ky N. Nguyen 6.22%
15682 Sunburst Lane
Huntington Beach, CA 92647
- --------------------------------------------------------------------------------------------------------------------
Growth Fund (C) Mun Charn Wong 13.05%
1163 S. Beretania Street
- --------------------------------------------------------------------------------------------------------------------
S-27
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Honolulu, HI 96814
- --------------------------------------------------------------------------------------------------------------------
Wedbush Morgan Securities 10.87%
P.O. Box 30014
Los Angeles, CA 90030
- --------------------------------------------------------------------------------------------------------------------
Derald & Renee Hay 8.24%
6100 W. 96th Street
Suite 120
Indianapolis, IN 46278
- --------------------------------------------------------------------------------------------------------------------
Kathryn J. Stevens 6.52%
13691 Gavina Avenue
Unit 492
Sylmar, CA 91342-2666
- --------------------------------------------------------------------------------------------------------------------
Joseph A. Moschella 6.47%
108 Sutton Road
Ardmore, PA 19003
- --------------------------------------------------------------------------------------------------------------------
Katherine R. Golinowski 6.33%
1443 Brightside Drive
Apt. #1738A
Baton Rouge, LA 70820-4820
- --------------------------------------------------------------------------------------------------------------------
Anita M. Bovo 6.26%
352 Trevor Lane
Bala Cynwyd, PA 19004
- --------------------------------------------------------------------------------------------------------------------
Barbara C. Hushion 5.86%
1066 Putnam Blvd.
Wallingford, PA 19086
- --------------------------------------------------------------------------------------------------------------------
Samuel P. Axe 5.45%
Riddle Village
414 Hampton House
Media, PA 19063
- --------------------------------------------------------------------------------------------------------------------
Income & Equity Fund (A) Donaldson Lufkin & Jenrette 30.24%
Corp.
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
Wedbush Morgan Securities 6.40%
P.O. Box 30014
Los Angeles, CA 90030
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab Investment 5.58%
Account
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------------------------------------------
Income & Equity Fund (C) Mun Charn Wong 11.56%
1163 S. Beretania Street
S-28
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Honolulu, HI 96814
- --------------------------------------------------------------------------------------------------------------------
Maarten S. Sibinga 9.12%
249 Bortondale Road
Media, PA 19063
- --------------------------------------------------------------------------------------------------------------------
Small Cap Fund (A) Donaldson Lufkin & Jenrette 23.97%
Corp.
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------------------------------------------
Small Cap Fund (C) Wedbush Morgan Securities 10.73%
P.O. Box 30014
Los Angeles, CA 90030
- --------------------------------------------------------------------------------------------------------------------
Charles A. Rein 9.52%
107 Deer Path Drive
Churchville, PA 18966
- --------------------------------------------------------------------------------------------------------------------
Mun Charn Wong 6.31%
1163 S. Beretania Street
Honolulu, HI 96814
- --------------------------------------------------------------------------------------------------------------------
Kathryn J. Stevens 5.73%
13691 Gavina Avenue
Unit 492
Sylmar, CA 91342-2666
- --------------------------------------------------------------------------------------------------------------------
Richard A. Haan 5.32%
6960 N. Greene Lane
Flagstaff, AZ 86001
- --------------------------------------------------------------------------------------------------------------------
Maarten S. Sibinga 5.20%
249 Bortondale Road
Media, PA 19063
- --------------------------------------------------------------------------------------------------------------------
</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 March 31, 2000, the Directors and Officers of the Company, as a
group, owned 1.32% of the outstanding shares of the Small Cap Fund, 2.12% of the
outstanding shares of the Income and Equity Fund, 2.19% of the outstanding
shares of the Growth Fund, and 1.09% of the outstanding shares of the Government
Securities Fund. As of March 31, 2000, the Directors and Officers of the
Company, as a group, owned less than 1% of the Balanced Fund.
S-29
<PAGE>
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 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 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
S-31
<PAGE>
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. ("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.
S-32
<PAGE>
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.
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.
S-33
<PAGE>
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. 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.
S-34
<PAGE>
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.
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
S-35
<PAGE>
Eligible Funds subject to a contingent deferred sales charge ("CDSC"); and Class
A shares of the Funds acquired by reinvestment of dividends or distributions
from any Eligible Fund may be exchanged at net asset value for shares of any
Eligible Fund. No CDSC is imposed on exchanges of shares of a Fund subject to a
CDSC for Class C shares of another Fund. However, the shares so acquired will
continue to be subject to a CDSC on the terms and for the period applicable to
the exchanged shares.
We may modify, suspend or discontinue the exchange privileges at any
time, and will do so on 60 days' notice, if such notice is required by
regulations adopted under the 1940 Act. The notice period may be shorter if
applicable law permits. We reserve the right to reject telephone or written
requests submitted in bulk on behalf of 10 or more accounts. Telephone and
written exchange requests must be received by PGIS by 4:00 p.m., New York time,
on a regular business day to take effect that day. The number of shares
exchanged may be less than the number requested if the number requested would
include shares subject to a restriction cited above. Only shares available for
exchange without restriction will be exchanged.
Shares to be exchanged are redeemed on the business day PGIS receives
an exchange request in proper form (the "Redemption Date"). Normally, shares of
the Fund to be acquired are purchased on the Redemption Date, but such purchases
may be delayed by either Fund up to five business days if it determines that it
would be disadvantaged by an immediate transfer of the redemption proceeds. In
our discretion we may refuse any exchange request that will disadvantage a Fund,
such as an exchange that would cause the Fund to sell portfolio securities in
such quantities and at such time that would result in significant losses to a
Fund.
EXCHANGES TO ELIGIBLE FUNDS. The Distributor has arranged for shares of
the Reserve Fund Portfolios ("Eligible Funds") to be available in exchange for
either Class A or Class C shares of the Funds. The Distributor may arrange for
other funds to become Eligible Funds. The exchange privilege to the Eligible
Funds does not constitute an offering or recommendation of the shares of any
Eligible Fund by the Company or the Manager. Each Eligible Fund's administrator
may compensate the Distributor for administrative services it performs with
respect to that Eligible Fund. The compensation is based on the average daily
net asset value of shares of the Eligible Funds acquired through the exchange
privilege. PGIS may perform services for the Distributor in connection with
exchanges between the Funds and the Eligible Funds.
The Eligible Funds have different investment objectives and policies.
For more information, including any charges and expenses, a prospectus of the
Eligible Fund into which the exchange is being made should be read prior to an
exchange. Dealers or brokers who process exchange orders on behalf of customers
may charge a fee for their services. Those charges may be avoided by making the
request directly to the Funds to exchange shares. For Federal tax purposes, an
exchange is treated as a redemption and purchase of shares.
REDEMPTION
REDEMPTION PAYMENTS. Each Fund intends to pay all redemptions of its
shares in cash. However, each Fund may make full or partial payment to
shareholders of portfolio securities of the applicable Fund (i.e., by
redemption-in-kind), at the value of such securities used in determining the
redemption price. The Company, nevertheless, pursuant to Rule 18f-1 under the
1940 Act, has filed a notification of election under which each Fund is
committed to pay in cash to any shareholder of record, all requests for
redemption made by such shareholder during any 90-day period, up to the lesser
of $250,000 or 1% of the applicable Fund's net asset value at the beginning of
such period. The securities to be paid in-kind to any shareholders will be
readily marketable securities selected in such manner as the Company's Board
deems fair and equitable. If shareholders were to receive redemptions-in-kind,
they would incur 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
S-36
<PAGE>
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 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
S-37
<PAGE>
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 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
S-38
<PAGE>
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>
1997 $7,076 $2,157 $8,126 NA $68,467
- --------------------------------------------------------------------------------------------------------------------
1998 $5,656 $1,629 $13,207 NA $88,021
- --------------------------------------------------------------------------------------------------------------------
1999 $5,309 $765 $9,480 $1,319 $73,489
- --------------------------------------------------------------------------------------------------------------------
</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 years ended December 31, 1997 and 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>
1997 $0 $314 $0 NA $43,400
- --------------------------------------------------------------------------------------------------------------------
1998 $0 $126 $937 NA $60,252
- --------------------------------------------------------------------------------------------------------------------
1999 $0 $120 $706 $240 $54,177
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Of these amounts, no amounts were paid to brokers that provided
research and brokerage services. For the fiscal year ending December 31, 1999,
brokerage commissions paid to the Distributor constituted 15.69% of all
brokerage commissions paid by the Income and Equity Fund, 18.20% of all
brokerage commissions paid by the Growth Fund, 7.45% of all brokerage
commissions paid by the Balanced Fund, and 73.72% of all brokerage commissions
paid by the Small Cap Fund. For the fiscal year ended December 31, 1999, the
dollar value of commissionable portfolio transactions effected through the
Distributor constituted 7.83% of all such transactions effected by the Income
and Equity Fund, 100% of all such transactions effected by the Growth Fund,
1.54% of all such transactions effected by the Balanced Fund, and 82.27% of all
such transactions effected by the Small Cap Fund.
S-39
<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-40
<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, 1999. 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 -9.56% 7.45% 5.05%
- --------------------------------------------------------------------------------------------------------------------
Income and Equity -4.61% 6.48% 4.63%
- --------------------------------------------------------------------------------------------------------------------
Balanced 6.17% 10.76% 7.25%
- --------------------------------------------------------------------------------------------------------------------
Growth NA NA 15.31%
- --------------------------------------------------------------------------------------------------------------------
Small Cap -20.60% 4.92% 5.66%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Standardized return information for the Growth Fund is not given
because it commenced operations on May 3, 1999. When it has sufficient
performance history, standardized returns will be calculated as described above.
INDEPENDENT AUDITORS
Ernst & Young LLP, whose address is 725 South Figueroa Street, Suite
200, Los Angeles, California 90099, has been selected as the independent
auditors for the Company. Their selection was approved by the Manager, as sole
shareholder of the Company and by the Company's Board of Directors.
S-41
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1999
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, 1995,
1996, 1997, 1998, and 1999 that are included in the Prospectus and the financial
statements for the fiscal year ended December 31, 1999, that are incorporated by
reference into this Statement of Additional Information have been audited by
Ernst & Young LLP, whose report thereon appears elsewhere herein, have been
included herein in reliance upon the report of such firm of accountants, given
upon their authority as experts in accounting and auditing.
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, 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------------------------------------------
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 $5,220,295 535,750 $9.74 $.49 $10.23
- --------------------------------------------------------------------------------------------------------------------
Income and Equity Fund $2,668,142 256,806 $10.39 $.52 $10.91
- --------------------------------------------------------------------------------------------------------------------
Balanced Fund $7,007,763 499,025 $14.04 $.86 $14.90
- --------------------------------------------------------------------------------------------------------------------
Growth Fund $327,831 28,087 $11.67 $.71 $12.38
- --------------------------------------------------------------------------------------------------------------------
Small Cap Fund $6,976,048 582,446 $11.98 $.73 $12.71
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
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 $1,923,108 199,638 $9.63
- --------------------------------------------------------------------------------------------------------------------
Income and Equity Fund $1,846,690 181,937 $10.15
- --------------------------------------------------------------------------------------------------------------------
Balanced Fund $1,551,742 111,559 $13.91
- --------------------------------------------------------------------------------------------------------------------
Growth Fund $278,035 23,943 $11.61
- --------------------------------------------------------------------------------------------------------------------
Small Cap Fund $458,916 38,471 $11.93
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
S-42
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The ratings of certain debt instruments in which the Funds may invest
are described below.
MOODY'S INVESTORS SERVICE, INC. - BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
not likely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered to be medium grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements,
and their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
STANDARD & POOR'S CORPORATION - BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than for debt in higher-rated categories.
S-43
<PAGE>
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-44
<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 Hamilton & Bache, Inc.
# # # 4(f) Investment Management Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific Advisors Fund
Inc., on behalf of the Small Cap Fund, and Pacific
Global Investment Management Company.
++++ 4(g) Co-Management Agreement by and between Pacific Global
Fund, Inc. d/b/a Pacific Advisors Fund Inc., on
behalf of the Income and Equity Fund, Pacific Global
Investment Management Company and Hamilton & Bache,
Inc.
# # 4(h) Investment Management Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific Advisors Fund
Inc., on behalf of the Growth Fund, and Pacific
Global Investment Management Company.
# # # 5(a) Distribution Agreement between Pacific Global Fund,
Inc. d/b/a Pacific Advisors Fund Inc. and Pacific
Global Fund Distributors, Inc.
# 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, Hamilton &
Bache, Inc., and Pacific Global Investors Services,
Inc.
+++++ 8(e) Expense Limitation Agreement by and between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund Inc.,
on behalf of the Balanced Fund, and Pacific Global
Investment Management Company.
+++++ 8(f) Expense Limitation Agreement by and between Pacific
Global Fund, Inc. d/b/a Pacific Advisors Fund Inc.,
on behalf of the Small Cap Fund, and Pacific Global
Investment Management Company.
# 8(g) Amendment to Expense Limitation Agreement by and
between Pacific Global Fund, Inc. d/b/a Pacific
Advisors Fund Inc., on behalf of the Balanced Fund,
and Pacific Global Investment Management Company.
# # 8(h) Form Of Expense Limitation Agreement by and between
Pacific Global Fund, Inc. d/b/a Pacific Advisors Fund
Inc., on behalf of the Growth Fund, Pacific Global
Investment Management Company, and Pacific Global
Investors Services, Inc.
C-3
<PAGE>
# # 9 Opinion and Consent of Counsel regarding the legality
of the securities being registered.
10 Consent of Ernst & Young LLP, Independent Auditors,
(Filed Herewith).
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 (Filed Herewith).
16(b) Code of Ethics for Pacific Global Fund d/b/a Pacific
Advisors Fund, Inc. and Pacific Global Fund
Distributors, Inc (Filed Herewith).
16(c) Code of Ethics for Hamilton & Bache, Inc (Filed
Herewith).
16(d) Code of Ethics for Spectrum Asset Management, Inc
(Filed Herewith).
- --------------------------
+ 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).
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.
C-6
<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
Hamilton & Bache, Inc., is hereby incorporated herein by reference to the
section of the Prospectus captioned "FUND MANAGEMENT ORGANIZATIONS" and to the
section of the Statement of Additional Information captioned "INVESTMENT
MANAGEMENT AND OTHER SERVICES." Set forth below is a list of each director and
officer of Pacific Management and each director, officer, or partner of each
sub-adviser, indicating each business, profession, vocation, or employment of a
substantial nature in which each such person has been, at any time during the
past two fiscal years, engaged for his own account or in the capacity of
director, officer, partner, or trustee.
C-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
Sun Financial Group
21800 Oxnard
Woodland Hills, CA 91367
Victoria Breen Branch Manager
Director Derby & Derby Inc.
Assistant Secretary 603 West Ojai Avenue
Ojai, CA 93023
General Agent
Transamerica Life Companies
603 West Ojai Avenue
Ojai, CA 93023
Registered Principal
Transamerica Financial Resources,
Inc.
603 West Ojai Avenue
Ojai, CA 93023
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
Hamilton & Bache, Inc. Mary Hamilton 206 North Jackson, Suite 201
Chairman Glendale, CA 91206
Stephen Bache
Chief Investment Officer
</TABLE>
Item 27. PRINCIPAL UNDERWRITERS
(a) Pacific Distributors acts as principal underwriter and distributor of
the Company's shares on a best-efforts basis. Pacific Distributors
does not serve as principal underwriter or distributor for any other
investment company.
(b) Set forth below is information concerning each director and officer of
Pacific Distributors.
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER WITH THE COMPANY
------------------ --------------------- ----------------
George A. Henning Chairman of the Board, President and
Secretary Chairman of the Board
Thomas H. Hanson President and Director Vice President and Secretary
Paul H. Henning Treasurer and Director Treasurer
__________________
* The principal business address of each person listed in the table is 206
North Jackson Avenue, Suite 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. 12
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Glendale and State of California, on the 17th day of April, 2000.
Registrant hereby certifies that this amendment meets all of the requirements
for effectiveness under Rule 485(b) under the Securities Act of 1933.
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. 12 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 April 26, 2000
- ---------------------------
Victoria Breen
/s/ Thomas M. Brinker, Sr. Director April 26, 2000
- ---------------------------
Thomas M. Brinker, Sr.
/s/ L. Michael Haller, III Director April 26, 2000
- ---------------------------
L. Michael Haller, III
/s/ Thomas H. Hanson Vice President and April 26, 2000
- --------------------------- Secretary
Thomas H. Hanson
/s/ George A. Henning President and April 26, 2000
- --------------------------- Chairman of
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<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
George A. Henning the Board (Principal
Executive Officer)
/s/ Paul W. Henning Treasurer (Principal April 26, 2000
- --------------------------- Financial and
Paul W. Henning Accounting Officer)
/s/ Takashi Makinodan Director April 26, 2000
- ---------------------------
Takashi Makinodan
/s/ Gerald E. Miller Director April 26, 2000
- ---------------------------
Gerald E. Miller
/s/ Louise K. Taylor Director April 26, 2000
- ---------------------------
Louise K. Taylor
C-14
<PAGE>
EXHIBITS
10 Consent of Ernst & Young LLP, Independent Auditors.
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 Hamilton & Bache, Inc.
16(d) Code of Ethics for Spectrum Asset Management, Inc.
