PILGRIM AMERICA INVESTMENT FUNDS INC, 497, 1996-11-06

PILGRIM AMERICA INVESTMENT FUNDS INC
497, 1996-11-06

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<PAGE>
Pursuant to Rule 497(c)
File Nos. 2-34552 and 811-1939
Prospectus

[LOGO] Elite Series
Pilgrim America MagnaCap Fund
Pilgrim America High Yield Fund
Pilgrim Government Securities Income Fund

TWO RENAISSANCE SQUARE, 40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA
85004
(800) 331-1080

The Pilgrim America Funds are a family of diversified, open-end and closed-end
investment companies. This Prospectus describes three of the open-end investment
company portfolios, also known as mutual funds (the Funds), each of which has
its own investment objectives and policies. These three portfolios are referred
to as the Elite Series.
------------------------

THE FUNDS

PILGRIM AMERICA MAGNACAP FUND (MagnaCap Fund) seeks growth of capital,
with dividend income as a secondary consideration. In making investments,
the Fund also will consider preservation of capital. The Fund seeks to
achieve its objectives by investing in common stocks of companies that the
investment manager, Pilgrim America Investments, Inc. (Investment
Manager), determines are of high quality based upon the selection criteria
under its rising dividends standards.

PILGRIM AMERICA HIGH YIELD FUND (High Yield Fund) seeks high current
income as its primary objective. As a secondary objective, the Fund also
seeks capital appreciation and, in making any investment decision, will
consider the preservation of capital. The Fund seeks to achieve its
objectives by investing at least 65% of its assets in higher yielding debt
securities, preferred stocks and convertible securities.

PILGRIM GOVERNMENT SECURITIES INCOME FUND (Government Securities Income
Fund) seeks high current income, consistent with liquidity and
preservation of capital. The Fund seeks to achieve its objective by
investing at least 70% of its assets in securities issued or guaranteed by
the U.S. Government, or certain of its agencies and instrumentalities.

------------------------------
Each Fund offers three classes of shares, with varying types and amounts of
sales and distribution charges. These Pilgrim America Purchase OptionsTM
permit you to choose the method of purchasing shares that best suits your
investment strategy.

This Prospectus presents information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about each
Fund, dated October 31, 1996, has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus (that is, it is

legally considered a part of this Prospectus). This Statement is available free
upon request by calling Pilgrim America Group, Inc. (Shareholder Servicing
Agent) at (800) 331-1080.

INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING RISK OF LOSS OF
PRINCIPAL. THE FUNDS' SHARES ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF A
BANK AND ARE NOT GUARANTEED BY A BANK. IN ADDITION, THE FUNDS' SHARES ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. MOREOVER, THE HIGHER YIELDING SECURITIES IN WHICH HIGH
YIELD FUND WILL INVEST ARE ORDINARILY IN THE LOWER RATING CATEGORIES OF
RECOGNIZED RATING AGENCIES OR EQUIVALENT UNRATED SECURITIES, AND ARE COMMONLY
KNOWN AS 'JUNK BONDS.' INVESTMENT IN THIS FUND MAY INVOLVE A HIGHER DEGREE OF
RISK THAN A FUND THAT INVESTS IN INVESTMENT GRADE SECURITIES. INVESTORS SHOULD
ONLY INVEST IN THIS FUND THAT PORTION OF THEIR ASSETS THAT THEY WISH TO COMMIT
TO A PORTFOLIO THAT MAY BE ACCOMPANIED BY A HIGH DEGREE OF RISK.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

The date of this Prospectus is October 31, 1996

<PAGE>
THE FUNDS AT A GLANCE*

<TABLE>
<CAPTION>
FUND OBJECTIVES AND POLICIES STRATEGY
<S> <C> <C>
MAGNACAP FUND Long term growth of capital with income as a The Investment Manager selects companies
secondary consideration. that meet the 'Rising Dividends'
criteria: consistent dividend increases;
Invests in equity securities that are substantial dividend increases;
determined to be of high quality by the reinvested substantial earnings; strong
Investment Manager based upon certain balance sheets; and attractive prices.
selection criteria.

Normally fully invested. Principal risk factors: exposure to
financial and market risks that accompany
an investment in equities. You can expect
fluctuation in the value of the Fund's
portfolio securities and the Fund's
shares.*

HIGH YIELD FUND High level of current income with capital The Investment Manager selects
appreciation as a secondary objective. high-yielding fixed income securities
that do not, in its opinion, involve
Invests at least 65% of its assets in a undue risk relative to the securities'
diversified portfolio of high-yielding debt return characteristics.
securities commonly referred to as 'junk
bonds.' May also invest up to 35% of its Principal risk factors: exposure to
total assets in other types of fixed income financial, market and interest rate risks
securities, preferred and common stocks, and greater credit risks than with
warrants and other securities. higher-rated bonds. You can normally
expect greater fluctuation in the value
Normally fully invested. of the Fund's shares than for the
Government Securities Income Fund,
particularly in response to economic
downturns.*

GOVERNMENT SECURITIES INCOME FUND High level of current income consistent with The Investment Manager analyzes various
liquidity and preservation of capital. U.S. Government securities and selects
those offering the highest yield
Normally invests at least 70% of its assets consistent with maintaining liquidity and
in securities issued or guaranteed by the preserving capital.
U.S. Government, or certain of its agencies
and instrumentalities. The Fund does not Principal risk factors: exposure to
invest in highly leveraging derivatives, such financial and interest rate risks, and
as swaps, interest-only or principal-only prepayment risk on mortgage related
stripped mortgage-backed securities or securities. You can normally expect
interest rate futures contracts. fluctuation in the value of the Fund's
shares in response to changes in interest
Normally fully invested. rates, and relatively little fluctuation
in the absence of such changes.*

Pilgrim America Investments, Inc. (the Investment Manager) serves as investment manager to each Fund.

Pilgrim America Investments, Inc. manages and administers over $1.8 billion in assets for the Pilgrim America Funds.
</TABLE>

* This summary description should be read in conjunction with the more
complete description of each Fund's investment objectives and policies and
the Investment Manager elsewhere in this Prospectus. For information
regarding the purchase and redemption of shares of each Fund, refer to the
'Shareholder Guide' below. For information regarding the risk factors of
each Fund, refer to 'Investment Practices and Risk Considerations' below.

