Emailed ampeg this morning and got this reply back
Hi,
Thanks for writing.
The best method for setting the levels on your PF500 is to increase the Gain control until just when the Peak LED comes on, and then turn it down a little. This will insure that you are taking advantage of all the available headroom from the amp. Then you can adjust the overall level of the amp via the Volume control.
If you have almost no headroom, then using the -15dB PAD on the amp, is the easiest way to keep from distorting.
As a side note, one thing I would recommend doing is turning the compression all the way down when you set your initial levels, this way you can guarantee that you have a nice clean signal, and are then applying compression to that same signal.
Compressors are great for warming up a signal, but if one is clipping already it will just turns a very dynamic square wave into a smaller square wave.
I hope this can help.