C-15
<PAGE>
[LETTERHEAD]
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Statements", "Financial Highlights" and "Independent Public Accountants" in
Post-Effective Amendment No. 13 under the Investment Company Act of 1940 to the
Registration Statement (Form N-1A, No. 33-50208 & 811-7062) and related
Prospectus and Statement of Additional Information of Pacific Global Fund, Inc.
dba Pacific Advisors Funds Inc. and to the incorporation by reference therein of
our report dated January 28, 2000, with respect to the financial statements and
financial highlights included in its Annual Report for the year ended December
31, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Los Angelos, California
April 24, 2000
<PAGE>
CODE OF ETHICS
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY
<PAGE>
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY
CODE OF ETHICS AND CONDUCT
As an investment adviser, Pacific Global Investment Management Company
("PGIM") is a fiduciary. As such it owes its clients the highest duty of
diligence and loyalty. Accordingly, one of the fundamental policies of PGIM is
to avoid any conflict of interest or even the appearance of such a conflict in
connection with the performance of investment advisory and portfolio management
services for its clients. In addition, Rule 17j-1 under the Investment Company
Act of 1940 ("1940 Act") requires investment companies, as well as their
investment advisers and principal underwriters, to adopt written codes of ethics
containing provisions reasonably necessary to prevent "access persons" from
engaging in any act, practice, or course of business prohibited under the
anti-fraud provisions of Rule 17j-1(b). Accordingly, in furtherance of such
fundamental policy and applicable regulatory requirements, PGIM has adopted this
Code of Ethics and Conduct ("Code"), which applies to each Employee of PGIM.
Please carefully read the policies and procedures detailed below. When
you believe that you sufficiently understand them, sign, date, and return one
copy of this memorandum to our Compliance Officer, and keep the other copy for
your reference. Employees should consult with PGIM's Compliance Officer
regarding any questions about these items and other issues relating to PGIM's
fiduciary obligations to its clients.
Please also note that the Insider Trading and Securities Fraud
Enforcement Act of 1988 and Section 204A of the Investment Advisers Act of 1940
("Advisers Act") require every investment adviser to establish, maintain, and
enforce policies and procedures to detect and prevent the misuse of material,
non-public information. In response to those requirements, PGIM has developed
Policies and Procedures Concerning the Misuse of Material Non-Public Information
("Policies ad Procedures"). Please refer to those Policies and Procedures as
appropriate.
I. DEFINITIONS
A. ACCESS PERSONS. The term "Access Person" means any officer,
director, or Advisory Employee of PGIM.
B. ADVISORY EMPLOYEE. The term "Advisory Employee" means (a) any
employee of PGIM who, in connection with his(1) regular functions or duties,
makes, participates in, or obtains information regarding the purchase or sale of
a Covered Security by or on behalf of the Fund or (b) any employee of the Fund
or the Distributor whose functions relate to the making of any recommendations
with respect to such purchases or sales. If any individual or company is in a
control relationship with PGIM, that person would be treated as an "Advisory
Employee" for purposes of this Code.
- ----------------------
(1) The use of the masculine pronoun is for convenience of reference only and is
intended to include the feminine in all cases, unless the context requires
otherwise.
<PAGE>
C. BENEFICIAL OWNERSHIP. "Beneficial Ownership" has the same meaning as
would be used in determining whether an Employee is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
interest will apply to all securities that an Employee has or acquires.
"Beneficial Ownership" includes accounts of a spouse, minor children who reside
in an Employee's home and any other relatives (parents, adult children,
brothers, sisters, etc.) whose investments the Employee directs or controls,
whether the person lives with him or not, as well as accounts of another person
(individual, corporation, trust, custodian, or other entity) if, by reason of
any contract, understanding, relationship, agreement or other arrangement, the
Employee obtains or may obtain therefrom benefits substantially equivalent to
those of ownership. A person does not derive a beneficial interest by virtue of
serving as a trustee or executor unless he or a member of his immediate family
has a vested interest in the income or corpus of the trust or estate. A copy of
a Release issued by the Securities and Exchange Commission on the meaning of the
term "beneficial ownership" is available upon request, and should be studied
carefully by any Employee concerned with this definition before preparing any
report required hereunder.
D. BEING CONSIDERED FOR PURCHASE OR SALE. A security is "Being
Considered for Purchase or Sale" when a recommendation to purchase or sell such
security has been made and communicated by an Employee, in the course of his
duties and, with respect to the person making the recommendation, when such
person seriously considers making such a recommendation.
E. CONTROL. The term "Control" has the same meaning as that set forth
in Section 2(a)(9) of the 1940 Act.
F. COVERED SECURITY. The term "Covered Security" has the same meaning
as the term "security" as set forth in Section 2(a)(36) of the 1940 Act, except
that it shall not include shares of registered open-end investment companies,
direct obligations of the Government of the United States, bankers' acceptances,
bank certificates of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreements. For these purposes, "high quality
short-term debt instruments" means any instrument that has a maturity at
issuance of less than 366 days and that is rated in one of the two highest
rating categories by a nationally recognized statistical rating organization.
G. DISINTERESTED DIRECTOR. The term "Disinterested Director" means a
director of the Fund who is not an "interested person" of the Fund, PGIM or the
Distributor within the meaning of Section 2(a)(19) of the 1940 Act.
H. EMPLOYEE. The term "Employee" means any "Access Person" or "Advisory
Representative", as well as all other employees of PGIM.
I. FUND. The term "Fund" means Pacific Global Fund, Inc., dba Pacific
Advisors Fund Inc., and its several series.
2
<PAGE>
J. INITIAL PUBLIC OFFERING. The term "Initial Public Offering" means an
offering of securities registered under the Securities Act of 1933, the issuer
of which, immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.
K. LIMITED OFFERING. The term "Limited Offering" means an offering that
is exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the
Securities Act of 1933.
L. SECURITY HELD OR TO BE ACQUIRED. The phrase "Security Held or to be
Acquired" by the Fund means:
1. any Covered Security which, within the most recent fifteen (15)
calendar days:
a. is or has been held by the Fund; or
b. is being or has been considered by the Fund or PGIM, for
purchase by the Fund; and
2. any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security described in
paragraph II.F. above.
II. RULE 17j-1 -- GENERAL ANTI-FRAUD PROVISIONS.
Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of a registered investment company, or any affiliated person
of such company's investment adviser or principal underwriter, in connection
with any purchase or sale, directly or indirectly, by such person of a Security
Held or to be Acquired by such investment company, to engage in any of the
following acts, practices or courses of business:
A. employ any device, scheme, or artifice to defraud such investment
company;
B. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact necessary in
order to make the statements made, in light of the circumstances under which
they are made, not misleading;
C. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company; and
D. engage in any manipulative practice with respect to such investment
company.
III. CONFLICTS OF INTEREST-PERSONAL INVESTMENTS
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A. GENERAL. PGIM believes that every Employee should have reasonable
freedom with respect to their investment activities and those of their families.
At the same time, conflicts of interest could arise between PGIM's clients and
the personal investment activities of PGIM or its Employees.
PGIM's fundamental policy is to avoid conflicts of interest or even
the appearance of such conflicts whenever possible. However, if a conflict were
to unavoidably occur, it is also PGIM's policy to resolve such conflict in favor
of the client. Even in instances in which there is an identity of interest among
a PGIM client, PGIM and its Employees, an Employee must recognize that the PGIM
client has priority in its right to benefit from PGIM's investment advice over
any rights of PGIM, the Employee, or any non-client members of the Employee's
family whom he or she may advise. This condition inevitably places some
restriction on freedom of investment for Employees and their families.
This Code does not attempt to describe all possible conflicts of
interest, but rather, attempts to establish general principles and to highlight
possible problem areas. Employees should be conscious that areas other than
personal securities transactions may involve conflicts of interest. For example,
one such area would be accepting gifts or favors from persons such as brokers
since such gifts or favors could impair the Employee's objectivity. Thus, the
requirements set forth below are not intended to cover all situations that may
involve a possible conflict of interest. Rather they are intended (i) to provide
a framework for understanding such conflicts and (ii) to provide a mechanism for
monitoring and reporting personal securities transactions. If there is any doubt
about a matter, the Compliance Officer should be consulted BEFORE any action
regarding such matter is taken.
B. PROHIBITED PERSONAL TRADING.
1. IMPROPER USE OF INFORMATION. No Employee may use their knowledge
concerning PGIM's advisory clients' securities transactions for trading in their
personal account, any account in which he or she has a Beneficial Ownership
interest, or in any account controlled by or under the influence of such
Employee.
2. PURCHASE AND SALES. No Employee may purchase or sell, directly or
indirectly, any security in which he has, or by reason of the transaction
acquires, any direct or indirect Beneficial Ownership without obtaining prior
clearance as described in Section III.C. of this Code, proved that this
prohibition shall not apply to transactions that:
a. are exempt under Section III.D. of this Code; or
b. do not involve a Covered Security.
C. PRIOR CLEARANCE
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1. GENERAL REQUIREMENT. Every Employee shall obtain prior written
clearance from the Compliance Officer before directly or indirectly initiating,
recommending, or in any other way participating in the purchase or sale of a
Covered Security, or directly or indirectly acquiring any security made
available in an Initial Public Offering or in a Limited Offering, in which the
Employee has, or by reason of the transaction may acquire, any direct or
indirect beneficial interest. When requesting prior clearance, each Employee
should be aware that:
a. all requests for prior clearance must be set forth in writing
on the standard Personal Request and Trading Authorization Form
(SEE attached sample of the form); and
b. prior clearance of a securities transaction is effective for
three (3) business days from and including the date clearance
is granted.
Requests by Employees for prior clearance of personal securities transactions
must be made in writing on the standard Personal Request and Trading
Authorization Form ("Authorization Form") and submitted to the Compliance
Officer, who will be responsible for reviewing and processing all such requests.
Responses to such requests will also be provided by PGIM's Compliance Officer on
the Authorization Form. The requesting Employee should retain a copy of the
Authorization Form for their recordkeeping purposes.
Prior clearance of a securities transaction is effective for three (3) business
days from and including the date clearance is granted.
2. BASES FOR DENIAL OF PRIOR CLEARANCE. Except as provided in
Section III.D.3. below, the Compliance Officer shall deny a request for prior
clearance if he determines that the security at issue is a Covered Security or
is being made available in an Initial Public Offering or Limited Offering and:
a. is Being Considered for Purchase or Sale by the Fund;
b. has been purchased or sold by the Fund within the prior two
business days;
c. is being purchased or sold on behalf of the Fund. In this
instance, "sold" includes an order to sell that has been
entered but not executed; or
d. the granting of prior clearance would, in the judgment of the
Compliance Officer, be inconsistent with the purposes of this
Code. If a prior clearance request is denied under this Section
III.D.2.d, the Compliance Officer shall explain in writing the
reasons therefor.
3. BASES FOR GRANTING OF PRIOR CLEARANCE. The Compliance Officer
shall grant a request for prior clearance if he determines that the transaction
at issue:
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a. is not potentially harmful to the Fund;
b. would be very unlikely to affect the market in which the Fund's
portfolio securities are traded; or
c. clearly is not related economically to the securities to be
purchased, sold, or held by the Fund,
AND the decision to purchase or sell the security is not the result of material
non-public information obtained in the course of the Employee's relationship
with PGIM. The Compliance Officer shall document the reasons for granting any
request involving securities otherwise covered by Section III.C.2.a., b., or c.
above.
D. EXEMPT TRANSACTIONS. The prohibitions of Section III.C.2. above and
the preclearance procedures described in Section III.C.3. above do not apply to
the following transactions:
1. purchases or sales effected in any account over which an
Employee has no direct or indirect influence or control or in
any account of the Employee which is managed on a discretionary
basis by a person other than the Employee and, with respect to
which the Employee does not in fact influence or control
purchase or sale transactions;
2. purchases or sales which are non-volitional on the part of the
Employee;
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued pro rata
to all holders of a class of securities, to the extent such
rights were acquired from such issuer, and sales of such rights
so acquired; and,
5. purchases of sales of securities which are not eligible for
purchase or sale by any client.
E. SPECIFIC RULES. The following rules govern Employee investment
activities for the Employee's personal account or for accounts in which the
Employee has any direct or indirect Beneficial Ownership interest.
These rules are in addition to those noted in III.B. above.
1. NEW ISSUES. An Employee may not purchase any securities
available in an initial public offering ("IPO") of common stock or
convertible securities unless he or she obtains the prior written
approval of the Compliance Officer and:
a. the purchase is made through the Employee's regular broker;
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b. the number of shares is commensurate with the normal size
and activity of such Employee's account; and
c. no orders for the purchase of such securities have been
entered by PGIM for ANY client account.
2. PRIVATE PLACEMENTS. No Employee may purchase a security
that is the subject of a private offering unless prior written approval
by the Compliance Officer been obtained.
3. SHORT SALES. No Employee may sell a security short that is
owned by any PGIM client, except "short sales against the box" for tax
purposes.
4. DEALING WITH CLIENTS. No Employee may directly or
indirectly sell to or purchase from a client any security, except
purchases and sales with respect to the Fund.
5. CLIENT OWNERSHIP. No Employee may purchase a security of a
company with respect to which 5% or more of its outstanding stock is
owned, in the aggregate, by PGIM clients, unless prior written approval
of the PGIM trading desk is obtained.
6. DAY TRADING. No day trading (I.E., the purchase and sale of
securities on a short-term basis, such as one to five days) by
Employees is permitted, without written approval of the Compliance
Officer.
7. COMMISSIONS. Commissions on personal transactions may be
negotiated by the Employee, but payment of a commission rate which is
better than the rate available to PGIM clients through similar
negotiation is prohibited.
8. OPTIONS AND FUTURES. The purchase, sale, and utilization of
options and futures contracts on specific securities by the Employee
are subject to the same restrictions as those set forth in this Code
with respect to securities, I.E., the option or futures contract should
be treated as if it were the security for these purposes.
IV. GENERAL STANDARDS
A. WRITTEN RECORD OF SECURITIES RECOMMENDATIONS. Every recommendation
for the purchase or sale of securities for clients, excluding recommendations to
increase or decrease existing securities positions, must be memorialized in
writing either prior to or immediately after the recommendation is made. A
standard Security Trading Advice form for purchase or sale orders must be used
for this purpose and should be provided to or otherwise made available to the
PGIM trading desk.
B. USE OF SECURITIES RECOMMENDATIONS. Any investment ideas developed by
an Employee in the course of their work for PGIM will be made available for use
by PGIM's clients
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PRIOR to any personal trading or investment by any Employee based on such ideas.
SEE ALSO the prohibitions against self-dealing and front-running described in
Sections IV.E. and F. below.
C. GIFTS, FAVORS, AND GRATUITIES. No Employee should seek from a
broker-dealer, securities salesperson, approved company (I.E., a company the
securities of which are held by a PGIM client), supplier, client or other person
or option with whom PGIM has a business relationship any gift, favor, gratuity,
or preferential treatment that is or may appear to be connected with any present
or future business dealings between PGIM and that person or organization or
which may create or appear to create a conflict of interest. As one consequence,
no Employee may purchase New Issues in primary or secondary distributions,
unless prior written approval is obtained and certain other requirements are
met, as described above in Section III. C.1. No gifts may be accepted, other
than those offered as a courtesy. All gifts, favors, or gratuities with a fair
market value in excess of $100 should be reported and described on the Monthly
Securities Transaction Report ("Monthly Report") and will be reviewed by PGIM's
Compliance Officer; gifts with a value of less than $100 need only be reported.
After such review, a determination will be made whether such gifts, favors or
gratuities should be returned. In addition, discretion should be used in
accepting invitations for dinners, evening entertainment, sporting events or
theater. While in certain circumstances it may be appropriate to accept such
invitations, all invitations whose value exceeds $100 should also be reported to
our Compliance Officer on the Monthly Report. Any invitations from any person or
organization involving free travel for more than one day must receive prior
approval from our Compliance Officer. No Employee should offer any gifts, favors
or gratuities that could be viewed as influencing decision-making or otherwise
could be considered as creating a conflict of interest on the part of their
recipient.
D. INSIDE INFORMATION. No Employee may seek any benefit for himself, a
client, or anyone else from material, non-public information about issuers,
whether or not held in the portfolios of our clients or suitable for inclusion
in their portfolios. Any Employee who believes he or she is in possession of
such information must contact our Compliance Officer IMMEDIATELY. This
prohibition should not preclude an Employee from contacting officers and
employees of issuers or other investment professionals in seeking information
about issuers that is publicly available. Please remember, in this regard, to
review PGIM's Policies and Procedures.
E. FAIR DEALING VS. SELF-DEALING. An Employee shall act in a manner
consistent with the obligation to deal fairly with all clients when taking
investment action. Self-dealing for personal benefit or the benefit of PGIM, at
the expense of clients, will not be tolerated. The receipt of "special favors"
from a stock promoter, such as participation in a private placement or New
Issue, as an inducement to purchase other securities for PGIM clients is not
permitted. The existence of any substantial economic relationship between a
proposed personal securities transaction and any securities held or to be
acquired by PGIM or PGIM clients must be disclosed on the Authorization Form.
F. FRONT-RUNNING. An Employee shall not engage in "front-running" an
order or recommendation, even if the Employee is not handling either the order
or the recommendation and even if the order or recommendation is for someone
other than a client of PGIM. Front-running consists of executing a transaction
in the same or underlying securities, options, rights, warrants,
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convertible securities or other related securities, in advance of block or large
transactions of a similar nature likely to affect the value of the securities,
based on the knowledge of the forthcoming transaction or recommendation.
G. SERVICE AS A DIRECTOR. No Employee shall serve on the board of a
publicly traded company without prior authorization. Any such authorization
shall be supported by a determination that such service is consistent with the
interests of the Fund and the Fund's shareholders.
H. CONFIDENTIALITY. Information relating to any client's portfolio or
activities is strictly confidential and should not be discussed with anyone
outside PGIM. In addition, from the time that an Employee anticipates making a
recommendation to purchase or sell a security, through the time that ALL
transactions for clients based on that recommendation have been consummated, the
"subject and content" of the recommendation may be considered to constitute
"inside information." Accordingly, Employees must maintain the utmost
confidentiality with respect to their recommendations during this period and may
not discuss a contemplated recommendation with anyone outside of PGIM. In this
regard, please also see PGIM's Policies and Procedures.
Any written or oral disclosure of information concerning PGIM, PGIM's
clients, or particular purchase or sale transactions for client accounts should
be made only by persons who are specifically authorized to release that
information, after consultation with PGIM's President and company counsel, where
appropriate. Please note that this prohibition is NOT intended to inhibit
exchanges of information among PGIM Employees.