<PAGE>
SUMMARY OF EXPENSES

Shares of the Funds are available through independent financial professionals,
national and regional brokerage firms and other financial institutions
(Authorized Dealers). You may select from three separate classes of shares:
Class A, Class B and Class M.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS M
-------- --------- ---------
<S> <C> <C> <C>
Maximum initial sales charge imposed on purchases of MagnaCap Fund
(as a percentage of offering price)............................. 5.75%(1) None 3.50%(1)
Maximum initial sales charge imposed on purchases of High Yield
Fund and Government Securities Income Fund (as a percentage of
offering price)................................................. 4.75%(1) None 3.25%(1)
Maximum contingent deferred sales charge (CDSC) on each fund (at
the lower of original purchase price or the redemption
proceeds)....................................................... None (2) 5.00%(3) None
</TABLE>

The Funds have no redemption fees, exchange fees or sales charges on reinvested
dividends.
- ------------------------
(1) Reduced for purchases of $50,000 and over. See 'Class A Shares: Initial
Sales Charge Alternative' and 'Class M Shares: Lower Initial Sales Charge
Alternative.'
(2) A CDSC of no more than 1.00% for shares redeemed in the first or second
year, depending on the amount of purchase, is assessed on redemptions of
Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See 'Class A Shares: Initial Sales
Charge Alternative.'
(3) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'

The percentages shown below reflect the Annual Operating Expenses incurred by
the Class A shares of each Fund for the fiscal year ended June 30, 1996 and the
Class B and Class M shares of each Fund for the fiscal period July 17, 1995
(commencement of sales) through June 30, 1996. The Annual Operating Expenses for
certain Funds are subject to waivers which are described in the footnotes
following the table.

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
MAGNACAP FUND FEES FEES(1) EXPENSES EXPENSES
- --------------------------- ----------- ------------- ------------------ ------------------

<S> <C> <C> <C> <C>
Class A.................... 0.78% 0.30% 0.60% 1.68%
Class B.................... 0.78% 1.00% 0.60% 2.38%
Class M.................... 0.78% 0.75% 0.60% 2.13%

<CAPTION>
TOTAL FUND
OTHER OPERATING
EXPENSES EXPENSES
MANAGEMENT DISTRIBUTION (AFTER EXPENSE (AFTER EXPENSE
HIGH YIELD FUND FEES(2) FEES(1) REIMBURSEMENT)(2) REIMBURSEMENT)(2)
- --------------------------- ----------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Class A.................... 0.00% 0.25% 0.75% 1.00%
Class B.................... 0.00% 1.00% 0.75% 1.75%
Class M.................... 0.00% 0.75% 0.75% 1.50%

<CAPTION>
TOTAL FUND
OTHER OPERATING
EXPENSES EXPENSES
GOVERNMENT SECURITIES MANAGEMENT DISTRIBUTION (AFTER EXPENSE (AFTER EXPENSE
INCOME FUND FEES(3) FEES(1)(3) REIMBURSEMENT)(3) REIMBURSEMENT)(3)
- --------------------------- ----------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Class A.................... 0.50% 0.25% 0.76% 1.51%
Class B.................... 0.50% 1.00% 0.76% 2.26%
Class M.................... 0.50% 0.75% 0.76% 2.01%
</TABLE>

3
<PAGE>
- ------------------

(1) As a result of distribution (Rule 12b-1) fees, a long term investor may pay
more than the economic equivalent of the maximum sales charge allowed by the
Rules of the National Association of Securities Dealers, Inc. (NASD).

(2) High Yield Fund pays the Investment Manager a fee at an annual rate of 0.75%
of the average daily net assets of the Fund on the first $25 million of net
assets; 0.625% of the average daily net assets over $25 million to $100
million; 0.50% of the average daily net assets over $100 million to $500
million; and 0.40% of the average daily net assets in excess of $500
million. Effective July 1, 1995, the Investment Manager has voluntarily
agreed to waive all or a portion of its fees and to reimburse operating
expenses of the Fund, excluding distribution fees, interest, taxes,
brokerage and extraordinary expenses, so that total operating expenses do
not exceed 1.00% for Class A, 1.75% for Class B and 1.50% for Class M
shares. This expense limitation will apply until June 30, 1997. Without such
waiver, the annualized total fund operating expenses for the fiscal year
ended June 30, 1996 would have been 2.19% for Class A, 2.94% for Class B,
and 2.69% for Class M.

(3) The Investment Manager has agreed to reimburse the Government Securities

Income Fund to the extent that the gross operating costs and expenses of the
Fund, excluding any interest, taxes, brokerage commissions, amortization of
organizational expenses, extraordinary expenses, and distribution (Rule
12b-1) fees on Class B and Class M shares in excess of an annual rate of
0.25% of the average daily net assets of these classes, exceed 1.50% of the
Fund's average daily net assets on the first $40 million of net assets and
1.00% of average daily net assets in excess of $40 million for any one
fiscal year. For the fiscal year ended June 30, 1996, without such
reimbursement, the Fund's operating expenses would have been 1.57% for Class
A, 2.41% for Class B, and 2.16% for Class M.

The purpose of the above table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as a shareholder in
a Fund. For more complete descriptions of the various costs and expenses, please
refer to 'Shareholder Guide' and 'Management of the Funds.'

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (i) 5%
annual return and (ii) redemption at the end of the period (unless otherwise
noted):

<TABLE>
<CAPTION>
GOVERNMENT SECURITIES
MAGNACAP FUND HIGH YIELD FUND INCOME FUND
---------------------------- ----------------------------- -----------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A............... $ 74 $ 107 $ 144 $ 245 $67 $88 $ 110 $ 173 $62 $ 93 $ 126 $ 219
Class B............... 74 104 147 272 68 85 115 206 73 101 141 260
Class B (assuming no
redemption)......... 24 74 127 272 18 55 95 206 23 71 121 260
Class M............... 56 99 145 273 47 78 112 206 52 94 137 259
</TABLE>

Use of the assumed 5% return is required by the Securities and Exchange
Commission. The example is not an illustration of past or future investment
results. This example should not be considered a representation of past or
future expenses; actual expenses may be more or less than those shown.

<PAGE>

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following tables present condensed financial information about each Fund.
The tables present historical information based upon a share outstanding through
each Fund's fiscal year. This information has been derived from the financial
statements that are in the Annual Report dated as of June 30, 1996 for MagnaCap
Fund, High Yield Fund, and Government Securities Income Fund. For the periods
ended June 30, 1996 and 1995 for MagnaCap Fund and Government Securities Income
Fund and for the fiscal year ended June 30, 1996 and the eight-month period
ended June 30, 1995 for High Yield Fund, the information in the tables below has
been audited by KPMG Peat Marwick LLP, independent auditors. For all periods
ending prior to July 1, 1994, for MagnaCap Fund and Government Securities Income
Fund, and all periods ending prior to November 1, 1994, for High Yield Fund, the
financial information was audited by another independent auditor. Information
for High Yield Fund for the fiscal years ended October 31, 1986 through October
31, 1989 was not included in such Fund's 1994 financial statements. Further
information about each Fund's performance is contained in that Fund's Annual
Report, which may be obtained without charge.

MAGNACAP FUND

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 17, 1995(A) TO
YEAR ENDED JUNE 30, 1996 YEAR ENDED JUNE 30,
JUNE 30, 1996 -------------------- --------------------------------------------------------
CLASS A CLASS B CLASS M 1995(B) 1994 1993 1992 1991
------------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period...... $ 14.03 $ 14.22 $ 14.22 $ 12.36 $ 12.05 $ 11.98 $ 10.93 $ 10.74
Income from investment
operations:
Net investment income.... 0.09 0.06 0.08 0.12 0.15 0.14 0.13 0.20
Net realized and
unrealized gain (loss)
on investments......... 2.87 2.61 2.63 2.29 0.89 0.82 1.16 0.33
------------- ------- ------- -------- -------- -------- -------- --------
Total from investment
operations........... 2.96 2.67 2.71 2.41 1.04 0.96 1.29 0.53
------------- ------- ------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income.... 0.06 0.06 0.06 0.14 0.14 0.12 0.24 0.16
Realized gains on
investments............ 0.24 0.24 0.24 0.60 0.59 0.77 -- 0.18
------------- ------- ------- -------- -------- -------- -------- --------
Total distributions.... 0.30 0.30 0.30 0.74 0.73 0.89 0.24 0.34
------------- ------- ------- -------- -------- -------- -------- --------

Net asset value, end of
period................... $ 16.69 $ 16.59 $ 16.63 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93
------------- ------- ------- -------- -------- -------- -------- --------
------------- ------- ------- -------- -------- -------- -------- --------
TOTAL RETURN(C)............ 21.31% 18.98% 19.26% 20.61% 9.13% 8.21% 11.93% 5.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)........... $ 235,393 $10,509 $ 1,961 $211,330 $190,435 $197,250 $196,861 $199,892
Ratios to average net
assets:
Expenses................. 1.68% 2.38%(d) 2.13%(d) 1.59% 1.53% 1.53% 1.60% 1.50%
Net investment income.... 0.54% 0.07%(d) 0.32%(d) 0.98% 1.16% 1.09% 1.20% 2.00%
Portfolio turnover rate.... 15% 15% 15% 6% 7% 36% 49% 182%

<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------
1990 1989 1988 1987
-------- -------- -------- --------
<S> <<C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period...... $ 10.52 $ 9.12 $ 11.56 $ 10.66
Income from investment
operations:
Net investment income.... 0.15 0.17 0.15 0.18
Net realized and
unrealized gain (loss)
on investments......... 1.24 1.39 (0.74) 1.21
-------- -------- -------- --------
Total from investment
operations........... 1.39 1.56 (0.59) 1.39
-------- -------- -------- --------
Less distributions from:
Net investment income.... 0.17 0.16 0.12 0.26
Realized gains on
investments............ 1.00 -- 1.73 0.23
-------- -------- -------- --------
Total distributions.... 1.17 0.16 1.85 0.49
-------- -------- -------- --------
Net asset value, end of
period................... $ 10.74 $ 10.52 $ 9.12 $ 11.56
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN(C)............ 13.84% 17.32% (6.64)% 13.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)........... $224,059 $204,552 $211,064 $243,729
Ratios to average net
assets:
Expenses................. 1.50% 1.60% 1.50% 1.40%
Net investment income.... 1.40% 1.80% 1.60% 1.70%
Portfolio turnover rate.... 12% 129% 206% 127%

</TABLE>

- ------------------
(a) Commencement of offering of shares.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former
Investment Manager, in a transaction that closed on April 7, 1995.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(d) Annualized.

<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
FOR THE PERIOD JULY
FOR THE 17, 1995(A) TO JUNE EIGHT MONTHS
YEAR ENDED 30, 1996 ENDED YEAR ENDED OCTOBER 31,
JUNE 30, 1996 ---------------------- JUNE 30, --------------------
CLASS A CLASS B CLASS M 1995(B)(C) 1994 1993
------------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..... $ 6.15 $ 6.20 $ 6.20 $ 5.95 $ 6.47 $ 5.77
Income (loss) from investment operations:
Net investment income................... 0.59 0.48 0.50 0.35 0.54 0.53
Net realized and unrealized gain (loss)
on investments........................ 0.16 0.14 0.14 0.21 (0.51) 0.70
------------- ------- ------- ------------ ------- -------
Total from investment operations...... 0.75 0.62 0.64 0.56 0.03 1.23
------------- ------- ------- ------------ ------- -------
Less distributions from:
Net investment income................... 0.54 0.46 0.48 0.36 0.55 0.53
Realized gains on investments........... -- -- -- -- -- --
------------- ------- ------- ------------ ------- -------
Total distributions................... 0.54 0.46 0.48 0.36 0.55 0.53
------------- ------- ------- ------------ ------- -------
Net asset value, end of period........... $ 6.36 $ 6.36 $ 6.36 $ 6.15 $ 5.95 $ 6.47
------------- ------- ------- ------------ ------- -------
------------- ------- ------- ------------ ------- -------
TOTAL RETURN(D).......................... 12.72% 10.37% 10.69 % 9.77% 0.47% 22.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands).......................... $18,691 $ 2,374 $1,243 $ 15,950 $16,046 $18,797
Ratios to average net assets:
Expenses................................ 1.00%(e) 1.75%(e)(f) 1.50 %(e)(f) 2.25%(f)(g) 2.00%(g) 2.02%
Net investment income................... 9.46%(e) 9.02%(e)(f) 9.41 %(e)(f) 8.84%(f)(g) 8.73%(g) 8.36%
Portfolio turnover rate.................. 339% 339% 339 % 166% 192% 116%