V. REPORTS OF PERSONAL INVESTMENTS BY EMPLOYEES
A. CONTENT AND TIMING OF EMPLOYEE REPORTS. Every Employee shall
make the following reports to the Compliance Officer:
1. INITIAL HOLDINGS REPORT. No later than ten (10)
days after becoming an Employee, such Employee shall
report the following information:
a. the title, number of shares and principal
amount of each Covered Security in which the
Employee had any direct or indirect
Beneficial Ownership when the person became
an Employee;
b. the name of any broker, dealer or bank with
whom the Employee maintained an account in
which ANY securities were held for the
direct or indirect benefit of the Employee
as of the date the person became an
Employee; and
c. the date that the report is submitted by the
Employee.
Persons who became Employees before October 29, 1999
are not required to file initial holdings reports.
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2. QUARTERLY TRANSACTION REPORTS. No later than ten (10)
days after the end of a calendar quarter, the
Employee shall report the following information:
a. With respect to any transaction during the
quarter in a Covered Security in which the
Employee had any direct or indirect
Beneficial Ownership or which the Employee
manages (for example, as trustee) or to whom
the Employee gives investment or voting
advice:
i. the date of the transaction, the
title, the interest rate and
maturity date (if applicable), the
number of shares and the principal
amount of each Covered Security
involved;
ii. the nature of the transaction
(I.E., purchase, sale or any other
type of acquisition or disposition);
iii. the price of the Covered Security
at which the transaction was
effected;
iv. the name of the broker, dealer, or
bank with or through whom the
transaction was effected; and
v. the date that the report is
submitted by the Employee.
b. With respect to any account established by
the Employee in which ANY securities were
held during the quarter for the direct or
indirect benefit of the Employee:
i. the name of the broker, dealer or
bank with whom the Employee
established the Account;
ii. the date the account was
established; and
iii. the date that the report was
submitted by the Employee.
c. In filing Quarterly Transaction Reports for
such accounts please note:
i. Employees must file a report every
quarter whether or not there were
any reportable transactions for such
accounts. However, no Quarterly
Transactions Report is required to
be filed if confirmations and
account statements containing all of
the necessary information are
provided to the compliance officer
within ten days of the end of the
calendar quarter.
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ii. All reportable transactions should
be listed, if possible, on a single
form. If necessary, because of the
number of transactions, please
attach a second form and mark it
"continuation." For every security
listed on the Quarterly Transaction
Report, the information called for
must be completed by all Employees.
iii. Quarterly Reports must show (i) the
date of the transaction, the name
of the issuer, and the number of
shares or principal amount of the
security involved; (ii) the nature
of the transaction (I. E.,
purchase, sale or other acquisition
or disposition, including gifts,
the rounding out of fractional
shares, exercises of conversion
rights and exercises or sales of
subscription rights); (iii) the
price at which the transaction was
effected; and (iv) the name of the
broker, dealer or bank with or
through whom the transaction was
effected.
iv. Quarterly Transactions Reports on
family and other accounts in which
an Employee has any direct or
indirect Beneficial Ownership, and
which are fee paying clients of
PGIM, need merely list the PGIM
account number. Securities
transactions for such accounts need
not be separately itemized.
3. ANNUAL HOLDING REPORTS. No later than twenty (20)
days after the end of every calendar year, the
Employee shall report the following information
(which information must be current as of December 31
of the calendar year for which the report is being
submitted):
i. the title, number of shares and principal
amount of each Covered Security in which the
Employee has any direct or indirect
beneficial ownership;
ii. the name of any broker, dealer or bank with
whom the Employee maintains an account in
which ANY securities are held for the direct
or indirect benefit of the Employee; and
iii. the date that the report is being submitted
by the Employee.
4. CONFLICT OF INTEREST REPORTS. Every Employee shall
immediately report in writing to the Compliance
Officer any factors of which he or she is aware that
would be relevant to a conflict of interest analysis,
including the existence of any substantial economic
relationship between the Employee's transactions and
securities held or to be acquired by clients. These
factors may include, for example, officerships or
directorships with companies or beneficial ownership
of more than1/2of 1% of the total outstanding shares
of any
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<PAGE>
company whose shares are publicly traded or that may
be made available in an Initial Public Offering or
Limited Offering in the foreseeable future.
B. NO HOLDINGS OR TRANSACTIONS TO REPORT. If an Employee has no
holdings to report on either an Initial Holdings Report or any Annual Holdings
Report nor transactions to report on any Quarterly Transaction Report, that
Employee shall nevertheless submit the appropriate Report stating that the
Employee had no holdings or transactions (as appropriate) to report and the date
the report is submitted by the Employee.
C. COPIES OF CONFIRMATIONS AND PERIOD ACCOUNT STATEMENTS. Each
Employee shall direct every broker or dealer through whom the Employee effects
ANY securities transactions to deliver to the Compliance Officer, on a timely
basis, duplicate copies of confirmations of all Employee securities transactions
and copies of periodic statements for all Employee securities accounts.
D. EXCEPTIONS FROM REPORTING REQUIREMENTS.
1. A person need not make a report under this Section V.
with respect to transactions for, and Covered
Securities held in, any account over which the person
has no direct or indirect influence or control.
2. An Employee need not make a Quarterly Transaction
Report under Section V.A.2. if the confirmations or
periodic account statements delivered to the
Compliance Officer under Section V.C. are received
within the time period required by Section V.A.2.,
provided that all information required by Section
V.A.2. is contained in such confirmations or account
statements.
3. An Employee need not make a Quarterly Transaction
Report with respect to the "exempt transactions"
described in Section III.C., except to the extent
required by Section V.B.
E. REVIEW OF REPORTS. The Compliance Officer shall review all
reports submitted pursuant to Section V for the purpose of detecting and
preventing a potential or actual violation of this Code.
1. The Compliance Officer shall review an Initial
Holdings Report within fifteen (15) days of the date
such Report is submitted by an Employee.
2. The Compliance Officer shall review all Quarterly
Transaction Reports and all Annual Holding Reports
within thirty (30) days of the date such a Report is
submitted by an Employee.
3. The Compliance Officer shall review all Conflict of
Interest Reports promptly after receipt of such a
Report.
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4. The Compliance Officer shall maintain a record of
each report reviewed and the date such review was
completed. Such record shall indicate whether the
Compliance Officer's review detected a potential or
actual violation of this Code. If the Compliance
Officer detects a potential or actual material
violation of this Code, the Compliance Officer shall
promptly inform PGIM's President.
5. The Compliance Officer promptly after furnishing such
written notification of a potential or actual
material violation of this Code, shall take those
measures the Compliance Officer deems necessary and
appropriate to remedy such violation, including, but
not limited to, requiring the Employee to divest any
inappropriate securities holdings and recommending
sanctions to the Board.
6. The Compliance Officer shall take such other actions
and measures as he deems necessary and appropriate to
carry out his duties with respect to the review of
reports required under this Code.
F. NOTIFICATION OF REPORTING OBLIGATION. The Compliance Officer
shall identify all Employees who are required to make reports under Section V.
and shall inform those Employees of their reporting obligation. Once informed of
the duty to file reports, an Employee has a continuing obligation to file such
reports in a timely manner.
G. ANNUAL CERTIFICATION OF COMPLIANCE. At the time of submission
of Annual Holding Reports, all Employees must certify that they have read,
understand and are subject to this Code, and have complied at all times with
this Code, including the execution of personal securities transactions
disclosures in connection with obtaining prior clearance of securities
transactions and the submission of all required reports. When a person becomes
an Employee, that person shall be given a copy of the Code. Within 72 hours
after being given the Code, that person shall certify that he or she has had an
opportunity to ask questions, and has read and understands the Code, and agrees
to comply with the Code. All Employees shall be given a copy of any amendment to
the Code. Within three months after the amendment becomes effective, all
Employees shall certify that they have received a copy of the amendment, that
they have had an opportunity to ask questions, and that they understand the
Amendment and agree to comply with the amendment.
H. DISCLAIMER OF BENEFICIAL OWNERSHIP. The broad definition of
Beneficial Ownership is for purposes of this Code only. It does not necessarily
cover other securities or tax laws. No report required to be made under Section
V. shall be construed as an admission by the person making such report that he
or she has any direct or indirect Beneficial Ownership in the security to which
the report relates. Such reports may contain a statement to that effect.
Whether an Employee's Report should include such a disclaimer is a
personal matter on which PGIM will make no recommendation. A disclaimer may be
important not only for securities law purposes, but also because it might be
some evidence of ownership for other purposes, such as estate taxes.
Accordingly, an Employee may wish to consult their own attorney on this issue.
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<PAGE>
I. FORM OF REPORTS. All reports required to be filed under
Section V. shall be prepared by Employees using the forms attached to this
Code.
VI. REPORTS TO THE FUND'S BOARD
A. No less than thirty (30) days prior to the final regular meeting of
the Fund's Board for each fiscal year of the Fund, the Compliance Officer for
PGIM shall furnish to the Board, and the Board shall consider, a written report
that:
i. Describes any issues arising under this Code since the last
report to the Board, including, but not limited to, information about
material violations of this Code and the sanctions, if any, imposed in
response to the material violations; and
ii. Certifies that PGIM has adopted procedures reasonably
necessary to prevent Access Persons from violating the Code.
B. To the extent that immaterial violations of this Code (such as late
filings of required reports) may collectively indicate material problems with
the implementation and enforcement of this Code, the written report shall
describe any violations that are material in the aggregate.
VII. ADVISING NON-PGIM CLIENTS
Employees may not render investment advice to persons other than
clients of PGIM or members of the Employee's immediate family, unless the
advisory relationship, including the identity of those involved and any fee
arrangements, has been disclosed to and cleared with our President. Such
advisory relationships are subject to the reporting provisions of Section V.,
above.
VIII. VIOLATIONS OF THIS CODE
Violations of this Code may result in the imposition of sanctions by
regulatory authorities and/or PGIM, including forfeiture of any profit from a
transaction, reduction in salary, censure, suspension, or termination of
employment.
IX. RECORD RETENTION
A. PGIM shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2(f)(1) under the 1940 Act, and shall be available for
examination by representatives of the Securities and Exchange Commission:
1. RETENTION OF CODE. A copy of this Code and any Code that was
in effect at any time
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<PAGE>
within the past five years shall be preserved in an easily accessible place.
2. RECORD OF VIOLATIONS. A record of any violation of this Code
and of any action taken as a result of such violation shall be
preserved in an easily accessible place for a period of not
less than five years following the end of the fiscal year in
which the violation occurs.
3. COPY OF FORMS AND REPORTS. A copy of each Personal Trading
Request and Authorization Form and each Initial Holdings
Report, Quarterly Transaction Report, Annual Holdings Report
and Conflict of Interest Report prepared and submitted by an
Employee pursuant to this Code must be preserved by the
Compliance Officer as appropriate, for a period of not less
than five years from the end of the fiscal year in which such
report is made, the first two years in an easily accessible
place.
4. LIST OF ACCESS PERSONS. A list of all persons who are, or
within the past five years of business have been, required to
file Personal Trading Request and Authorization Forms and
Initial Holdings Reports, Quarterly Transaction Reports,
Annual Holdings Reports and Conflict of Interest Reports
pursuant to this Code and a list of those persons who are or
were responsible for reviewing such Forms and Reports shall be
maintained in an easily accessible place.
5. WRITTEN REPORTS TO THE BOARD. A copy of each written report
furnished to the Board of the Fund under Section VI. of this
Code shall be maintained for at least five years after the end
of the Fund's fiscal year in which it is made, the first two
years in an easily accessible place.
6. RECORDS RELATING TO DECISIONS INVOLVING INITIAL PUBLIC
OFFERINGS AND LIMITED OFFERINGS. PGIM shall maintain a record
of any decision, and the reasons supporting the decision, to
approve the acquisition by Access Persons of securities made
available in an Initial Public Offering or Limited Offering
for at least five years after the end of the Fund's fiscal
year in which the approval is granted.
7. SITES OF RECORDS TO BE KEPT. All such records and/or documents
required to be maintained pursuant to this Code and/or Rule
17j-1 under the 1940 Act shall be kept at the offices of PGIM.
B. CONFIDENTIAL TREATMENT. All reports and other records required to be
filed or maintained under this Code shall be treated as confidential.
X. INTERPRETATION OF PROVISIONS
The management of PGIM may, from time to time, adopt such
interpretations of this Code as the management deems appropriate, provided that
the Board of the Fund approves any material changes to this Code affecting
compliance with Rule 17j-1 of the 1940 Act in accordance with such Rule..
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<PAGE>
XI. AMENDMENTS TO THE CODE
Any amendment to the Code shall be effective thirty (30) calendar days
after written notice of such amendment shall have been received by the
Compliance Officer of PGIM, unless the Board or management of the Fund or PGIM
(as appropriate) expressly determines that such amendment shall become effective
on an earlier date or shall not be adopted. Any material change to this Code
affecting compliance with Rule 17j-1 under the 1940 Act shall be approved by the
Board of the Fund in accordance with such Rule.
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XII. ACKNOWLEDGMENT OF RECEIPT
The undersigned has read, understands, and agrees to abide by the
guidelines set forth in this Code.
Name: Date:
----------------------------------- ------------------------
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APPENDIX A
PROCEDURES FOR THE ENFORCEMENT OF PGIM'S
CODE OF ETHICS
1. Upon the commencement of employment, each Employee of PGIM is
provided with a copy of PGIM's Code. Each Employee is at that time also
scheduled to discuss the Code with our Compliance Officer. The Employee is
required to acknowledge their understanding of the Code's prohibitions and
requirements by signing it and returning it to our Compliance Officer for
retention in PGIM's files. Employees are encouraged to direct any questions that
may arise concerning the Code and its prohibitions to our Compliance Officer.
Each year PGIM recirculates the Code to its Employees and requires that each
Employee sign and return the executed copy to our Compliance Officer.
2. A list of all Employees is maintained and updated by our Compliance
Officer.
3. Before an Employee can place an order to effect a securities
transaction for any account in which the Employee has a direct or indirect
beneficial interest or for which the Employee exercises influence or control
over investment decisions, the Employee must obtain prior written approval from
PGIM's Compliance Officer on a standard Personal Trading Request and
Authorization Form ("Authorization Form") supplied by PGIM. PGIM's Compliance
Officer, when appropriate, may inquire as to the reason for the personal
securities transaction and record that reason on the Authorization Form. The
original or a copy of the Authorization Form will be provided to our Compliance
Officer so that it can be matched at a later time with the information reported
on the Employee's Monthly Securities Transaction Report ("Monthly Report").
4. PGIM's Code requires all Employees to report on the Quarterly
Transaction Report form any securities transaction for the prior calendar
quarter for accounts in which they have or will acquire a direct or indirect
beneficial interest or for accounts over which they exercise influence or
control. Employees are also asked to instruct the brokerage firm through which
the transaction is executed to send a duplicate confirmation to our Compliance
Officer. Upon receiving a confirmation, our Compliance Officer will match the
confirmation with the Authorization Form. If the confirmation on its face
reveals a violative trade, appropriate disciplinary action will be taken.
In the event that a Quarterly Transaction Report or confirmation
discloses a securities transaction for which no prior written approval was
obtained, our Compliance Officer will discuss the circumstances of the
transaction and the reason for the failure to follow required procedures with
the Employee and a written record will be made of the matter. A copy of that
record will be attached to the Employee's Quarterly Transaction Report, which is
retained in that Employee's personal securities transactions file. Our
Compliance Officer will warn Employees that violations of PGIM's Code may result
in disciplinary action including reduction in salary, censure, suspension or
termination of employment.
A-1
<PAGE>
5. On a quarterly basis each Employee's personal transactions files
will be reviewed by our Compliance Officer to identify and mark day trades and
situations where a personal trade in a security preceded a client trade by one
or more days. Our Compliance Officer will also review the files for scalping,
front-running, misuse of confidential information, or other abusive personal
securities transactions.
6. Our Compliance Officer will discuss any such questionable
transactions with the Employee who effected the trade. Our Compliance Officer
will make a written record of any determination indicating whether there has
been a violation of law or PGIM's Code and the reasons underlying that
determination. In the event that our Compliance Officer determines that there
has been a securities law violation or a violation of PGIM's Code, appropriate
disciplinary action will be taken and a report made to PGIM's management.
7. These procedures, in conjunction with those procedures designed to prevent
the use of material non-public information, as contained in PGIM's Policies and
Procedures Concerning the Misuse of Material Non-Public Information, will be
reviewed by PGIM's management on an annual basis to assess their effectiveness
in preventing improper and illegal personal securities trading by PGIM
Employees.
A-2
<PAGE>
PACIFIC ADVISORS FUND, INC.
AND
PACIFIC GLOBAL FUNDS DISTRIBUTOR, INC.
A MARYLAND CORPORATION
CODE OF ETHICS WITH RESPECT TO
SECURITIES TRANSACTIONS OF ACCESS PERSONS
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") requires
investment companies, as well as their investment advisers and principal
underwriters, to adopt written codes of ethics containing provisions reasonably
necessary to prevent "access persons" from engaging in any act, practice, or
course of business prohibited under the anti-fraud provisions of Rule 17j-1(b).
Pursuant to the requirements of Rule 17j-1, Pacific Advisors Fund, Inc. (the
"Fund") and Pacific Global Fund Distributor, Inc. (the "Distributor") have
approved, this Code of Ethics (the "Code") with respect to securities
transactions of officers, directors, and certain of the employees of the Fund
and the Distributor that come within the term "access person," as defined below.
This Code is intended to provide guidance to such Access Persons of the
Fund and the Distributor in the conduct of their investments in order to
eliminate the possibility of securities transactions occurring that place, or
appear to place, such persons in conflict with the interests of the Fund or the
Fund's shareholders.
A. RULE 17J-1 -- GENERAL ANTI-FRAUD PROVISIONS.
Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of a registered investment company, or any affiliated person
of such company's investment adviser or principal underwriter, in connection
with any purchase or sale, directly or indirectly, by such person of a Security
Held or to be Acquired by such investment company, to engage in any of the
following acts, practices or courses of business:
1. employ any device, scheme, or artifice to defraud such investment
company;
2. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
<PAGE>
3. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company;
and
4. engage in any manipulative practice with respect to such investment
company.