<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- -------
<S> <<C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..... $ 5.70 $ 5.03 $ 6.46 $ 7.29 $ 7.25 $ 8.15
Income (loss) from investment operations:
Net investment income................... 0.63 0.66 0.82 0.88 0.89 0.95
Net realized and unrealized gain (loss)
on investments........................ 0.07 0.74 (1.40) (0.80) 0.03 (0.89)
------- ------- ------- ------- ------- -------
Total from investment operations...... 0.70 1.40 (0.58) 0.08 0.92 0.06
------- ------- ------- ------- ------- -------
Less distributions from:

Net investment income................... 0.63 0.68 0.85 0.91 0.88 0.96
Realized gains on investments........... -- 0.05 -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions................... 0.63 0.73 0.85 0.91 0.88 0.96
------- ------- ------- ------- ------- -------
Net asset value, end of period........... $ 5.77 $ 5.70 $ 5.03 $ 6.46 $ 7.29 $ 7.25
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN(D).......................... 12.65% 30.00% (10.08)% 0.94% 13.54% 0.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands).......................... $17,034 $23,820 $21,598 $31,356 $41,910 $56,523
Ratios to average net assets:
Expenses................................ 2.03% 1.89% 1.75% 1.79% 1.46% 1.34%
Net investment income................... 10.93% 12.40% 14.11% 12.61% 12.20% 11.68%
Portfolio turnover rate.................. 193% 173% 183% 210% 80% 114%
</TABLE>

- ------------------

(a) Commencement of offering of shares.

(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former
Investment Manager, in a transaction that closed on April 7, 1995.

(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.

(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratio of expenses to average net assets was 2.19%,
2.94% and 2.69% for Class A, B and M shares, respectively. Prior to the
waiver and reimbursement of expenses for the period ended June 30, 1996, the
annualized ratio of net investment income to average net assets was 8.27%,
8.05% and 8.51% for Class A, B and M shares, respectively.

(f) Annualized.

(g) Prior to the waiver of expenses, the annualized ratio of expenses to average
net assets was 2.35% in 1995 and 2.07% in 1994. Prior to the waiver of
expenses, the annualized ratio of net investment income to average net
assets was 8.74% in 1995 and 8.66% in 1994.

<PAGE>
GOVERNMENT SECURITIES INCOME FUND*
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 17, 1995(A) TO
YEAR ENDED JUNE 30, 1996 YEAR ENDED JUNE 30,
JUNE 30, 1996 --------------------- -----------------------------------------
CLASS A CLASS B CLASS M 1995(B) 1994 1993(C) 1992
------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........ $ 12.97 $ 12.95 $ 12.95 $ 12.73 $ 13.96 $ 13.76 $ 13.76
Income (loss) from investment operations:
Net investment income..................... 0.75 0.66 0.68 0.84 0.84 1.13 1.19
Net realized and unrealized
gain (loss) on investments.............. (0.32) (0.37) (0.36) 0.24 (1.17) 0.18 --
------------- ------- ------- ------- ------- ------- -------
Total from investment operations........ 0.43 0.29 0.32 1.08 (0.33) 1.31 1.19
------------- ------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income..................... 0.75 0.65 0.68 0.84 0.90 1.11 1.19
Tax return of capital..................... 0.06 -- -- -- -- -- --
------------- ------- ------- ------- ------- ------- -------
Total distributions..................... 0.81 0.65 0.68 0.84 0.90 1.11 1.19
------------- ------- ------- ------- ------- ------- -------
Net asset value, end of period.............. $ 12.59 $ 12.59 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76
------------- ------- ------- ------- ------- ------- -------
------------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(D)............................. 3.34% 2.25% 2.52% 8.96% (2.50)% 9.82% 8.98%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands)..... $38,753 $ 73 $ 24 $43,631 $61,100 $87,301 $96,390
Ratios to average net assets:
Expenses.................................. 1.51%(e) 2.26%(e)(f) 2.01%(e)(f) 1.40%(g) 1.21% 1.12% 1.10%
Net investment income..................... 5.84%(e) 4.98%(e)(f) 5.73%(e)(f) 6.37%(g) 6.44% 8.06% 8.59%
Portfolio turnover rate..................... 170% 170% 170% 299% 402% 466% 823%

<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1991 1990 1989 1988 1987
-------- -------- -------- -------- --------
<S> <<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........ $ 13.79 $ 14.23 $ 14.23 $ 14.51 $ 15.15
Income (loss) from investment operations:
Net investment income..................... 1.25 1.25 1.31 1.34 1.40
Net realized and unrealized
gain (loss) on investments.............. (0.03) (0.38) 0.02 (0.25) (0.62)
-------- -------- -------- -------- --------
Total from investment operations........ 1.22 0.87 1.33 1.09 0.78
-------- -------- -------- -------- --------
Less distributions from:

Net investment income..................... 1.25 1.31 1.33 1.37 1.42
Tax return of capital..................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions..................... 1.25 1.31 1.33 1.37 1.42
-------- -------- -------- -------- --------
Net asset value, end of period.............. $ 13.76 $ 13.79 $ 14.23 $ 14.23 $ 14.51
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(D)............................. 9.27% 6.51% 10.10% 8.00% 5.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands)..... $110,674 $122,212 $144,769 $183,979 $288,024
Ratios to average net assets:
Expenses.................................. 1.14% 1.14% 1.06% 0.98% 0.93%
Net investment income..................... 9.09% 9.02% 9.45% 9.50% 9.16%
Portfolio turnover rate..................... 429% 448% 537% 360% 433%
</TABLE>

- ------------------

(a) Commencement of offering of shares.

(c) During this period, average daily borrowings were $11,038,044, average
monthly shares outstanding were 6,429,755 and average daily borrowings per
share were $1.72. The Fund earned income and realized capital gains as a
result of entering into reverse repurchase agreements during the six months
from July to December 1992. Such transactions constituted borrowing
transactions and, as a result, the Fund exceeded its 10% borrowing
limitations during that period. Therefore, the Fund's performance was higher
than it would have been had the Fund adhered to its investment restrictions.
This borrowing technique was discontinued subsequent to December 1992 until
April 4, 1995, when shareholders approved a change in the Fund's investment
policies.

(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratio of expenses to average net assets was 1.57%,
2.41% and 2.16% for Class A, B and M shares, respectively. Prior to the
waiver and reimbursement of expenses for the period ended June 30, 1996, the
annualized ratio of net investment income to average net assets was 5.74%,
4.83% and 5.58% for Class A, B and M shares, respectively.

(f) Annualized.

(g) Prior to the waiver of expenses the ratio of expenses to average net assets
was 1.54% and the ratio of net investment income to average net assets was
6.23%.

* Prior to April 4, 1995, the Fund had an investment policy of normally
investing at least 70% of its assets in Government National Mortgage
Association (GNMA) certificates. Effective April 4, 1995, the Fund's policy
changed to normally investing at least 70% of its assets in securities issued
or guaranteed by the U.S. Government, or certain of its agencies and
instrumentalities.

<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

MAGNACAP FUND. This Fund's objective is growth of capital, with dividend income
as a secondary consideration. In selecting investments for the Fund,
preservation of capital is also an important consideration. The Fund normally
seeks to achieve its objectives by investing in equity securities issued by
companies that the Investment Manager determines are of high quality based upon
selection criteria described below. These companies tend to be leaders in their
respective industries and command a high market share. The equity securities in
which the Fund may invest include common stocks, securities convertible into
common stocks, rights or warrants to subscribe for or purchase common stocks,
repurchase agreements and foreign securities (including American Depository
Receipts (ADRs)). Traditionally, the Fund has invested exclusively in common
stocks and cash equivalents and it is anticipated that the Fund normally will be
invested as fully as practicable in equity securities in accordance with its
investment policies. Assets of the Fund not invested in equity securities may be
invested in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.' In a period
that the Investment Manager believes presents weakness in the stock market or in
economic conditions, the Fund may establish a defensive position to attempt to
preserve capital and increase its investment in these instruments.

MagnaCap Fund is managed in accordance with the Rising Dividends Philosophy that
the Investment Manager has employed in evaluating companies for the Fund since
1979. The Investment Manager generally requires that portfolio companies meet
the following criteria:

1. CONSISTENT DIVIDEND INCREASES. A company must have increased its dividend at
least eight out of the last ten years with no year showing a decrease.

2. SUBSTANTIAL DIVIDEND INCREASES. A company must have increased its dividend
at least 100% over the past ten years.

3. REINVESTED EARNINGS. Dividend payout must be less than 65% of current
earnings.

4. STRONG BALANCE SHEET. Long-term debt should be no more than 25% of total
capitalization.

5. ATTRACTIVE PRICE. The current price should be in the lower half of the
stock's price/earnings ratio range for the past ten years.

While the Investment Manager also considers other factors in selecting
investments for the Fund, it believes that companies with a pattern of rising
dividends will help the Fund attain its principal objective of growth of
capital. Historically, regulated utility companies generally have met the Fund's
investment philosophy and the Fund has invested in utility companies with
long-term debt in excess of 25% of total capitalization. MagnaCap Fund may not
invest more than 5% of its total assets in the securities of companies which,
including predecessors, have not had a record of at least three years of
continuous operations, and it may not invest in any restricted securities.

HIGH YIELD FUND. This Fund's primary investment objective is to seek a high

level of current income and its secondary objective is capital appreciation,
with preservation of capital as a consideration. The Fund normally seeks to
achieve its objectives by investing at least 65% of its assets in a diversified
portfolio of higher yielding debt securities, including preferred stock and
convertible securities (High Yield Securities),that do not in the opinion of the
Investment Manager involve undue risk relative to their expected return
characteristics. High Yield Securities, which are commonly known as junk bonds,
are ordinarily lower rated and include equivalent unrated securities.

Assets of the Fund not invested in High Yield Securities may be invested
(ordinarily not to exceed 35% of the Fund's assets) in common stocks; preferred
stocks rated Baa or better by Moody's Investor Services, Inc. (Moody's) or BBB
or better by Standard and Poor's Corporation (S&P); debt obligations of all
types rated Baa or higher by Moody's or BBB or better by S&P; U.S. Government
securities; warrants; foreign debt securities of any rating (not to exceed 10%
of the Fund's total assets at the time of investment); money market instruments,
including repurchase agreements on U.S. Government securities; other mortgage-
related securities; financial futures and related options; and participation
interests and assignments in

8
<PAGE>
floating rate loans and notes. See 'Investment Practices and Risk
Considerations--High Yield Securities' for information on High Yield Securities.

GOVERNMENT SECURITIES INCOME FUND. This Fund's investment objective is to seek
high current income, consistent with liquidity and preservation of capital. The
Fund normally seeks to achieve its objectives by investing at least 70% of its
total assets in securities issued or guaranteed by the U.S. Government and the
following agencies or instrumentalities of the U.S. Government: GNMA, Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Association (FHLMC). The 70% threshold may not be met due to changes in value of
the Fund's portfolio or due to the sale of portfolio securities due to
redemptions. In such instances, further purchases by the Fund will be of U.S.
Government securities until the 70% level is restored. The remainder of the
Fund's assets may be invested in securities issued by other agencies and
instrumentalities of the U.S. Government and in instruments collateralized by
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

The U.S. Government securities in which the Fund may invest include, but are not
limited to, the following: (1) direct obligations of the U.S. Treasury including
Treasury bills (maturities of one year or less), Treasury notes (maturities of
one to ten years), and Treasury bonds (generally maturities of greater than ten
years and up to 30 years), and (2) mortgage-backed securities that are issued or
guaranteed by GNMA, FNMA, or FHLMC. The Fund may invest in short-term,
intermediate-term and long term U.S. Government securities. The Investment
Manager will determine the exact composition and weighted average maturity of
the Fund's portfolio on the basis of its judgment of existing market conditions.
The Fund does not invest in highly leveraged derivatives, such as swaps,
interest-only or principal-only stripped mortgage-backed securities, or interest
rate futures contracts.