B. DEFINITIONS.
1. ACCESS PERSONS. The term "Access Person" means any officer, director,
or Advisory Employee of the Fund or the Distributor.
2. ADVISORY EMPLOYEE. The term "Advisory Employee" means (a) any employee
of the Fund or the Distributor who, in connection with his* regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a Covered Security by or on behalf
of the Fund or (b) any employee of the Fund or the Distributor whose
functions relate to the making of any recommendations with respect to
such purchases or sales. If any individual or company is in a control
relationship with the Fund or the Distributor, that person would be
treated as an "Advisory Employee" for purposes of this Code.
3. BENEFICIAL OWNERSHIP. "Beneficial Ownership" has the same meaning as
would be used in determining whether an Access Person is subject to
the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial interest will apply to
all securities that an Access Person has or acquires. "Beneficial
Ownership" includes accounts of a spouse, minor children who reside in
an Access Person's home and any other relatives (parents, adult
children, brothers, sisters, etc.) whose investments the Access Person
directs or controls, whether the person lives with him or not, as well
as accounts of another person (individual, corporation, trust,
custodian, or other entity) if, by reason of any contract,
understanding, relationship, agreement or other arrangement, the
Access Person obtains or may obtain therefrom benefits substantially
equivalent to those of ownership. A person does not derive a
beneficial interest by virtue of serving as a trustee or executor
unless he or a member of his immediate family has a vested interest in
the income or corpus of the trust or estate. A copy of a Release
issued by the Securities and Exchange Commission on the meaning of the
term "beneficial ownership" is available upon request, and should be
studied carefully by any Access Person concerned with this definition
before preparing any report required hereunder.
4. BEING CONSIDERED FOR PURCHASE OR SALE. A security is "Being Considered
for Purchase or Sale" when a recommendation to purchase or sell such
security has
- -----------------------
* The use of the masculine pronoun is for convenience of reference only and
is intended to include the feminine in all cases, unless the context requires
otherwise. 2
<PAGE>
been made and communicated by an Advisory Employee, in the course of
his duties and, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
5. CONTROL. The term "Control" has the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act.
6. COVERED SECURITY. The term "Covered Security" has the same meaning as
the term "security" as set forth in Section 2(a)(36) of the 1940 Act,
except that it shall not include shares of registered open-end
investment companies, direct obligations of the Government of the
United States, bankers' acceptances, bank certificates of deposit,
commercial paper, and high quality short-term debt instruments,
including repurchase agreements. For these purposes, "high quality
short-term debt instruments" means any instrument that has a maturity
at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a nationally recognized statistical
rating organization.
7. DISINTERESTED DIRECTOR. The term "Disinterested Director" means a
director of the Fund who is not an "interested person" of the Fund or
the Distributor within the meaning of Section 2(a)(19) of the 1940
Act.
8. INITIAL PUBLIC OFFERING. The term "Initial Public Offering" means an
offering of securities registered under the Securities Act of 1933,
the issuer of which, immediately before the registration, was not
subject to the reporting requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934.
9. LIMITED OFFERING. The term "Limited Offering" means an offering that
is exempt from registration under the Securities Act of 1933 pursuant
to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or
Rule 506 under the Securities Act of 1933.
10. SECURITY HELD OR TO BE ACQUIRED. The phrase "Security Held or to be
Acquired" by the Fund means:
i. any Covered Security which, within the most recent fifteen (15)
calendar days:
a. is or has been held by the Fund; or
b. is being or has been considered by the Fund or the Adviser,
Pacific Global Investment Management Company ("PGIM"), for
purchase by the Fund; and
ii. any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security described in paragraph i.
of this
3
<PAGE>
Section B.10.
C. PROHIBITED TRANSACTIONS.
1. PROHIBITED TRANSACTIONS AS TO ACCESS PERSONS OTHER THAN DISINTERESTED
DIRECTORS. No Access Person shall purchase or sell, directly or
indirectly, any security in which he has, or by reason of such
transaction acquires, any direct or indirect Beneficial Ownership
without obtaining prior clearance as described in Section D. of this
Code, provided that this prohibition shall not apply to transactions
that:
a. are exempt under Section E. of this Code; or
b. do not involve a Covered Security.
2. PROHIBITED TRANSACTIONS AS TO DISINTERESTED DIRECTORS. No
Disinterested Director shall purchase or sell, directly or indirectly,
any security in which he has, or by reason of such transaction
acquires, any direct or indirect Beneficial Ownership if such
Disinterested Director knows, or in the ordinary course of fulfilling
his duties as a director of the Fund should know, that the security is
Being Considered for Purchase or Sale by the Fund or the security has
been purchased or sold by the Fund two (2) days prior to the date of
the Disinterested Director's transaction, provided that this
prohibition shall not apply to transactions that:
a. are exempt under Section E. of this Code; or
b. do not involve a Covered Security.
D. PRIOR CLEARANCE OF TRANSACTIONS.
1. GENERAL REQUIREMENT. Every Access Person (other than a Disinterested
Director) shall obtain prior written clearance from the Compliance
Officer before directly or indirectly initiating, recommending, or in
any other way participating in the purchase or sale of a Covered
Security, or directly or indirectly acquiring any security made
available in an Initial Public Offering or in a Limited Offering, in
which the Access Person has, or by reason of the transaction may
acquire, any direct or indirect beneficial interest. When requesting
prior clearance, each Access Person should be aware that:
a. ALL requests for prior clearance must be set forth in writing on
the standard Personal Request and Trading Authorization Form (SEE
attached sample of the form); and
4
<PAGE>
b. prior clearance of a securities transaction is effective for
three (3) business days from and including the date clearance is
granted.
2. BASES FOR DENIAL OF PRIOR CLEARANCE. Except as provided in Section
D.3. below, the Compliance Officer shall deny a request for prior
clearance if he determines that the security at issue is a Covered
Security or is being made available in an Initial Public Offering or
Limited Offering and:
a. is Being Considered for Purchase or Sale by the Fund;
b. has been purchased or sold by the Fund within the prior two
business days;
c. is being purchased or sold on behalf of the Fund. In this
instance, "sold" includes an order to sell that has been entered
but not executed; or
d. the granting of prior clearance would, in the judgment of the
Compliance Officer, be inconsistent with the purposes of this
Code. If a prior clearance request is denied under this Section
D.2.d, the Compliance Officer shall explain in writing the
reasons therefor.
3. BASES FOR GRANTING OF PRIOR CLEARANCE. The Compliance Officer shall
grant a request for prior clearance if he determines that the
transaction at issue:
a. is not potentially harmful to the Fund;
b. would be very unlikely to affect the market in which the Fund's
portfolio securities are traded; or
c. clearly is not related economically to the securities to be
purchased, sold, or held by the Fund, AND the decision to
purchase or sell the security is not the result of material
non-public information obtained in the course of the Access
Person's relationship with the Fund or the Distributor.
The Compliance Officer shall document the reasons for granting any
request involving securities otherwise covered by Section D.2.a., b.,
or c. above.
5
<PAGE>
E. EXEMPT TRANSACTIONS.
The prohibitions of Section C. of this Code and the preclearance procedures
described in Section D. of this Code shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control, or in any
account of the Access Person which is managed on a discretionary basis
by a person other than the Access Person and, with respect to which
the Access Person, does not in fact influence or control purchase or
sale transactions;
2. purchases or sales of securities which are not eligible for purchase
or sale by the Fund;
3. purchases or sales which are non-volitional on the part of the Access
Person or the Fund;
4. purchases which are part of an automatic dividend reinvestment plan;
and
5. purchases effected upon the exercise of rights issued by the issuer
PRO RATA to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights
so acquired.
F. REPORTING REQUIREMENTS OF ACCESS PERSONS.
1. CONTENT AND TIMING OF ACCESS PERSON REPORTS. Every Access Person shall
make the following reports to the Compliance Officer for the Fund and
the Distributor (as appropriate):
a. INITIAL HOLDINGS REPORT. No later than ten (10) days after
becoming an Access Person, such Access Person shall report the
following information:
i. the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect Beneficial Ownership when the person became an
Access Person;
ii. the name of any broker, dealer or bank with whom the Access
Person maintained an account in which ANY securities were
held for the direct or indirect benefit of the Access Person
as of the date the person became an Access Person; and
iii. the date that the report is submitted by the Access Person.
Persons who became Access Persons before October 29, 1999 are not
required to file initial holdings reports.
6
<PAGE>
b. QUARTERLY TRANSACTION REPORTS. No later than ten (10) days after
the end of a calendar quarter, the Access Person shall report the
following information:
i. With respect to any transaction during the quarter in a
Covered Security in which the Access Person had any direct
or indirect Beneficial Ownership:
A. the date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
B. the nature of the transaction (I.E., purchase, sale or
any other type of acquisition or disposition);
C. the price of the Covered Security at which the
transaction was effected;
D. the name of the broker, dealer, or bank with or through
whom the transaction was effected; and
E. the date that the report is submitted by the Access
Person.
iii. With respect to any account established by the Access Person
in which ANY securities were held during the quarter for the
direct or indirect benefit of the Access Person:
A. the name of the broker, dealer or bank with whom the
Access Person established the Account;
B. the date the account was established; and
C. the date that the report was submitted by the Access
Person.
c. ANNUAL HOLDING REPORTS. No later than twenty (20) days after the
end of every calendar year, the Access Person shall report the
following information (which information must be current as of
December 31 of the calendar year for which the report is being
submitted):
i. the title, number of shares and principal amount of each
Covered Security in which the Access Person has any direct
or indirect beneficial ownership;
7
<PAGE>
ii. the name of any broker, dealer or bank with whom the Access
Person maintains an account in which ANY securities are held
for the direct or indirect benefit of the Access Person; and
iii. the date that the report is being submitted by the Access
Person.
d. CONFLICT OF INTEREST REPORTS. Every Access Person shall
immediately report in writing to the Compliance Officer for the
Fund or the Distributor (as appropriate) any factors of which he
or she is aware that would be relevant to a conflict of interest
analysis, including the existence of any substantial economic
relationship between the Access Person's transactions and
securities held or to be acquired by the Fund. These factors may
include, for example, officerships or directorships with
companies or beneficial ownership of more than 1/2 of 1% of the
total outstanding shares of any company whose shares are publicly
traded or that may be made available in an Initial Public
Offering or Limited Offering in the foreseeable future.
2. NO HOLDINGS OR TRANSACTIONS TO REPORT. If an Access Person has no
holdings to report on either an Initial Holdings Report or any Annual
Holdings Report nor transactions to report on any Quarterly
Transaction Report, that Access Person shall nevertheless submit the
appropriate Report stating that the Access Person had no holdings or
transactions (as appropriate) to report and the date the report is
submitted by the Access Person.
3. COPIES OF CONFIRMATIONS AND PERIOD ACCOUNT STATEMENTS. Each Access
Person shall direct every broker or dealer through whom the Access
Person effects ANY securities transactions to deliver to the
Compliance Officer, on a timely basis, duplicate copies of
confirmations of all Access Person securities transactions and copies
of periodic statements for all Access Person securities accounts.
4. EXCEPTIONS FROM REPORTING REQUIREMENTS.
a. A person need not make a report under this Section F. with
respect to transactions for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
b. A Disinterested Director who would be required to make a report
solely by reason of being a director of the Fund need not make:
i. An Initial Holdings Report under Section F.1.a or an Annual
Holdings Report under Section F.1.c; and
ii. A Quarterly Transaction Report under Section F.1.b, unless
such Disinterested Director knew or, in the ordinary course
of fulfilling
8
<PAGE>
his or her official duties as a Director of the Fund, should
have known that during the 15-day period immediately before
or after the Disinterested Director's transaction in a
Covered Security, the Fund purchased or sold the Covered
Security, or the Fund or PGIM considered purchasing or
selling the Covered Security.
c. An Access Person need not make a Quarterly Transaction Report
under Section F.1.b. if the confirmations or periodic account
statements delivered to the Compliance Officer under Section F.3
are received within the time period required by Section F.1.b.,
provided that all information required by Section F.1.b. is
contained in such confirmations or account statements.
d. An Access Person need not make a Quarterly Transaction Report
with respect to the "exempt transactions" described in Section E.
except to the extent required by Section F.2.
5. REVIEW OF REPORTS. The Compliance Officer for the Fund and the
Distributor (as appropriate) shall review all reports submitted
pursuant to Section F.1 for the purpose of detecting and preventing a
potential or actual violation of this Code.
a. The Compliance Officer shall review an Initial Holdings Report
within fifteen (15) days of the date such Report is submitted by
an Access Person.
b. The Compliance Officer shall review all Quarterly Transaction
Reports and all Annual Holding Reports within thirty (30) days of
the date such a Report is submitted by an Access Person.
c. The Compliance Officer shall review all Conflict of Interest
Reports promptly after receipt of such a Report.
d. The Compliance Officer shall maintain a record of each report
reviewed and the date such review was completed. Such record
shall indicate whether the Compliance Officer's review detected a
potential or actual violation of this Code. If the Compliance
Officer detects a potential or actual material violation of this
Code, the Compliance Officer shall promptly inform management of
the Fund or the Distributor (as applicable) in writing.
e. The Compliance Officer promptly after furnishing such written
notification of a potential or actual material violation of this
Code, shall take those measures the Compliance Officer deems
necessary and appropriate to remedy such violation, including,
but not limited to, requiring the Access Person to divest any
inappropriate securities holdings and recommending sanctions to
the Board.
9
<PAGE>
f. The Compliance Officer shall take such other actions and measures
as he deems necessary and appropriate to carry out his duties
with respect to the review of reports required under this Code.
6. NOTIFICATION OF REPORTING OBLIGATION. The Compliance Officer for the
Fund and the Distributor (as appropriate) shall identify all Access
Persons who are required to make reports under Section F.1. and shall
inform those Access Persons of their reporting obligation. Once
informed of the duty to file reports, an Access Person has a
continuing obligation to file such reports in a timely manner.
7. DISCLAIMER OF BENEFICIAL OWNERSHIP. No report required to be made
under Section F.1 shall be construed as an admission by the person
making such report that he or she has any direct or indirect
Beneficial Ownership in the security to which the report relates. Such
reports may contain a statement to that effect.
8. FORM OF REPORTS. All reports required to be filed under Section F.1.
shall be prepared by Access Persons using the forms attached to this
Code.
G. ANNUAL CERTIFICATION OF COMPLIANCE.
At the time of submission of Annual Holding Reports, all Access Persons
must certify that they have read, understand and are subject to this Code, and
have complied at all times with this Code, including the execution of personal
securities transactions disclosures in connection with obtaining prior clearance
of securities transactions and the submission of all required reports. When a
person becomes an Access Person, that person shall be given a copy of the Code.
Within 72 hours after being given the Code, that person shall certify that he or
she has had an opportunity to ask questions, and has read and understands the
Code, and agrees to comply with the Code. All Access Persons shall be given a
copy of any amendment to the Code. Within three months after the amendment
becomes effective, all Access Persons shall certify that they have received a
copy of the amendment, that they have had an opportunity to ask questions, and
that they understand the Amendment and agree to comply with the amendment.
H. OTHER DUTIES OF AND RESTRICTIONS ON ACCESS PERSONS.
1. INITIAL PUBLIC OFFERINGS AND LIMITED OFFERINGS. Any Access Person who
has purchased or sold any securities in an Initial Public Offering or
a Limited Offering is required to disclose that transaction at the
time such Access Person is seeking preclearance of future transactions
involving the securities of that issuer. Independent investment
personnel with no personal interest in the issuer shall make the
decision of whether to permit such an Access Person to purchase
securities from that issuer.
10
<PAGE>
2. GRATUITIES. No Access Person shall receive any gift or gratuity, other
than one of DE MINIMIS value, from any person who does business with
or on behalf of the Fund.
3. SERVICE AS A DIRECTOR. No Access Person shall serve on the board of a
publicly traded company without prior authorization. Any such
authorization shall be supported by a determination that such service
is consistent with the interests of the Fund and the Fund's
shareholders.
4. CONFIDENTIALITY. No Access Person shall reveal to any other person
(except in the normal course of his duties on behalf of the Fund or
the Distributor) any information regarding securities transactions
made or being considered by or on behalf of the Fund.
I. REPORTS TO THE BOARD
1. No less than thirty (30) days prior to the final regular meeting of
the Board for each fiscal year of the Fund, the Compliance Officer for
the Fund and the Distributor shall furnish to the Board, and the Board
shall consider, a written report that:
a. Describes any issues arising under this Code since the last
report to the Board, including, but not limited to, information
about material violations of this Code and the sanctions, if any,
imposed in response to the material violations; and
b. Certifies that the Fund and the Distributor have adopted
procedures reasonably necessary to prevent Access Persons from
violating the Code.
2. In considering the written report, the Board shall determine whether
any action is required in response to the report.
3. To the extent that immaterial violations of this Code (such as late
filings of required reports) may collectively indicate material
problems with the implementation and enforcement of this Code, the
written report shall describe any violations that are material in the
aggregate.
J. SANCTIONS.
The Compliance Officer of the Fund shall furnish to the Audit Committee of
the Board reports regarding the administration hereof and summarizing any forms
or reports filed hereunder. If any such report indicates that any changes hereto
are advisable, the Audit Committee shall make an appropriate recommendation to
the Board. The Audit Committee also shall inquire into any apparent violations
of this Code and shall report any apparent material violations to the Board.
Upon finding of a material violation of this Code, including the filing of
11
<PAGE>
false, incomplete, or untimely required reports, or the failure to obtain prior
clearance of personal securities transactions, the Board may impose such
sanctions as it deems appropriate, which may include censure, suspension, or
termination of the employment of the violator. No Director shall participate in
a determination of whether he has committed a violation of this Code or of the
imposition of any sanction against himself.