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

The following pages contain information about certain types of securities in
which the Funds may invest and strategies the Funds may employ in pursuit of the
investment objectives. See the Statement of Additional Information of each Fund
for more detailed information on these investment techniques and the securities
in which the Funds may invest.

CONSIDERATIONS BEFORE INVESTING. The investment objectives and policies of the
Funds described above should be carefully considered before investing. There is
no assurance that a Fund will achieve its investment objectives. As with any
security, an investment in a Fund's shares involves certain risks, including
loss of principal. The Funds are subject to varying degrees of financial, market
and credit risks.

HIGH YIELD SECURITIES. High Yield Fund will invest in High Yield Securities,
which are high yield/high risk debt securities that are rated lower than Baa by
Moody's or BBB by S&P, or if not rated by Moody's or S&P, of equivalent quality.
High Yield Securities often are referred to as 'junk bonds' and include certain
corporate debt obligations, higher yielding preferred stock and mortgage-related
securities, and securities convertible into the foregoing. Investments in High
Yield Securities generally provide greater income and increased opportunity for
capital appreciation than investments in higher quality debt securities, but
they also typically entail greater potential price volatility and principal and
income risk. Generally, the Fund will invest in securities rated no lower than B
by Moody's or S&P, unless the Investment Manager believes the financial
condition of the issuer or other available protections reduce the risk to the
Fund. For example, the Fund may invest in such a security if the Investment
Manager believes the issuer's assets are sufficient for the issuer to repay its
outstanding obligations. Nevertheless, the Fund may invest in securities rated C
or D if the Investment Manager perceives greater value in these securities than
it believes is reflected in such securities' prevailing market price.

High Yield Securities are not considered to be investment grade. They are
regarded as predominantly speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. The prices of High
Yield Securities have been found to be less sensitive to interest-rate changes
than higher-rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in High
Yield Securities prices. In the case of High Yield Securities structured as

9
<PAGE>
zero-coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities that pay interest periodically and in cash.

The secondary market in which High Yield Securities are traded is generally less
liquid than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which the Fund could sell a
High Yield Security, and could adversely affect the daily net asset value of the
Fund's shares. At times of less liquidity, it may be more difficult to value
High Yield Securities because this valuation may require more research, and
elements of judgment may play a greater role in the valuation since there is

less reliable, objective data available. In pursuing the Fund's objectives, the
Investment Manager seeks to identify situations in which the rating agencies
have not fully perceived the value of the security.

Based upon the weighted average ratings of all High Yield Securities held during
High Yield Fund's most recent fiscal year ended June 30, 1996, the percentage of
the Fund's total High Yield Securities represented by (1) High Yield Securities
rated by a nationally recognized statistical rating organization, separated into
each applicable rating category (Aaa, Baa, Ba, B, Caa, or Ca by Moody's or AAA,
BBB, BB, B, CCC, or CC by S&P) by monthly dollar-weighted average is AAA--0%,
BBB--0%, BB--22.67%, B--68.25%, CCC--3.51%, and CC--0%, respectively, and (2)
unrated High Yield Securities as a group--5.57%.

The following are excerpts from Moody's description of its bond ratings:
Ba--judged to have speculative elements; their future cannot be considered as
well assured. B--generally lack characteristics of the desirable investment.
Caa--are of poor standing; such issues may be in default or there may be present
elements of danger with respect to principal or interest. Ca--speculative in a
high degree; often in default. C--lowest rate class of bonds; regarded as having
extremely poor prospects. Moody's also applies numerical indicators 1, 2 and 3
to rating categories. The modifier 1 indicates that the security is in the
higher end of its rating category; 2 indicates a mid-range ranking; and 3
indicates a ranking towards the lower end of the category. The following are
excerpts from S&P's description of its bond ratings: BB, B, CCC, CC,
C--predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation; BB indicates the lowest
degree of speculation and C the highest. S&P applies indicators '+,' no
character, and '-' to its rating categories. The indicators show relative
standing within the major rating categories.

INTERNATIONAL SECURITIES. MagnaCap Fund may invest up to 5% of its total assets
in certain foreign securities (including ADRs). High Yield Fund may invest up to
10% of its total assets in debt obligations (including preferred stocks) issued
or guaranteed by foreign corporations, certain supranational entities (such as
the World Bank) and foreign governments (including political subdivisions having
taxing authority) or their agencies or instrumentalities, including ADRs. These
securities may be denominated in either U.S. dollars or in non-U.S. currencies.
There are certain risks in owning foreign securities, including those resulting
from: (i) fluctuations in currency exchange rates; (ii) devaluation of
currencies; (iii) political or economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions; (iv) reduced availability of public information concerning
issuers; (v) accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; and (vi) limitations on foreign
ownership of equity securities. Also, securities of many foreign companies may
be less liquid and the prices more volatile than those of domestic companies.
With certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Funds, including the withholding of dividends.

MORTGAGE-RELATED SECURITIES. Government Securities Income Fund may invest up to
100% of its assets in certain types of mortgage-related securities. High Yield
Fund may invest up to 35% of its total assets in mortgage-related securities.

Investments in mortgage-related securities involve certain risks. Although
mortgage loans underlying a mortgage-backed security may have maturities of up
to 30 years, the actual average life of a mortgage-backed security typically
will be substantially less because (1) the mortgages will be subject to normal
principal amortization, and (2) may be prepaid prior to maturity due to the sale
of the underlying property, the refinancing of the loan or foreclosure.
Prepayment rates vary widely and cannot be accurately predicted. They may be
affected by changes in market interest rates. Therefore,

10
<PAGE>
prepayments will be reinvested at rates that are available upon receipt, which
likely will be higher or lower than the original yield on the certificates.
Accordingly, the actual maturity and realized yield on mortgage-backed
securities will vary from the designated maturity and yield on the original
security based upon the prepayment experience of the underlying pool of
mortgages.