Similarly, it shall be the responsibility of the Distributor's Compliance
Officer to receive and maintain all reports submitted by Access Persons and to
use reasonable diligence and institute procedures reasonably necessary to
monitor the adequacy of such reports and to otherwise prevent or detect
violations of this Code. Upon discovering a material violation of this Code
involving any Access Person, such as those noted in the prior paragraph, it
shall be the responsibility of the Distributor's Compliance Officer to report
such violation to the management of the Distributor. The Distributor's
management (as appropriate) may impose such sanctions against the Access Person
determined to have violated this Code as it deems appropriate, including INTER
ALIA, a letter of censure or suspension or termination of the employment,
officership, or other position of the violator with the Distributor. No officer,
director or manager of the Distributor shall participate in a determination of
whether he has committed a violation of this Code or of the imposition of any
sanction against himself.
K. MATERIAL CHANGES TO THE CODE.
1. The Board, including a majority of the Disinterested Directors, shall
approve any material change made to this Code no later than six months
after adoption of the material change.
2. The Board shall base its approval of any material change to the Code
on a determination that the Code contains provisions reasonably
necessary to prevent Access Persons from engaging in any conduct
described in Section A of this Code.
L. RECORD RETENTION.
The Fund and the Distributor shall maintain records in the manner and to
the extent set forth below, which records may be maintained on microfilm under
the conditions described in Rule 31a-2(f)(1) under the 1940 Act, and shall be
available for examination by representatives of the Securities and Exchange
Commission:
1. RETENTION OF CODE. A copy of this Code and any Code that was in effect
at any time within the past five years shall be preserved in an easily
accessible place.
2. RECORD OF VIOLATIONS. A record of any violation of this Code and of
any action taken as a result of such violation shall be preserved in
an easily accessible place for a period of not less than five years
following the end of the fiscal year in which the violation occurs.
12
<PAGE>
3. COPY OF FORMS AND REPORTS. A copy of each Personal Trading Request and
Authorization Form and each Initial Holdings Report, Quarterly
Transaction Report, Annual Holdings Report and Conflict of Interest
Report prepared and submitted by an Access Person pursuant to this
Code must be preserved by the Compliance Officer for the Fund or the
Distributor, as appropriate, for a period of not less than five years
from the end of the fiscal year in which such report is made, the
first two years in an easily accessible place.
4. LIST OF ACCESS PERSONS. A list of all persons who are, or within the
past five years of business have been, required to file Personal
Trading Request and Authorization Forms and Initial Holdings Reports,
Quarterly Transaction Reports, Annual Holdings Reports and Conflict of
Interest Reports pursuant to this Code and a list of those persons who
are or were responsible for reviewing such Forms and Reports shall be
maintained in an easily accessible place.
5. WRITTEN REPORTS TO THE BOARD. A copy of each written report furnished
to the Board under Section I. of this Code shall be maintained for at
least five years after the end of the Fund's fiscal year in which it
is made, the first two years in an easily accessible place.
6. RECORDS RELATING TO DECISIONS INVOLVING INITIAL PUBLIC OFFERINGS AND
LIMITED OFFERINGS. The Distributor shall maintain a record of any
decision, and the reasons supporting the decision, to approve the
acquisition by Access Persons of securities made available in an
Initial Public Offering or Limited Offering for at least five years
after the end of the Fund's fiscal year in which the approval is
granted.
7. SITES OF RECORDS TO BE KEPT. All such records and/or documents
required to be maintained pursuant to this Code and/or Rule 17j-1
under the 1940 Act shall be kept at the offices of Fund and
Distributor in California.
M. CONFIDENTIAL TREATMENT.
All reports and other records required to be filed or maintained under this
Code shall be treated as confidential.
N. INTERPRETATION OF PROVISIONS.
The Board and management of the Distributor may, from time to time, adopt
such interpretations of this Code as such Board and management deem appropriate,
provided that the Board approves any material changes to this Code in accordance
with Section K.
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<PAGE>
O. AMENDMENTS TO THE CODE.
Any amendment to the Code shall be effective thirty (30) calendar days
after written notice of such amendment shall have been received by the
Compliance Officer of the Fund and the Distributor, unless the Board or
management of the Fund or the Distributor (as appropriate) expressly determines
that such amendment shall become effective on an earlier date or shall not be
adopted. Any material change to this Code shall be approved by the Board in
accordance with Section K.
* * * * * *
I have read the above Code and understand it. I agree to comply fully with
all of the above provisions.
Date: Signed:
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14
<PAGE>
HAMILTON & BACHE, INC.
CODE OF ETHICS AND CONDUCT
As a investment adviser, Hamilton & Bache, Inc. ("H&B") is a fiduciary.
As such it owes its clients the highest duty of diligence and loyalty.
Accordingly, one of the fundamental policies of H&B is to avoid any conflict of
interest or even the appearance of such a conflict in connection with the
performance of investment advisory and portfolio management services for its
clients. In furtherance of such fundamental policy and applicable regulatory
requirements, H&B has adopted this Code of Ethics and Conduct ("Code"), which
applies to each Employee of H&B, who is involved in the provision of investment
advisory or portfolio management services - whether by way of security analysis
or recommendation, portfolio recommendation, financial planning, or otherwise.
Please carefully read the policies and procedures detailed below. When you
believe that you sufficiently understand them, sign, date, and return one copy
of this memorandum to our Compliance Officer, and keep the other copy for your
reference. Employees should consult with H&B's Compliance Officer regarding any
questions about these items and other issues relating to H&B's fiduciary
obligations to its clients.
Please also note that the Insider Trading and Securities Fraud Enforcement
Act of 1988 and Section 204A of the Investment Advisers Act of 1940 ("Advisers
Act") require every investment adviser to establish, maintain, and enforce
policies and procedures to detect and prevent the misuse of material, non-public
information. In response to those requirements, H&B has developed a Compliance
Manual, as well as Policies and Procedures Concerning the Misuse of Material
Non-Public Information ("Policies and Procedures"). Please refer to those
Policies and Procedures as appropriate.
I. DEFINITIONS
A. ACCESS PERSONS. The term "Access Person" means any officer,
director, or Advisory Employee of H&B.
B. ADVISORY EMPLOYEE. The term "Advisory Employee" means (a) any
employee of H&B who, in connection with his(1) regular functions or duties,
makes, participates in, or obtains information regarding the purchase or sale of
a Covered Security by or on behalf of Clients or (b) any employee of H&B whose
functions relate to the making of any recommendations with respect to such
purchases or sales. If any individual or company is in a control relationship
with H&B, that person would be treated as an "Advisory Employee" for purposes of
this Code.
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(1) The use of the masculine pronoun is for convenience of reference only and
is intended to include the feminine in all cases, unless the context requires
otherwise.
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C. BENEFICIAL OWNERSHIP. "Beneficial Ownership" has the same meaning as
would be used in determining whether an Employee is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
interest will apply to all securities that an Employee has or acquires.
"Beneficial Ownership" includes accounts of a spouse, minor children who reside
in an Employee's home and any other relatives (parents, adult children,
brothers, sisters, etc.) whose investments the Employee directs or controls,
whether the person lives with him or not, as well as accounts of another person
(individual, corporation, trust, custodian, or other entity) if, by reason of
any contract, understanding, relationship, agreement or other arrangement, the
Employee obtains or may obtain therefrom benefits substantially equivalent to
those of ownership. A person does not derive a beneficial interest by virtue of
serving as a trustee or executor unless he or a member of his immediate family
has a vested interest in the income or corpus of the trust or estate. A copy of
a Release issued by the Securities and Exchange Commission on the meaning of the
term "beneficial ownership" is available upon request, and should be studied
carefully by any Employee concerned with this definition before preparing any
report required hereunder.
D. BEING CONSIDERED FOR PURCHASE OR SALE. A security is "Being
Considered for Purchase or Sale" when a recommendation to purchase or sell such
security has been made and communicated by an Employee, in the course of his
duties and, with respect to the person making the recommendation, when such
person seriously considers making such a recommendation.
E. CONTROL. The term "Control" has the same meaning as that set forth
in Section 2(a)(9) of the 1940 Act.
F. COVERED SECURITY. The term "Covered Security" has the same meaning
as the term "security" as set forth in Section 2(a)(36) of the 1940 Act, except
that it shall not include shares of registered open-end investment companies,
direct obligations of the Government of the United States, bankers' acceptances,
bank certificates of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreements. For these purposes, "high quality
short-term debt instruments" means any instrument that has a maturity at
issuance of less than 366 days and that is rated in one of the two highest
rating categories by a nationally recognized statistical rating organization.
G. EMPLOYEE. The term "Employee" means any "Access Person" or "Advisory
Representative", as well as all other employees of H&B.
H. CLIENTS. The term "Clients" means Pacific Advisors Balanced Fund
and/or Pacific Advisors Income and Equity Fund and individual investment
management clients.
I. INITIAL PUBLIC OFFERING. The term "Initial Public Offering" means an
offering of securities registered under the Securities Act of 1933, the issuer
of which, immediately before the
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registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934.
J. LIMITED OFFERING. The term "Limited Offering" means an offering that
is exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the
Securities Act of 1933.
K. SECURITY HELD OR TO BE ACQUIRED. The phrase "Security Held or to be
Acquired" by Clients means:
1. any Covered Security which, within the most recent fifteen
(15) calendar days:
a. is or has been held by Clients; or
b. is being or has been considered for purchase by Clients;
and
2. any option to purchase or sell, and any security convertible
into or exchangeable for, a Covered Security described in paragraph
II.F. above.
II. RULE 17j-1 -- GENERAL ANTI-FRAUD PROVISIONS.
Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of a registered investment company, or any affiliated person
of such company's investment adviser or principal underwriter, in connection
with any purchase or sale, directly or indirectly, by such person of a Security
Held or to be Acquired by such investment company, to engage in any of the
following acts, practices or courses of business:
A. employ any device, scheme, or artifice to defraud such investment
company;
B. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact necessary in
order to make the statements made, in light of the circumstances under which
they are made, not misleading;
C. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company; and
D. engage in any manipulative practice with respect to such investment
company.
III. CONFLICTS OF INTEREST-PERSONAL INVESTMENTS
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A. GENERAL. H&B believes that every Employee should have reasonable
freedom with respect to their investment activities and those of their families.
At the same time, conflicts of interest could arise between H&B's clients and
the personal investment activities of H&B or its Employees.
H&B's fundamental policy is to avoid conflicts of interest or even the
appearance of such conflicts whenever possible. However, if a conflict were to
unavoidably occur, it is also H&B's policy to resolve such conflict in favor of
the client. Even in instances in which there is an identity of interest among an
H&B client, H&B and its Employees, an Employee must recognize that Clients have
priority in their right to benefit from H&B's investment advice over any rights
of H&B, the Employee, or any non-client members of the Employee's family whom he
or she may advise. This condition inevitably places some restriction on freedom
of investment for Employees and their families.
This Code does not attempt to describe all possible conflicts of
interest, but rather, attempts to establish general principles and to highlight
possible problem areas. Employees should be conscious that areas other than
personal securities transactions may involve conflicts of interest. For example,
one such area would be accepting gifts or favors from persons such as brokers
since such gifts or favors could impair the Employee's objectivity. Thus, the
requirements set forth below are not intended to cover all situations that may
involve a possible conflict of interest. Rather they are intended (i) to provide
a framework for understanding such conflicts and (ii) to provide a mechanism for
monitoring and reporting personal securities transactions. If there is any doubt
about a matter, the Compliance Officer should be consulted BEFORE any action
regarding such matter is taken.
B. PROHIBITED PERSONAL TRADING.
1. IMPROPER USE OF INFORMATION. No Employee may use their
knowledge concerning H&B's advisory clients' securities transactions for trading
in their personal account, any account in which he or she has a Beneficial
Ownership interest, or in any account controlled by or under the influence of
such Employee.
2. PURCHASE AND SALES. No Employee may purchase or sell, directly
or indirectly, any security in which he has, or by reason of the transaction
acquires, any direct or indirect Beneficial Ownership without obtaining prior
clearance as described in Section III.C. of this Code, proved that this
prohibition shall not apply to transactions that:
a. are exempt under Section III.D. of this Code; or
b. do not involve a Covered Security.
C. PRIOR CLEARANCE
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1. GENERAL REQUIREMENT. Every Employee shall obtain prior written
clearance from the Compliance Officer before directly or indirectly initiating,
recommending, or in any other way participating in the purchase or sale of a
Covered Security, or directly or indirectly acquiring any security made
available in an Initial Public Offering or in a Limited Offering, in which the
Employee has, or by reason of the transaction may acquire, any direct or
indirect beneficial interest. When requesting prior clearance, each Employee
should be aware that:
a. all requests for prior clearance must be set forth in writing on the
standard Personal Request and Trading Authorization Form (SEE
attached sample of the form); and
b. prior clearance of a securities transaction is effective for three
(3) business days from and including the date clearance is granted.
Requests by Employees for prior clearance of personal securities transactions
must be made in writing on the standard Personal Request and Trading
Authorization Form ("Authorization Form") and submitted to the Compliance
Officer, who will be responsible for reviewing and processing all such requests.
Responses to such requests will also be provided by H&B's Compliance Officer on
the Authorization Form. The requesting Employee should retain a copy of the
Authorization Form for their recordkeeping purposes.
Prior clearance of a securities transaction is effective for three (3) business
days from and including the date clearance is granted.
2. BASES FOR DENIAL OF PRIOR CLEARANCE. Except as provided in Section
III.D.3. below, the Compliance Officer shall deny a request for prior clearance
if he determines that the security at issue is a Covered Security or is being
made available in an Initial Public Offering or Limited Offering and:
a. is Being Considered for Purchase or Sale by Clients;
b. has been purchased or sold by Clients within the prior two business
days;
c. is being purchased or sold on behalf of Clients. In this instance,
"sold" includes an order to sell that has been entered but not
executed; or
d. the granting of prior clearance would, in the judgment of the
Compliance Officer, be inconsistent with the purposes of this Code.
If a prior clearance request is denied under this Section III.D.2.d,
the Compliance Officer shall explain in writing the reasons
therefor.
3. BASES FOR GRANTING OF PRIOR CLEARANCE. The Compliance Officer shall
grant a request for prior clearance if he determines that the transaction at
issue:
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a. is not potentially harmful to Clients;
b. would be very unlikely to affect the market in which
the Clients' portfolio securities are traded; or
c. clearly is not related economically to the securities
to be purchased, sold, or held by Clients,
AND the decision to purchase or sell the security is not the result of material
non-public information obtained in the course of the Employee's relationship
with H&B. The Compliance Officer shall document the reasons for granting any
request involving securities otherwise covered by Section III.C.2.a., b., or c.
above.
D. EXEMPT TRANSACTIONS. The prohibitions of Section III.C.2. above
and the preclearance procedures described in Section III.C.3. above do not
apply to the following transactions:
1. purchases or sales effected in any account over which
an Employee has no direct or indirect influence or
control or in any account of the Employee which is
managed on a discretionary basis by a person other
than the Employee and, with respect to which the
Employee does not in fact influence or control
purchase or sale transactions;
2. purchases or sales which are non-volitional on the
part of the Employee;
3. purchases which are part of an automatic dividend
reinvestment plan;
4. purchases effected upon the exercise of rights issued
pro rata to all holders of a class of securities, to
the extent such rights were acquired from such issuer,
and sales of such rights so acquired; and,
5. purchases of sales of securities which are not
eligible for purchase or sale by any Clients.
E. SPECIFIC RULES. The following rules govern Employee investment
activities for the Employee's personal account or for accounts in which the
Employee has any direct or indirect Beneficial Ownership interest.
These rules are in addition to those noted in III.B. above.
1. NEW ISSUES. An Employee may not purchase any securities
available in an initial public offering ("IPO") of common stock or
convertible securities unless he or she obtains the prior written approval
of the Compliance Officer and:
a. the purchase is made through the Employee's regular
broker;
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b. the number of shares is commensurate with the normal
size and activity of such Employee's account; and
c. no orders for the purchase of such securities have
been entered by H&B for ANY client account.
2. PRIVATE PLACEMENTS. No Employee may purchase a security
that is the subject of a private offering unless prior written approval
by the Compliance Officer been obtained.
3. SHORT SALES. No Employee may sell a security short that is
owned by any H&B client, except "short sales against the box" for tax
purposes.
4. DEALING WITH CLIENTS. No Employee may directly or
indirectly sell to or purchase from a client any security, except
purchases and sales with respect to Clients.
5. CLIENT OWNERSHIP. No Employee may purchase a security of a
company with respect to which 5% or more of its outstanding stock is
owned, in the aggregate, by Clients, unless prior written approval of
the H&B's Compliance Officer is obtained.
6. DAY TRADING. No day trading (I.E., the purchase and sale of
securities on a short term basis, such as one to five days) by
Employees is permitted, without written approval of the Compliance
Officer.
7. COMMISSIONS. Commissions on personal transactions may be
negotiated by the Employee, but payment of a commission rate which is
better than the rate available to Clients through similar negotiation
is prohibited.
8. OPTIONS AND FUTURES. The purchase, sale, and utilization of
options and futures contracts on specific securities by the Employee
are subject to the same restrictions as those set forth in this Code
with respect to securities, I.E., the option or futures contract should
be treated as if it were the security for these purposes.
IV. GENERAL STANDARDS
A. WRITTEN RECORD OF SECURITIES RECOMMENDATIONS. Every recommendation
for the purchase or sale of securities for clients, excluding recommendations to
increase or decrease existing securities positions, must be memorialized in
writing either prior to or immediately after the recommendation is made. A
standard Security Trading Advice form for purchase or sale orders must be used
for this purpose and should be provided to or otherwise made available to the
H&B's Compliance Officer.
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B. USE OF SECURITIES RECOMMENDATIONS. Any investment ideas developed by
an Employee in the course of their work for H&B will be made available for use
by Clients PRIOR to any personal trading or investment by any Employee based on
such ideas. SEE ALSO the prohibitions against self-dealing and front-running
described in Sections IV.E. and F. below.