In periods of declining interest rates, prices of fixed income securities tend
to rise. However, during such periods, the rate of prepayment of mortgages
underlying mortgage-related securities tends to increase, with the result that
these prepayments must be reinvested at lower rates. In addition, the value of
these securities may fluctuate in response to the market's perception of the
creditworthiness of the issuers of mortgage-related securities owned by a Fund.
Additionally, although mortgages and mortgage-related securities are generally
supported by some form of government or private guarantee and/or insurance,
there is no assurance that private guarantors or insurers will be able to meet
their obligations.

RESTRICTED AND ILLIQUID SECURITIES. High Yield Fund may invest up to 15% of its
net assets in restricted and illiquid securities. The Fund may invest in an
illiquid or restricted security if the Investment Manager believes that it
presents an attractive investment opportunity. Generally, a security is
considered illiquid if it cannot be disposed of within seven days. This
illiquidity might prevent the sale of the security at a time when the Investment
Manager might wish to sell, and these securities could have the effect of
decreasing the overall level of the Fund's liquidity. Further, the lack of an
established secondary market may make it more difficult to value illiquid
securities, requiring the Fund to rely on judgments that may be somewhat
subjective in determining value, which could vary from the amount the Fund could
realize upon disposition. Restricted securities, including private placements,
are subject to legal or contractual restrictions on resale. They can be eligible
for purchase without Securities and Exchange Commission registration by certain
institutional investors known as 'qualified institutional buyers,' and under the
Fund's procedures, restricted securities could be treated as liquid. However,
some restricted securities may be illiquid and restricted securities that are
treated as liquid could be less liquid than registered securities traded on
established secondary markets. The Fund also may be subject to a more
restrictive limitation on its investment in illiquid securities as required by
the securities laws of certain states.

U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government securities.
U.S. Government securities include direct obligations of the U.S. Treasury (such
as U.S. Treasury bills, notes and bonds) and obligations directly issued or

guaranteed by U.S. Government agencies or instrumentalities. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the U.S. Government (such as GNMA
certificates); others are backed only by the right of the issuer to borrow from
the U.S. Treasury (such as obligations of FNMA); and still others are backed
only by the credit of the instrumentality (such as obligations of FHLMC), and
thus may be subject to varying degrees of credit risk. While U.S. Government
securities provide substantial protection against credit risk, they do not
protect investors against price declines in the securities due to changing
interest rates. Investors also should refer to the discussion of
'Mortgage-Related Securities.'

BORROWING. The Funds may borrow from banks solely for temporary or emergency
purposes up to certain amounts (10% of net assets in the case of Government
Securities Income Fund, 5% of net assets in the case of MagnaCap Fund and High
Yield Fund). Government Securities Income Fund may not make any additional
investment while any such borrowings exceed 5% of its total assets. The
Government Securities Income Fund's entry into reverse repurchase agreements and
dollar-roll transactions and any Fund's entry into delayed delivery transactions
(including those related to pair-offs) shall not be subject to the above limits
on borrowings. Borrowing may exaggerate the effect on net asset value (NAV) of
any increase or decrease in the NAV of a Fund, and money borrowed will be
subject to interest costs.

DOLLAR ROLL TRANSACTIONS. Government Securities Income Fund may engage in
dollar roll transactions with respect to mortgage-backed securities issued by
GNMA, FNMA and FHLMC in order to enhance portfolio returns and manage prepayment
risks. In a dollar roll transaction, the Fund sells a mortgage security held in
the portfolio to a financial institution such as a bank or broker-dealer, and
simultaneously agrees to repurchase a substantially similar security from the
institution at a later date at an agreed upon price. During the period between
the sale and repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be invested
in short-term

11
<PAGE>
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for the Fund exceeding
the yield on the sold security. When it enters into a dollar roll transaction,
the Fund will maintain with its custodian in a segregated account cash and/or
liquid assets in a dollar amount sufficient to make payment for the obligations
to be repurchased. These securities are marked to market daily and are
maintained until the transaction is settled.

LENDING PORTFOLIO SECURITIES. In order to generate additional income, each Fund
may lend its portfolio securities in an amount up to 33 1/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made with any companies
affiliated with the Investment Manager. The borrower at all times during the
loan must maintain with that Fund cash or high quality securities or an
irrevocable letter of credit equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities, and

the Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially.

PAIRING OFF TRANSACTIONS. Government Securities Income Fund engages in a
pairing-off transaction when it commits to purchase a security at a future date,
and then the Fund 'pairs-off' the purchase with a sale of the same security
prior to or on the original settlement date. At all times when the Fund has an
outstanding commitment to purchase securities, the Fund will maintain with its
custodian in a segregated account cash and/or liquid assets equal to the value
of the outstanding purchase commitments. When the time comes to pay for the
securities acquired on a delayed delivery basis, the Fund will meet its
obligations from the available cash flow, sale of the securities held in the
separate account, sale of other securities or, although it would not normally
expect to do so, from sale of the when-issued securities themselves (which may
have a market value greater or less than the Fund's payment obligation). Whether
a pairing-off transaction produces a gain for the Fund depends upon the movement
of interest rates. If interest rates decease, then the money received upon the
sale of the same security will be greater than the anticipated amount needed at
the time the commitment to purchase the security at the future date was entered
and the Fund will experience a gain. However, if interest rates increase, then
the money received upon the sale of the same security will be less than the
anticipated amount needed at the time the commitment to purchase the security at
the future date was entered and the Fund will experience a loss.

REVERSE REPURCHASE AGREEMENTS. Government Securities Income Fund may enter into
reverse repurchase agreement transactions, which involve the sale of U.S.
Government Securities held by the Fund, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date. The Fund will employ
reverse repurchase agreements when necessary to meet unanticipated net
redemptions and avoid liquidation of portfolio investments during unfavorable
market conditions. At the time it enters into a reverse repurchase agreement,
the Fund will place in a segregated account with its custodian cash and/or
liquid assets having a dollar value equal to the repurchase price. Reverse
repurchase agreements, together with the Fund's other borrowings, may not exceed
33 1/3% of the Fund's total assets.