C. GIFTS, FAVORS, AND GRATUITIES. No Employee should seek from a
broker-dealer, securities salesperson, approved company (I.E., a company the
securities of which are held by Clients), supplier, client or other person or
option with whom H&B has a business relationship, any gift, favor, gratuity, or
preferential treatment that is or may appear to be connected with any present or
future business dealings between H&B and that person or organization or which
may create or appear to create a conflict of interest. As one consequence, no
Employee may purchase New Issues in primary or secondary distributions, unless
prior written approval is obtained and certain other requirements are met, as
described above in Section III. C.1. No gifts may be accepted, other than those
offered as a courtesy. All gifts, favors, or gratuities with a fair market value
in excess of $100 should be reported and described on the Monthly Securities
Transaction Report ("Monthly Report") and will be reviewed by H&B's Compliance
Officer; gifts with a value of less than $100 need only be reported. After such
review, a determination will be made whether such gifts, favors or gratuities
should be returned. In addition, discretion should be used in accepting
invitations for dinners, evening entertainment, sporting events or theater.
While in certain circumstances it may be appropriate to accept such invitations,
all invitations whose value exceeds $100 should also be reported to our
Compliance Officer on the Monthly Report. Any invitations from any person or
organization involving free travel for more than one day must receive prior
approval from our Compliance Officer. No Employee should offer any gifts, favors
or gratuities that could be viewed as influencing decision-making or otherwise
could be considered as creating a conflict of interest on the part of their
recipient.
D. INSIDE INFORMATION. No Employee may seek any benefit for himself, a
client, or anyone else from material, non-public information about issuers,
whether or not held in the portfolios of Clients or suitable for inclusion in
their portfolios. Any Employee who believes he or she is in possession of such
information must contact our Compliance Officer IMMEDIATELY. This prohibition
should not preclude an Employee from contacting officers and employees of
issuers or other investment professionals in seeking information about issuers
that is publicly available. Please remember, in this regard, to review H&B's
Policies and Procedures.
E. FAIR DEALING VS. SELF-DEALING. An Employee shall act in a manner
consistent with the obligation to deal fairly with all clients when taking
investment action. Self-dealing for personal benefit or the benefit of H&B, at
the expense of Clients, will not be tolerated. The receipt of "special favors"
from a stock promoter, such as participation in a private placement or New
Issue, as an inducement to purchase other securities for Clients is not
permitted. The existence of any substantial economic relationship between a
proposed personal securities transaction and any securities held or to be
acquired by H&B or Clients must be disclosed on the Authorization Form.
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F. FRONT-RUNNING. An Employee shall not engage in "front-running" an
order or recommendation, even if the Employee is not handling either the order
or the recommendation and even if the order or recommendation is for someone
other than a Client of H&B. Front-running consists of executing a transaction in
the same or underlying securities, options, rights, warrants, convertible
securities or other related securities, in advance of block or large
transactions of a similar nature likely to affect the value of the securities,
based on the knowledge of the forthcoming transaction or recommendation.
G. SERVICE AS A DIRECTOR. No Employee shall serve on the board of a
publicly traded company without prior authorization. Any such authorization
shall be supported by a determination that such service is consistent with the
interests of Clients.
H. CONFIDENTIALITY. Information relating to any client's portfolio or
activities is strictly confidential and should not be discussed with anyone
outside H&B. In addition, from the time that an Employee anticipates making a
recommendation to purchase or sell a security, through the time that ALL
transactions for clients based on that recommendation have been consummated, the
"subject and content" of the recommendation may be considered to constitute
"inside information." Accordingly, Employees must maintain the utmost
confidentiality with respect to their recommendations during this period and may
not discuss a contemplated recommendation with anyone outside of H&B. In this
regard, please also see H&B's Policies and Procedures.
Any written or oral disclosure of information concerning H&B, Clients,
or particular purchase or sale transactions for client accounts should be made
only by persons who are specifically authorized to release that information,
after consultation with H&B's President and company counsel, where appropriate.
Please note that this prohibition is NOT intended to inhibit exchanges of
information among H&B Employees.
V. REPORTS OF PERSONAL INVESTMENTS BY EMPLOYEES
A. CONTENT AND TIMING OF EMPLOYEE REPORTS. Every Employee shall make
the following reports to the Compliance Officer:
1. INITIAL HOLDINGS REPORT. No later than ten (10) days after
becoming an Employee, such Employee shall report the following
information:
a. the title, number of shares and principal amount of each
Covered Security in which the Employee had any direct or
indirect Beneficial Ownership when the person became an
Employee;
b. the name of any broker, dealer or bank with whom the
Employee maintained an account in which ANY securities
were held for the direct or indirect benefit of the
Employee as of the date the person became an Employee;
and
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c. the date that the report is submitted by the Employee.
Persons who became Employees before October 29, 1999
are not required to file initial holdings reports.
2. QUARTERLY TRANSACTION REPORTS. No later than ten (10) days
after the end of a calendar quarter, the Employee shall
report the following information:
a. With respect to any transaction during the quarter in a
Covered Security in which the Employee had any direct
or indirect Beneficial Ownership or which the Employee
manages (for example, as trustee) or to whom the Employee
gives investment or voting advice:
i. the date of the transaction, the title, the
interest rate and maturity date (if applicable),
the number of shares and the principal amount of
each Covered Security involved;
ii. the nature of the transaction (I.E., purchase, sale
or any other type of acquisition or disposition);
iii. the price of the Covered Security at which the
transaction was effected;
iv. the name of the broker, dealer, or bank with or
through whom the transaction was effected; and
v. the date that the report is submitted by the
Employee.
b. With respect to any account established by the Employee
in which ANY securities were held during the quarter for
the direct or indirect benefit of the Employee:
i. the name of the broker, dealer or bank with whom
the Employee established the Account;
ii. the date the account was established; and
iii. the date that the report was submitted by the
Employee.
c. In filing Quarterly Transaction Reports for such accounts
please note:
i. Employees must file a report every quarter whether
or not there were any reportable transactions for
such accounts.
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However, no Quarterly Transactions Report is
required to be filed if confirmations and account
statements containing all of the necessary
information are provided to the compliance officer
within ten days of the end of the calendar quarter.
ii. All reportable transactions should be listed, if
possible, on a single form. If necessary, because
of the number of transactions, please attach a
second form and mark it "continuation." For every
security listed on the Quarterly Transaction
Report, the information called for must be
completed by all Employees.
iii. Quarterly Reports must show (i) the date of the
transaction, the name of the issuer, and the number
of shares or principal amount of the security
involved; (ii) the nature of the transaction
(I. E., purchase, sale or other acquisition or
disposition, including gifts, the rounding out of
fractional shares, exercises of conversion rights
and exercises or sales of subscription rights);
(iii) the price at which the transaction was
effected; and (iv) the name of the broker, dealer
or bank with or through whom the transaction was
effected.
iv. Quarterly Transactions Reports on family and other
accounts in which an Employee has any direct or
indirect Beneficial Ownership, and which are fee
paying clients of H&B, need merely list the H&B
account number. Securities transactions for such
accounts need not be separately itemized.
3. ANNUAL HOLDING REPORTS. No later than twenty (20) days after
the end of every calendar year, the Employee shall report the
following information (which information must be current as of
December 31 of the calendar year for which the report is being
submitted):
i. the title, number of shares and principal amount of each
Covered Security in which the Employee has any direct or
indirect beneficial ownership;
ii. the name of any broker, dealer or bank with whom the
Employee maintains an account in which ANY securities are
held for the direct or indirect benefit of the Employee;
and
iii. the date that the report is being submitted by the
Employee.
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4. CONFLICT OF INTEREST REPORTS. Every Employee shall immediately
report in writing to the Compliance Officer any factors of
which he or she is aware that would be relevant to a conflict
of interest analysis, including the existence of any
substantial economic relationship between the Employee's
transactions and securities held or to be acquired by Clients.
These factors may include, for example, officerships or
directorships with companies or beneficial ownership of more
than 1/2 of 1% of the total outstanding shares of any company
whose shares are publicly traded or that may be made available
in an Initial Public Offering or Limited Offering in the
foreseeable future.
B. NO HOLDINGS OR TRANSACTIONS TO REPORT. If an Employee has no
holdings to report on either an Initial Holdings Report or any Annual
Holdings Report nor transactions to report on any Quarterly Transaction
Report, that Employee shall nevertheless submit the appropriate Report
stating that the Employee had no holdings or transactions (as appropriate) to
report and the date the report is submitted by the Employee.
C. COPIES OF CONFIRMATIONS AND PERIOD ACCOUNT STATEMENTS. Each
Employee shall direct every broker or dealer through whom the Employee
effects ANY securities transactions to deliver to the Compliance Officer, on
a timely basis, duplicate copies of confirmations of all Employee securities
transactions and copies of periodic statements for all Employee securities
accounts.
D. EXCEPTIONS FROM REPORTING REQUIREMENTS.
1. A person need not make a report under this Section V.
with respect to transactions for, and Covered
Securities held in, any account over which the person
has no direct or indirect influence or control.
2. An Employee need not make a Quarterly Transaction
Report under Section V.A.2. if the confirmations or
periodic account statements delivered to the
Compliance Officer under Section V.C. are received
within the time period required by Section V.A.2.,
provided that all information required by Section
V.A.2. is contained in such confirmations or account
statements.
3. An Employee need not make a Quarterly Transaction
Report with respect to the "exempt transactions"
described in Section III.C., except to the extent
required by Section V.B.
E. REVIEW OF REPORTS. The Compliance Officer shall review all reports
submitted pursuant to Section V for the purpose of detecting and preventing a
potential or actual violation of this Code.
1. The Compliance Officer shall review an Initial
Holdings Report within fifteen (15) days of the date
such Report is submitted by an Employee.
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2. The Compliance Officer shall review all Quarterly
Transaction Reports and all Annual Holding Reports
within thirty (30) days of the date such a Report is
submitted by an Employee.
3. The Compliance Officer shall review all Conflict of
Interest Reports promptly after receipt of such a
Report.
4. The Compliance Officer shall maintain a record of
each report reviewed and the date such review was
completed. Such record shall indicate whether the
Compliance Officer's review detected a potential or
actual violation of this Code. If the Compliance
Officer detects a potential or actual material
violation of this Code, the Compliance Officer shall
promptly inform H&B's President.
5. The Compliance Officer promptly after furnishing such
written notification of a potential or actual
material violation of this Code, shall take those
measures the Compliance Officer deems necessary and
appropriate to remedy such violation, including, but
not limited to, requiring the Employee to divest any
inappropriate securities holdings and recommending
sanctions to the Board.
6. The Compliance Officer shall take such other actions
and measures as he deems necessary and appropriate to
carry out his duties with respect to the review of
reports required under this Code.
F. NOTIFICATION OF REPORTING OBLIGATION. The Compliance Officer
shall identify all Employees who are required to make reports under Section
V. and shall inform those Employees of their reporting obligation. Once
informed of the duty to file reports, an Employee has a continuing obligation
to file such reports in a timely manner.
G. ANNUAL CERTIFICATION OF COMPLIANCE. At the time of submission of
Annual Holding Reports, all Employees must certify that they have read,
understand and are subject to this Code, and have complied at all times with
this Code, including the execution of personal securities transactions
disclosures in connection with obtaining prior clearance of securities
transactions and the submission of all required reports. When a person
becomes an Employee, that person shall be given a copy of the Code. Within 72
hours after being given the Code, that person shall certify that he or she
has had an opportunity to ask questions, and has read and understands the
Code, and agrees to comply with the Code. All Employees shall be given a copy
of any amendment to the Code. Within three months after the amendment becomes
effective, all Employees shall certify that they have received a copy of the
amendment, that they have had an opportunity to ask questions, and that they
understand the Amendment and agree to comply with the amendment.
H. DISCLAIMER OF BENEFICIAL OWNERSHIP. The broad definition of
Beneficial Ownership is for purposes of this Code only. It does not
necessarily cover other securities or tax laws. No
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report required to be made under Section V. shall be construed as an
admission by the person making such report that he or she has any direct or
indirect Beneficial Ownership in the security to which the report relates.
Such reports may contain a statement to that effect.
Whether an Employee's Report should include such a disclaimer is a
personal matter on which H&B will make no recommendation. A disclaimer may be
important not only for securities law purposes, but also because it might be
some evidence of ownership for other purposes, such as estate taxes.
Accordingly, an Employee may wish to consult their own attorney on this issue.
I. FORM OF REPORTS. All reports required to be filed under Section V.
shall be prepared by Employees using the forms attached to this Code.
VI. REPORTS TO THE BOARD
A. No less than thirty (30) days prior to the final regular meeting of
the Board of Directors for Pacific Advisors Fund Inc. for each fiscal year, the
Compliance Officer for H&B shall furnish to the Board, and the Board shall
consider, a written report that:
i. Describes any issues arising under this Code since the last
report to the Board, including, but not limited to, information about
material violations of this Code and the sanctions, if any, imposed in
response to the material violations; and
ii. Certifies that H&B has adopted procedures reasonably
necessary to prevent Access Persons from violating the Code.
B. To the extent that immaterial violations of this Code (such as
late filings of required reports) may collectively indicate material problems
with the implementation and enforcement of this Code, the written report
shall describe any violations that are material in the aggregate.
VII. ADVISING NON-H&B CLIENTS
Employees may not render investment advice to persons other than
Clients or members of the Employee's immediate family, unless the advisory
relationship, including the identity of those involved and any fee
arrangements, has been disclosed to and cleared with our President. Such
advisory relationships are subject to the reporting provisions of Section V.,
above.
VIII. VIOLATIONS OF THIS CODE
Violations of this Code may result in the imposition of sanctions by
regulatory authorities and/or H&B, including forfeiture of any profit from a
transaction, reduction in salary, censure, suspension, or termination of
employment.
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IX. RECORD RETENTION
A. H&B shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f)(1) under the 1940 Act, and shall be
available for examination by representatives of the Securities and Exchange
Commission:
1. RETENTION OF CODE. A copy of this Code and any Code that was
in effect at any time within the past five years shall be
preserved in an easily accessible place.
2. RECORD OF VIOLATIONS. A record of any violation of this Code
and of any action taken as a result of such violation shall be
preserved in an easily accessible place for a period of not
less than five years following the end of the fiscal year in
which the violation occurs.
3. COPY OF FORMS AND REPORTS. A copy of each Personal Trading
Request and Authorization Form and each Initial Holdings
Report, Quarterly Transaction Report, Annual Holdings Report
and Conflict of Interest Report prepared and submitted by an
Employee pursuant to this Code must be preserved by the
Compliance Officer as appropriate, for a period of not less
than five years from the end of the fiscal year in which such
report is made, the first two years in an easily accessible
place.
4. LIST OF ACCESS PERSONS. A list of all persons who are, or
within the past five years of business have been, required to
file Personal Trading Request and Authorization Forms and
Initial Holdings Reports, Quarterly Transaction Reports,
Annual Holdings Reports and Conflict of Interest Reports
pursuant to this Code and a list of those persons who are or
were responsible for reviewing such Forms and Reports shall be
maintained in an easily accessible place.
5. WRITTEN REPORTS TO THE BOARD. A copy of each written report
furnished to the Board under Section VI. of this Code shall be
maintained for at least five years after the end of H&B's
fiscal year in which it is made, the first two years in an
easily accessible place.
6. RECORDS RELATING TO DECISIONS INVOLVING INITIAL PUBLIC
OFFERINGS AND LIMITED OFFERINGS. H&B shall maintain a record
of any decision, and the reasons supporting the decision, to
approve the acquisition by Access Persons of securities made
available in an Initial Public Offering or Limited Offering
for at least five years after the end of H&B's fiscal year in
which the approval is granted.
7. SITES OF RECORDS TO BE KEPT. All such records and/or documents
required to be maintained pursuant to this Code and/or Rule
17j-1 under the 1940 Act shall be kept at the offices of H&B.
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B. CONFIDENTIAL TREATMENT. All reports and other records required to
be filed or maintained under this Code shall be treated as confidential.
X. INTERPRETATION OF PROVISIONS
The management of H&B may, from time to time, adopt such
interpretations of this Code as the management deems appropriate, provided
that the Board of the Fund approves any material changes to this Code
affecting compliance with Rule 17j-1 of the 1940 Act in accordance with such
Rule..
XI. AMENDMENTS TO THE CODE
Any amendment to the Code shall be effective thirty (30) calendar days
after written notice of such amendment shall have been received by the
Compliance Officer of H&B, unless the Board expressly determines that such
amendment shall become effective on an earlier date or shall not be adopted.
Any material change to this Code affecting compliance with Rule 17j-1 under
the 1940 Act shall be approved by the Board of H&B in accordance with such
Rule.
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XII. ACKNOWLEDGMENT OF RECEIPT
The undersigned has read, understands, and agrees to abide by the
guidelines set forth in this Code.
Name:______________________________________ Date:______________________
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APPENDIX A
PROCEDURES FOR THE ENFORCEMENT OF H&B'S
CODE OF ETHICS
1. Upon the commencement of employment, each Employee of H&B is
provided with a copy of H&B's Code. Each Employee is at that time also scheduled
to discuss the Code with our Compliance Officer. The Employee is required to
acknowledge their understanding of the Code's prohibitions and requirements by
signing it and returning it to our Compliance Officer for retention in H&B's
files. Employees are encouraged to direct any questions that may arise
concerning the Code and its prohibitions to our Compliance Officer. Each year
H&B recirculates the Code to its Employees and requires that each Employee sign
and return the executed copy to our Compliance Officer.
2. A list of all Employees is maintained and updated by our Compliance
Officer.
3. Before an Employee can place an order to effect a securities
transaction for any account in which the Employee has a direct or indirect
beneficial interest or for which the Employee exercises influence or control
over investment decisions, the Employee must obtain prior written approval from
H&B's Compliance Officer on a standard Personal Trading Request and
Authorization Form ("Authorization Form") supplied by H&B. H&B's Compliance
Officer, when appropriate, may inquire as to the reason for the personal
securities transaction and record that reason on the Authorization Form. The
original or a copy of the Authorization Form will be provided to our Compliance
Officer so that it can be matched at a later time with the information reported
on the Employee's Monthly Securities Transaction Report ("Monthly Report").
4. H&B's Code requires all Employees to report on the Quarterly
Transaction Report form any securities transaction for the prior calendar
quarter for accounts in which they have or will acquire a direct or indirect
beneficial interest or for accounts over which they exercise influence or
control. Employees are also asked to instruct the brokerage firm through which
the transaction is executed to send a duplicate confirmation to our Compliance
Officer. Upon receiving a confirmation, our Compliance Officer will match the
confirmation with the Authorization Form. If the confirmation on its face
reveals a violative trade, appropriate disciplinary action will be taken.
In the event that a Quarterly Transaction Report or confirmation
discloses a securities transaction for which no prior written approval was
obtained, our Compliance Officer will discuss the circumstances of the
transaction and the reason for the failure to follow required procedures with
the Employee and a written record will be made of the matter. A copy of that
record will be attached to the Employee's Quarterly Transaction Report, which is
retained in that Employee's personal securities transactions file. Our
Compliance Officer will warn Employees that violations of H&B's Code may result
in disciplinary action including reduction in salary, censure, suspension or
termination of employment.
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5. On a quarterly basis each Employee's personal transactions files
will be reviewed by our Compliance Officer to identify and mark day trades and
situations where a personal trade in a security preceded a client trade by one
or more days. Our Compliance Officer will also review the files for scalping,
front-running, misuse of confidential information, or other abusive personal
securities transactions.
6. Our Compliance Officer will discuss any such questionable
transactions with the Employee who effected the trade. Our Compliance Officer
will make a written record of any determination indicating whether there has
been a violation of law or H&B's Code and the reasons underlying that
determination. In the event that our Compliance Officer determines that there
has been a securities law violation or a violation of H&B's Code, appropriate
disciplinary action will be taken and a report made to H&B's management.
7. These procedures, in conjunction with those procedures designed to
prevent the use of material non-public information, as contained in H&B's
Policies and Procedures Concerning the Misuse of Material Non-Public
Information, will be reviewed by H&B's management on an annual basis to assess
their effectiveness in preventing improper and illegal personal securities
trading by H&B Employees.
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SPECTRUM ASSET MANAGEMENT, INC.
CODE OF ETHICS AND CONDUCT
As an investment adviser, SPECTRUM ASSET MANAGEMENT, INC. ("SAM") is a
fiduciary. As such, it owes its clients the highest duty of diligence and
loyalty. Accordingly, one of the fundamental policies of SAM is to avoid any
conflict of interest or even the appearance of such a conflict in connection
with the performance of investment advisory and portfolio management services
for its clients. In addition, Rule 17j-1 under the Investment Company Act of
1940 ("1940 Act") requires investment companies, as well as their investment
advisers and principal underwriters, to adopt written codes of ethics containing
provisions reasonably necessary to prevent "access persons" from engaging in any
act, practice, or course of business prohibited under the anti-fraud provisions
of Rule 17j-1(b). Accordingly, in furtherance of such fundamental policy and
applicable regulatory requirements, SAM has adopted this Code of Ethics and
Conduct ("Code"), which applies to each Employee of SAM.
Please carefully read the policies and procedures detailed below. When
you believe that you sufficiently understand them, sign, date, and return one
copy of this memorandum to our Compliance Officer, and keep the other copy for
your reference. Employees should consult with SAM's Compliance Officer regarding
any questions about these items and other issues relating to SAM's fiduciary
obligations to its clients.
Please also note that the Insider Trading and Securities Fraud
Enforcement Act of 1988 and Section 204A of the Investment Advisers Act of 1940
("Advisers Act") require every investment adviser to establish, maintain, and
enforce policies and procedures to detect and prevent the misuse of material,
non-public information. In response to those requirements, SAM has developed
Policies and Procedures Concerning the Misuse of Material Non-Public Information
("Policies and Procedures"). Please refer to those Policies and Procedures as
appropriate.
I. DEFINITIONS
A. ACCESS PERSONS. The term "Access Person" means any officer, director,
or Advisory Employee of SAM.
B. ADVISORY EMPLOYEE. The term "Advisory Employee" means (a) any
employee of SAM who, in connection with his(1) regular functions or duties,
makes, participates in, or obtains information regarding the purchase or sale of
a Covered Security by or on behalf of the Company or (b) any employee of the
Company or the Distributor whose functions relate to the making of any
recommendations with respect to such purchases or sales. If any individual or
company is in a control relationship with SAM, that person would be treated as
an "Advisory Employee" for purposes of this Code.
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(1) The use of the masculine pronoun is for convenience of reference only and
is intended to include the feminine in all cases, unless the context
requires otherwise.
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C. BENEFICIAL OWNERSHIP. "Beneficial Ownership" has the same meaning as
would be used in determining whether an Employee is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
interest will apply to all securities that an Employee has or acquires.
"Beneficial Ownership" includes accounts of a spouse, minor children who reside
in an Employee's home and any other relatives (parents, adult children,
brothers, sisters, etc.) whose investments the Employee directs or controls,
whether the person lives with him or not, as well as accounts of another person
(individual, corporation, trust, custodian, or other entity) if, by reason of
any contract, understanding, relationship, agreement or other arrangement, the
Employee obtains or may obtain therefrom benefits substantially equivalent to
those of ownership. A person does not derive a beneficial interest by virtue of
serving as a trustee or executor unless he or a member of his immediate family
has a vested interest in the income or corpus of the trust or estate. A copy of
a Release issued by the Securities and Exchange Commission on the meaning of the
term "beneficial ownership" is available upon request, and should be studied
carefully by any Employee concerned with this definition before preparing any
report required hereunder.
D. BEING CONSIDERED FOR PURCHASE OR SALE. A security is "Being Considered
for Purchase or Sale" when a recommendation to purchase or sell such security
has been made and communicated by an Employee, in the course of his duties and,
with respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
E. CONTROL. The term "Control" has the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act.
F. COVERED SECURITY. The term "Covered Security" has the same meaning as
the term "security" as set forth in Section 2(a)(36) of the 1940 Act, except
that it shall not include shares of registered open-end investment companies,
direct obligations of the Government of the United States, bankers' acceptances,
bank certificates of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreements. For these purposes, "high quality
short-term debt instruments" means any instrument that has a maturity at
issuance of less than 366 days and that is rated in one of the two highest
rating categories by a nationally recognized statistical rating organization.
G. DISINTERESTED DIRECTOR. The term "Disinterested Director" means a
director of the Company who is not an "interested person" of SAM or the
Distributor within the meaning of Section 2(a)(19) of the 1940 Act.
H. EMPLOYEE. The term "Employee" means any "Access Person" or "Advisory
Representative", as well as all other employees of SAM.
I. INITIAL PUBLIC OFFERING. The term "Initial Public Offering" means an
offering of securities registered under the Securities Act of 1933, the issuer
of which, immediately before the
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registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934.
J. LIMITED OFFERING. The term "Limited Offering" means an offering that
is exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the
Securities Act of 1933.
K. SECURITY HELD OR TO BE ACQUIRED. The phrase "Security Held or to be
Acquired" by the Company means:
1. any Covered Security which, within the most recent fifteen (15)
calendar days:
a. is or has been held by the Company; or
b. is being or has been considered by SAM, for purchase by the
Company; and
2. any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security described in paragraph II.F.
above.
II. RULE 17J-1 -- GENERAL ANTI-FRAUD PROVISIONS.
Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of a registered investment company, or any affiliated person
of such company's investment adviser or principal underwriter, in connection
with any purchase or sale, directly or indirectly, by such person of a Security
Held or to be Acquired by such investment company, to engage in any of the
following acts, practices or courses of business:
A. employ any device, scheme, or artifice to defraud such investment
company;
B. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact necessary in
order to make the statements made, in light of the circumstances under which
they are made, not misleading;
C. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company; and
D. engage in any manipulative practice with respect to such investment
company.
III. CONFLICTS OF INTEREST-PERSONAL INVESTMENTS
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A. GENERAL. SAM believes that every Employee should have reasonable
freedom with respect to their investment activities and those of their families.
At the same time, conflicts of interest could arise between SAM's clients and
the personal investment activities of SAM or its Employees.
SAM's fundamental policy is to avoid conflicts of interest or even the
appearance of such conflicts whenever possible. However, if a conflict were to
unavoidably occur, it is also SAM's policy to resolve such conflict in favor of
the client. Even in instances in which there is an identity of interest among a
SAM client, SAM and its Employees, an Employee must recognize that the SAM
client has priority in its right to benefit from SAM's investment advice over
any rights of SAM, the Employee, or any non-client members of the Employee's
family whom he or she may advise. This condition inevitably places some
restriction on freedom of investment for Employees and their families.
This Code does not attempt to describe all possible conflicts of
interest, but rather, attempts to establish general principles and to highlight
possible problem areas. Employees should be conscious that areas other than
personal securities transactions may involve conflicts of interest. For example,
one such area would be accepting gifts or favors from persons such as brokers
since such gifts or favors could impair the Employee's objectivity. Thus, the
requirements set forth below are not intended to cover all situations that may
involve a possible conflict of interest. Rather they are intended (i) to provide
a framework for understanding such conflicts and (ii) to provide a mechanism for
monitoring and reporting personal securities transactions. If there is any doubt
about a matter, the Compliance Officer should be consulted BEFORE any action
regarding such matter is taken.
B. PROHIBITED PERSONAL TRADING.
1. IMPROPER USE OF INFORMATION. No Employee may use their knowledge
concerning SAM's advisory clients' securities transactions for trading in their
personal account, any account in which he or she has a Beneficial Ownership
interest, or in any account controlled by or under the influence of such
Employee.
2. PURCHASE AND SALES. No Employee may purchase or sell, directly or
indirectly, any security in which he has, or by reason of the transaction
acquires, any direct or indirect Beneficial Ownership without obtaining prior
clearance as described in Section III.C. of this Code, proved that this
prohibition shall not apply to transactions that:
a. are exempt under Section III.D. of this Code; or
b. do not involve a Covered Security.
C. PRIOR CLEARANCE
1. GENERAL REQUIREMENT. Every Employee shall obtain prior written
clearance from the Compliance Officer before directly or indirectly initiating,
recommending, or
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in any other way participating in the purchase or sale of a Covered Security, or
directly or indirectly acquiring any security made available in an Initial
Public Offering or in a Limited Offering, in which the Employee has, or by
reason of the transaction may acquire, any direct or indirect beneficial
interest. When requesting prior clearance, each Employee should be aware that:
a. all requests for prior clearance must be set forth in writing on
the standard Personal Request and Trading Authorization Form (SEE
attached sample of the form); and
b. prior clearance of a securities transaction is effective for
three (3) business days from and including the date clearance is
granted.
Requests by Employees for prior clearance of personal securities transactions
must be made in writing on the standard Personal Request and Trading
Authorization Form ("Authorization Form") and submitted to the Compliance
Officer, who will be responsible for reviewing and processing all such requests.
Responses to such requests will also be provided by SAM's Compliance Officer on
the Authorization Form. The requesting Employee should retain a copy of the
Authorization Form for their recordkeeping purposes.
Prior clearance of a securities transaction is effective for three (3) business
days from and including the date clearance is granted.
2. BASES FOR DENIAL OF PRIOR CLEARANCE. Except as provided in
Section III.D.3. below, the Compliance Officer shall deny a request for prior
clearance if he determines that the security at issue is a Covered Security or
is being made available in an Initial Public Offering or Limited Offering and:
a. is Being Considered for Purchase or Sale by SAM on behalf of
its clients;
b. has been purchased or sold by SAM on behalf of its clients
within the prior two business days;
c. is being purchased or sold by SAM on behalf of its clients.
In this instance, "sold" includes an order to sell that has
been entered but not executed; or
d. the granting of prior clearance would, in the judgment of the
Compliance Officer, be inconsistent with the purposes of this
Code. If a prior clearance request is denied under this Section
III.D.2.d, the Compliance Officer shall explain in writing the
reasons therefor.
3. BASES FOR GRANTING OF PRIOR CLEARANCE. The Compliance Officer
shall grant a request for prior clearance if he determines
that the transaction at issue:
a. is not potentially harmful to SAM or its clients;
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b. would be very unlikely to affect the market in which portfolio
securities held by SAM on behalf of its clients are traded; or
c. clearly is not related economically to the securities to be
purchased, sold, or held by SAM on behalf of its clients,
AND the decision to purchase or sell the security is not the result of material
non-public information obtained in the course of the Employee's relationship
with SAM. The Compliance Officer shall document the reasons for granting any
request involving securities otherwise covered by Section III.C.2.a., b., or c.
above.
D. EXEMPT TRANSACTIONS. The prohibitions of Section III.C.2. above and
the preclearance procedures described in Section III.C.3. above do not apply to
the following transactions:
1. purchases or sales effected in any account over which an Employee
has no direct or indirect influence or control or in any account
of the Employee which is managed on a discretionary basis by a
person other than the Employee and, with respect to which the
Employee does not in fact influence or control purchase or sale
transactions;
2. purchases or sales which are non-volitional on the part of the
Employee;
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued pro rata to
all holders of a class of securities, to the extent such rights
were acquired from such issuer, and sales of such rights so
acquired; and
5. purchases of sales of securities which are not eligible for
purchase or sale by any client.
E. SPECIFIC RULES. The following rules govern Employee investment
activities for the Employee's personal account or for accounts in which the
Employee has any direct or indirect Beneficial Ownership interest. These rules
are in addition to those noted in III.B. above.
1. NEW ISSUES. An Employee may not purchase any securities available
in an initial public offering ("IPO") of common stock or convertible
securities unless he or she obtains the prior written approval of the
Compliance Officer and:
a. the purchase is made through the Employee's regular broker;
b. the number of shares is commensurate with the normal size
and activity of such Employee's account; and
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c. no orders for the purchase of such securities have been
entered by SAM for ANY client account.
2. PRIVATE PLACEMENTS. No Employee may purchase a security that is
the subject of a private offering unless prior written approval by the
Compliance Officer been obtained.
3. SHORT SALES. No Employee may sell a security short that is owned
by any SAM client, except "short sales against the box" for tax purposes.
4. DEALING WITH CLIENTS. No Employee may directly or indirectly sell
to or purchase from a client any security, except purchases and sales with
respect to the Company.
5. CLIENT OWNERSHIP. No Employee may purchase a security of a
company with respect to which 5% or more of its outstanding stock is owned,
in the aggregate, by SAM clients, unless prior written approval of the SAM
Compliance Officer is obtained.
6. DAY TRADING. No day trading (I.E., the purchase and sale of
securities on a short term basis, such as one to five days) by Employees is
permitted, without written approval of the Compliance Officer.
7. COMMISSIONS. Commissions on personal transactions may be
negotiated by the Employee, but payment of a commission rate which is
better than the rate available to SAM clients through similar negotiation
is prohibited.
8. OPTIONS AND FUTURES. The purchase, sale, and utilization of
options and futures contracts on specific securities by the Employee are
subject to the same restrictions as those set forth in this Code with
respect to securities, I.E., the option or futures contract should be
treated as if it were the security for these purposes.
IV. GENERAL STANDARDS
A. WRITTEN RECORD OF SECURITIES RECOMMENDATIONS. Every recommendation for
the purchase or sale of securities for clients, excluding recommendations to
increase or decrease existing securities positions, must be memorialized in
writing either prior to or immediately after the recommendation is made. A
standard Security Trading Advice form for purchase or sale orders must be used
for this purpose and should be provided to or otherwise made available to the
SAM Compliance Officer.
B. USE OF SECURITIES RECOMMENDATIONS. Any investment ideas developed by
an Employee in the course of their work for SAM will be made available for use
by SAM's clients PRIOR
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to any personal trading or investment by any Employee based on such ideas. SEE
ALSO the prohibitions against self-dealing and front-running described in
Sections IV.E. and F. below.
C. GIFTS, FAVORS, AND GRATUITIES. No Employee should seek from a
broker-dealer, securities salesperson, approved company (I.E., a company the
securities of which are held by a SAM client), supplier, client or other person
or option with whom SAM has a business relationship any gift, favor, gratuity,
or preferential treatment that is or may appear to be connected with any present
or future business dealings between SAM and that person or organization or which
may create or appear to create a conflict of interest. As one consequence, no
Employee may purchase New Issues in primary or secondary distributions, unless
prior written approval is obtained and certain other requirements are met, as
described above in Section III. C.1. No gifts may be accepted, other than those
offered as a courtesy. All gifts, favors, or gratuities with a fair market value
in excess of $100 should be reported and described on the Monthly Securities
Transaction Report ("Monthly Report") and will be reviewed by SAM's Compliance
Officer; gifts with a value of less than $100 need only be reported. After such
review, a determination will be made whether such gifts, favors or gratuities
should be returned. In addition, discretion should be used in accepting
invitations for dinners, evening entertainment, sporting events or theater.
While in certain circumstances it may be appropriate to accept such invitations,
all invitations whose value exceeds $100 should also be reported to our
Compliance Officer on the Monthly Report. Any invitations from any person or
option involving free travel for more than one day must receive prior approval
from our Compliance Officer. No Employee should offer any gifts, favors or
gratuities that could be viewed as influencing decision-making or otherwise
could be considered as creating a conflict of interest on the part of their
recipient.
D. INSIDE INFORMATION. No Employee may seek any benefit for himself, a
client, or anyone else from material, non-public information about issuers,
whether or not held in the portfolios of our clients or suitable for inclusion
in their portfolios. Any Employee who believes he or she is in possession of
such information must contact our Compliance Officer IMMEDIATELY. This
prohibition should not preclude an Employee from contacting officers and
employees of issuers or other investment professionals in seeking information
about issuers that is publicly available. Please remember, in this regard, to
review SAM's Policies and Procedures.
E. FAIR DEALING VS. SELF-DEALING. An Employee shall act in a manner
consistent with the obligation to deal fairly with all clients when taking
investment action. Self-dealing for personal benefit or the benefit of SAM, at
the expense of clients, will not be tolerated. The receipt of "special favors"
from a stock promoter, such as participation in a private placement or New
Issue, as an inducement to purchase other securities for SAM clients is not
permitted. The existence of any substantial economic relationship between a
proposed personal securities transaction and any securities held or to be
acquired by SAM or SAM clients must be disclosed on the Authorization Form.
F. FRONT-RUNNING. An Employee shall not engage in "front-running" an
order or recommendation, even if the Employee is not handling either the order
or the recommendation and even if the order or recommendation is for someone
other than a client of SAM. Front-running consists of executing a transaction in
the same or underlying securities, options, rights, warrants,
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convertible securities or other related securities, in advance of block or large
transactions of a similar nature likely to affect the value of the securities,
based on the knowledge of the forthcoming transaction or recommendation.
G. SERVICE AS A DIRECTOR. No Employee shall serve on the board of a
publicly traded company without prior authorization. Any such authorization
shall be supported by a determination that such service is consistent with the
interests of the Company and the Company's shareholders.
H. CONFIDENTIALITY. Information relating to any client's portfolio or
activities is strictly confidential and should not be discussed with anyone
outside SAM. In addition, from the time that an Employee anticipates making a
recommendation to purchase or sell a security, through the time that ALL
transactions for clients based on that recommendation have been consummated, the
"subject and content" of the recommendation may be considered to constitute
"inside information." Accordingly, Employees must maintain the utmost
confidentiality with respect to their recommendations during this period and may
not discuss a contemplated recommendation with anyone outside of SAM. In this
regard, please also see SAM's Policies and Procedures.
Any written or oral disclosure of information concerning SAM, SAM's
clients, or particular purchase or sale transactions for client accounts should
be made only by persons who are specifically authorized to release that
information, after consultation with SAM's President and company counsel, where
appropriate. Please note that this prohibition is NOT intended to inhibit
exchanges of information among SAM Employees.
V. REPORTS OF PERSONAL INVESTMENTS BY EMPLOYEES
A. CONTENT AND TIMING OF EMPLOYEE REPORTS. Every Employee shall make the
following reports to the Compliance Officer:
1. INITIAL HOLDINGS REPORT. No later than ten (10) days after
becoming an Employee, such Employee shall report the following
information:
a. the title, number of shares and principal amount of each
Covered Security in which the Employee had any direct or
indirect Beneficial Ownership when the person became an
Employee;
b. the name of any broker, dealer or bank with whom the
Employee maintained an account in which ANY securities were
held for the direct or indirect benefit of the Employee as
of the date the person became an Employee; and
c. the date that the report is submitted by the Employee.
Persons who became Employees before October 29, 1999 are not
required to file initial holdings reports.
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2. QUARTERLY TRANSACTION REPORTS. No later than ten (10) days after
the end of a calendar quarter, the Employee shall report the
following information:
a. With respect to any transaction during the quarter in a
Covered Security in which the Employee had any direct or
indirect Beneficial Ownership or which the Employee manages
(for example, as trustee) or to whom the Employee gives
investment or voting advice:
i. the date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
ii. the nature of the transaction (I.E., purchase, sale or
any other type of acquisition or disposition);
iii. the price of the Covered Security at which the
transaction was effected;
iv. the name of the broker, dealer, or bank with or through
whom the transaction was effected; and
v. the date that the report is submitted by the Employee.
b. With respect to any account established by the Employee in
which ANY securities were held during the quarter for the
direct or indirect benefit of the Employee:
i. the name of the broker, dealer or bank with whom the
Employee established the Account;
ii. the date the account was established; and
iii. the date that the report was submitted by the Employee.
c. In filing Quarterly Transaction Reports for such accounts
please note:
i. Employees must file a report every quarter whether or
not there were any reportable transactions for such
accounts. However, no Quarterly Transactions Report is
required to be filed if confirmations and account
statements containing all of the necessary information
are provided to the compliance officer within ten days
of the end of the calendar quarter.
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ii. All reportable transactions should be listed, if
possible, on a single form. If necessary, because of
the number of transactions, please attach a second form
and mark it "continuation." For every security listed
on the Quarterly Transaction Report, the information
called for must be completed by all Employees.
iii. Quarterly Reports must show (i) the date of the
transaction, the name of the issuer, and the number of
shares or principal amount of the security involved;
(ii) the nature of the transaction (I. E., purchase,
sale or other acquisition or disposition, including
gifts, the rounding out of fractional shares, exercises
of conversion rights and exercises or sales of
subscription rights); (iii) the price at which the
transaction was effected; and (iv) the name of the
broker, dealer or bank with or through whom the
transaction was effected.
iv. Quarterly Transactions Reports on family and other
accounts in which an Employee has any direct or
indirect Beneficial Ownership, and which are fee paying
clients of SAM, need merely list the SAM account
number. Securities transactions for such accounts need
not be separately itemized.
3. ANNUAL HOLDING REPORTS. No later than twenty (20) days after the
end of every calendar year, the Employee shall report the
following information (which information must be current as of
December 31 of the calendar year for which the report is being
submitted):
i. the title, number of shares and principal amount of each
Covered Security in which the Employee has any direct or
indirect beneficial ownership;
ii. the name of any broker, dealer or bank with whom the
Employee maintains an account in which ANY securities are
held for the direct or indirect benefit of the Employee; and
iii. the date that the report is being submitted by the Employee.
4. CONFLICT OF INTEREST REPORTS. Every Employee shall immediately
report in writing to the Compliance Officer any factors of which
he or she is aware that would be relevant to a conflict of
interest analysis, including the existence of any substantial
economic relationship between the Employee's transactions and
securities held or to be acquired by clients. These factors may
include, for example, officerships or directorships with
companies or beneficial ownership of more than 1/2 of 1% of the
total outstanding shares of any
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company whose shares are publicly traded or that may be made
available in an Initial Public Offering or Limited Offering in
the foreseeable future.
B. NO HOLDINGS OR TRANSACTIONS TO REPORT. If an Employee has no holdings
to report on either an Initial Holdings Report or any Annual Holdings Report nor
transactions to report on any Quarterly Transaction Report, that Employee shall
nevertheless submit the appropriate Report stating that the Employee had no
holdings or transactions (as appropriate) to report and the date the report is
submitted by the Employee.
C. COPIES OF CONFIRMATIONS AND PERIOD ACCOUNT STATEMENTS. Each Employee
shall direct every broker or dealer through whom the Employee effects ANY
securities transactions to deliver to the Compliance Officer, on a timely basis,
duplicate copies of confirmations of all Employee securities transactions and
copies of periodic statements for all Employee securities accounts.
D. EXCEPTIONS FROM REPORTING REQUIREMENTS.
1. A person need not make a report under this Section V. with
respect to transactions for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
2. An Employee need not make a Quarterly Transaction Report under
Section V.A.2. if the confirmations or periodic account
statements delivered to the Compliance Officer under Section V.C.
are received within the time period required by Section V.A.2.,
provided that all information required by Section V.A.2. is
contained in such confirmations or account statements.
3. An Employee need not make a Quarterly Transaction Report with
respect to the "exempt transactions" described in Section III.C.,
except to the extent required by Section V.B.
E. REVIEW OF REPORTS. The Compliance Officer shall review all reports
submitted pursuant to Section V for the purpose of detecting and preventing a
potential or actual violation of this Code.
1. The Compliance Officer shall review an Initial Holdings Report
within fifteen (15) days of the date such Report is submitted by
an Employee.
2. The Compliance Officer shall review all Quarterly Transaction
Reports and all Annual Holding Reports within thirty (30) days of
the date such a Report is submitted by an Employee.
3. The Compliance Officer shall review all Conflict of Interest
Reports promptly after receipt of such a Report.
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4. The Compliance Officer shall maintain a record of each report
reviewed and the date such review was completed. Such record
shall indicate whether the Compliance Officer's review detected a
potential or actual violation of this Code. If the Compliance
Officer detects a potential or actual material violation of this
Code, the Compliance Officer shall promptly inform SAM's
President.
5. The Compliance Officer promptly after furnishing such written
notification of a potential or actual material violation of this
Code, shall take those measures the Compliance Officer deems
necessary and appropriate to remedy such violation, including,
but not limited to, requiring the Employee to divest any
inappropriate securities holdings and recommending sanctions to
the Board.
6. The Compliance Officer shall take such other actions and measures
as he deems necessary and appropriate to carry out his duties
with respect to the review of reports required under this Code.
F. NOTIFICATION OF REPORTING OBLIGATION. The Compliance Officer shall
identify all Employees who are required to make reports under Section V. and
shall inform those Employees of their reporting obligation. Once informed of the
duty to file reports, an Employee has a continuing obligation to file such
reports in a timely manner.
G. ANNUAL CERTIFICATION OF COMPLIANCE. At the time of submission of
Annual Holding Reports, all Employees must certify that they have read,
understand and are subject to this Code, and have complied at all times with
this Code, including the execution of personal securities transactions
disclosures in connection with obtaining prior clearance of securities
transactions and the submission of all required reports. When a person becomes
an Employee, that person shall be given a copy of the Code. Within 72 hours
after being given the Code, that person shall certify that he or she has had an
opportunity to ask questions, and has read and understands the Code, and agrees
to comply with the Code. All Employees shall be given a copy of any amendment to
the Code. Within three months after the amendment becomes effective, all
Employees shall certify that they have received a copy of the amendment, that
they have had an opportunity to ask questions, and that they understand the
Amendment and agree to comply with the amendment.
H. DISCLAIMER OF BENEFICIAL OWNERSHIP. The broad definition of Beneficial
Ownership is for purposes of this Code only. It does not necessarily cover other
securities or tax laws. No report required to be made under Section V. shall be
construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the security to which the report
relates. Such reports may contain a statement to that effect.
Whether an Employee's Report should include such a disclaimer is a personal
matter on which SAM will make no recommendation. A disclaimer may be important
not only for securities law purposes, but also because it might be some evidence
of ownership for other purposes, such as estate taxes. Accordingly, an Employee
may wish to consult their own attorney on this issue.
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I. FORM OF REPORTS. All reports required to be filed under Section V.
shall be prepared by Employees using the forms attached to this Code.
VI. REPORTS TO THE FUND'S BOARD
A. No less than thirty (30) days prior to the final regular meeting of
the Company's Board for each fiscal year of the Company, the Compliance Officer
for SAM shall furnish to the Board, and the Board shall consider, a written
report that:
i. Describes any issues arising under this Code since the last
report to the Board, including, but not limited to, information about
material violations of this Code and the sanctions, if any, imposed in
response to the material violations; and
ii. Certifies that SAM has adopted procedures reasonably necessary to
prevent Access Persons from violating the Code.
B. To the extent that immaterial violations of this Code (such as late
filings of required reports) may collectively indicate material problems with
the implementation and enforcement of this Code, the written report shall
describe any violations that are material in the aggregate.
VII. ADVISING NON-SAM CLIENTS
Employees may not render investment advice to persons other than clients of
SAM or members of the Employee's immediate family, unless the advisory
relationship, including the identity of those involved and any fee arrangements,
has been disclosed to and cleared with our President. Such advisory
relationships are subject to the reporting provisions of Section V., above.
VIII. VIOLATIONS OF THIS CODE
Violations of this Code may result in the imposition of sanctions by
regulatory authorities and/or SAM, including forfeiture of any profit from a
transaction, reduction in salary, censure, suspension, or termination of
employment.
IX. RECORD RETENTION
A. SAM shall maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2(f)(1) under the 1940 Act, and shall be available for
examination by representatives of the Securities and Exchange Commission:
1. RETENTION OF CODE. A copy of this Code and any Code that was in effect
at any time
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within the past five years shall be preserved in an easily accessible
place.
2. RECORD OF VIOLATIONS. A record of any violation of this Code and of
any action taken as a result of such violation shall be preserved in
an easily accessible place for a period of not less than five years
following the end of the fiscal year in which the violation occurs.
3. COPY OF FORMS AND REPORTS. A copy of each Personal Trading Request and
Authorization Form and each Initial Holdings Report, Quarterly
Transaction Report, Annual Holdings Report and Conflict of Interest
Report prepared and submitted by an Employee pursuant to this Code
must be preserved by the Compliance Officer as appropriate, for a
period of not less than five years from the end of the fiscal year in
which such report is made, the first two years in an easily accessible
place.
4. LIST OF ACCESS PERSONS. A list of all persons who are, or within the
past five years of business have been, required to file Personal
Trading Request and Authorization Forms and Initial Holdings Reports,
Quarterly Transaction Reports, Annual Holdings Reports and Conflict of
Interest Reports pursuant to this Code and a list of those persons who
are or were responsible for reviewing such Forms and Reports shall be
maintained in an easily accessible place.
5. WRITTEN REPORTS TO THE BOARD. A copy of each written report furnished
to the Board of the Fund under Section VI. of this Code shall be
maintained for at least five years after the end of the Fund's fiscal
year in which it is made, the first two years in an easily accessible
place.
6. RECORDS RELATING TO DECISIONS INVOLVING INITIAL PUBLIC OFFERINGS AND
LIMITED OFFERINGS. SAM shall maintain a record of any decision, and
the reasons supporting the decision, to approve the acquisition by
Access Persons of securities made available in an Initial Public
Offering or Limited Offering for at least five years after the end of
the Fund's fiscal year in which the approval is granted.
7. SITES OF RECORDS TO BE KEPT. All such records and/or documents
required to be maintained pursuant to this Code and/or Rule 17j-1
under the 1940 Act shall be kept at the offices of SAM.
B. CONFIDENTIAL TREATMENT. All reports and other records required to be
filed or maintained under this Code shall be treated as confidential.
X. INTERPRETATION OF PROVISIONS
The management of SAM may, from time to time, adopt such interpretations of
this Code as the management deems appropriate, provided that the Board of the
Company approves any material changes to this Code affecting compliance with
Rule 17j-1 of the 1940 Act in accordance
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with such Rule.
XI. AMENDMENTS TO THE CODE
Any amendment to the Code shall be effective thirty (30) calendar days
after written notice of such amendment shall have been received by the
Compliance Officer of SAM, unless the Board or management of SAM (as
appropriate) expressly determines that such amendment shall become effective on
an earlier date or shall not be adopted. Any material change to this Code
affecting compliance with Rule 17j-1 under the 1940 Act shall be approved by the
Board of the Company in accordance with such Rule.
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XII. ACKNOWLEDGMENT OF RECEIPT
The undersigned has read, understands, and agrees to abide by the
guidelines set forth in this Code.
Name: Date:
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APPENDIX A
PROCEDURES FOR THE ENFORCEMENT OF SAM'S
CODE OF ETHICS
1. Upon the commencement of employment, each Employee of SAM is provided
with a copy of SAM's Code. Each Employee is at that time also scheduled to
discuss the Code with our Compliance Officer. The Employee is required to
acknowledge their understanding of the Code's prohibitions and requirements by
signing it and returning it to our Compliance Officer for retention in SAM's
files. Employees are encouraged to direct any questions that may arise
concerning the Code and its prohibitions to our Compliance Officer. Each year
SAM recirculates the Code to its Employees and requires that each Employee sign
and return the executed copy to our Compliance Officer.
2. A list of all Employees is maintained and updated by our Compliance
Officer.
3. Before an Employee can place an order to effect a securities transaction
for any account in which the Employee has a direct or indirect beneficial
interest or for which the Employee exercises influence or control over
investment decisions, the Employee must obtain prior written approval from SAM's
Compliance Officer on a standard Personal Trading Request and Authorization Form
("Authorization Form") supplied by SAM. SAM's Compliance Officer, when
appropriate, may inquire as to the reason for the personal securities
transaction and record that reason on the Authorization Form. The original or a
copy of the Authorization Form will be provided to our Compliance Officer so
that it can be matched at a later time with the information reported on the
Employee's Monthly Securities Transaction Report ("Monthly Report").
4. SAM's Code requires all Employees to report on the Quarterly Transaction
Report form any securities transaction for the prior calendar quarter for
accounts in which they have or will acquire a direct or indirect beneficial
interest or for accounts over which they exercise influence or control.
Employees are also asked to instruct the brokerage firm through which the
transaction is executed to send a duplicate confirmation to our Compliance
Officer. Upon receiving a confirmation, our Compliance Officer will match the
confirmation with the Authorization Form. If the confirmation on its face
reveals a violative trade, appropriate disciplinary action will be taken.
In the event that a Quarterly Transaction Report or confirmation discloses
a securities transaction for which no prior written approval was obtained, our
Compliance Officer will discuss the circumstances of the transaction and the
reason for the failure to follow required procedures with the Employee and a
written record will be made of the matter. A copy of that record will be
attached to the Employee's Quarterly Transaction Report, which is retained in
that Employee's personal securities transactions file. Our Compliance Officer
will warn Employees that violations of SAM's Code may result in disciplinary
action including reduction in salary, censure, suspension or termination of
employment.
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5. On a quarterly basis each Employee's personal transactions files will be
reviewed by our Compliance Officer to identify and mark day trades and
situations where a personal trade in a security preceded a client trade by one
or more days. Our Compliance Officer will also review the files for scalping,
front-running, misuse of confidential information, or other abusive personal
securities transactions.
6. Our Compliance Officer will discuss any such questionable transactions
with the Employee who effected the trade. Our Compliance Officer will make a
written record of any determination indicating whether there has been a
violation of law or SAM's Code and the reasons underlying that determination. In
the event that our Compliance Officer determines that there has been a
securities law violation or a violation of SAM's Code, appropriate disciplinary
action will be taken and a report made to SAM's management.
7. These procedures, in conjunction with those procedures designed to
prevent the use of material non-public information, as contained in SAM's
Policies and Procedures Concerning the Misuse of Material Non-Public
Information, will be reviewed by SAM's management on an annual basis to assess
their effectiveness in preventing improper and illegal personal securities
trading by SAM Employees.
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