USE OF DERIVATIVES. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. The Funds will not invest in highly leveraging
derivatives, such as interest-only or principal-only stripped mortgage-backed
securities or swaps. Government Securities Income Fund and High Yield Fund may
invest in U.S. Government agency mortgage-backed securities issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities, including
GNMA, FNMA, and FHLMC. These instruments might be considered derivatives. The
primary risks associated with these instruments is the risk that their value
will change with changes in interest rates and prepayment risk. For information
on mortgage-backed securities, see 'Investment Practices and Risk
Considerations--Mortgage-Related Securities' in this Prospectus, 'Investment
Objective and Policies--U.S. Government Securities' in Government Securities
Income Fund's Statement of Additional Information, and 'Investment Objectives
and Policies--Mortgage-Related Securities' in High Yield Fund's Statement of

Additional Information.

12
<PAGE>
Other uses of derivatives that may be employed only by High Yield Fund include
writing covered call options; purchasing call options; and engaging in financial
futures and related options. It is expected that these instruments ordinarily
will not be used for High Yield Fund; however, the Fund may make occasional use
of these techniques. When the Fund writes a covered call option, it receives a
premium for entering into a contract to sell a security in the future at an
agreed upon price and date. The Fund would write a call option if it believes
that the premium would increase total return. The primary risk of writing call
options is that, during the option period, the covered call writer has, in
return for the premium on the option, given up the opportunity to profit from a
price increase in the underlying securities above the exercise price. The Fund
may purchase call options for the purpose of 'closing out' a position on a
security on which it has already written a call option.

High Yield Fund also may use financial futures contracts and related options for
'hedging' purposes. The Fund would purchase a financial futures contract (such
as an interest rate futures contract or securities index futures contract) to
protect against a decline in the value of its portfolio or to gain exposure to
securities which the Fund otherwise wishes to purchase. A risk of using
financial futures contracts for hedging purposes is that the Investment Manager
might imperfectly judge the market's direction, so that the hedge might not
correlate to the market's movements and may be ineffective. Furthermore, if the
Fund buys a futures contract to gain exposure to securities, the Fund is exposed
to the risk of change in the value of the underlying securities. For information
on options on securities and financial futures and related options, see
'Investment Objectives and Policies--Option Writing' and '--Financial Futures
Contracts and Related Options' in High Yield Fund's Statement of Additional
Information.

TEMPORARY DEFENSIVE AND OTHER SHORT-TERM POSITIONS. Each Fund's assets may be
invested in certain short-term, high-quality debt instruments for the following
purposes: (i) to meet anticipated day-to-day operating expenses; (ii) pending
the Investment Manager's ability to invest cash inflows; (iii) to permit a Fund
to meet redemption requests; and (iv) for temporary defensive purposes. The
short-term instruments in which MagnaCap and High Yield Funds may invest
include: (i) short-term obligations of the U.S. Government, foreign governments
and their agencies, instrumentalities, authorities or political subdivisions;
(ii) other high-quality short-term debt securities; (iii) commercial paper,
including master notes; (iv) bank obligations, including certificates of
deposit, time deposits and bankers' acceptances; and (v) repurchase agreements.
The short-term instruments in which the Government Securities Income Fund may
invest include short-term U.S. Government Securities and repurchase agreements
on U.S. Government Securities.

ALL FUNDS: DIVERSIFICATION AND CHANGES IN POLICIES

Each Fund is diversified, so that with respect to 75% of its assets, it may not
invest more than 5% of its assets (measured at market value at the time of
investment) in securities of any one issuer, except that this restriction does
not apply to U.S. Government securities.

The first sentence in the description of each Fund under 'The Funds' Investment
Objectives and Policies,' above, states the Fund's investment objectives. These
investment objectives are 'fundamental.' The other investment policies of
Government Securities Income Fund described in the first paragraph under 'The
Funds' Investment Objectives and Policies,'--'Government Securities Income Fund'
are also 'fundamental.' Fundamental policies may only be changed with the
approval of a majority of shareholders of the pertinent Fund. Other investment
policies of any of the Funds may be changed by the Board of Directors of that
Fund. Each Fund is subject to investment restrictions that are described in that
Fund's Statement of Additional Information under 'Investment Restrictions.' Some
of those restrictions are designated as 'fundamental.' These fundamental
restrictions as well as the diversified status of each Fund require a vote of a
majority of the shareholders of the relevant Fund to be changed.

<PAGE>
SHAREHOLDER GUIDE

PILGRIM AMERICA PURCHASE OPTIONS(Trademark)

You may select from three separate classes of shares: Class A, Class B and Class
M, each of which represents an identical interest in a Fund's investment
portfolio but are offered with different sales charges and distribution fee
(Rule 12b-1) arrangements. These sales charges and fees are shown and contrasted
in the chart below.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS M
---------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases of MagnaCap Fund (1)... 5.75% None 3.50%
Maximum Sales Charge on Purchases of High Yield Fund and
Government Securities Income Fund (1).................. 4.75% None 3.25%
CDSC..................................................... None(2) 5.00%(3) None
Annual Distribution Fees (4)............................. 0.25%(5) 1.00% 0.75%
Maximum Purchase......................................... Unlimited $ 250,000 $1,000,000
Automatic Conversion to Class A.......................... N/A 8 Years N/A
</TABLE>

----------------------------
(1) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(2) For investments of $1 million or more, a CDSC of no more than 1%
is assessed on redemptions made within one or two years from
purchase, depending on the amount of purchase. See 'Class A
Shares: Initial Sales Charge Alternative.'
(3) Imposed upon redemption within 6 years from purchase. Fee has
scheduled reductions after the first year. See 'Class B Shares:
Deferred Sales Charge Alternative.'
(4) Annual asset-based distribution charge.
(5) MagnaCap Fund imposes an annual distribution fee of 0.30%.

When choosing between classes, investors should carefully consider the ongoing
annual expenses along with the initial sales charge or CDSC. The relative impact
of the initial sales charges and ongoing annual expenses will depend on the
length of time a share is held. Orders for Class B shares and Class M shares in
excess of $250,000 and $1,000,000, respectively, will be accepted as orders for
Class A shares or declined. You should discuss which Class of shares is right
for you with your Authorized Dealer.

CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the Funds
are sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see 'Special Purchases without a Sales Charge' and 'Reduced Sales Charges.'

<TABLE>
<CAPTION>
MAGNACAP FUND
- ----------------------------------------------------------------------------------------------------------

DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- -------------------------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000....................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.......................... 4.50% 4.71% 3.75%
$100,000 but less than $250,000......................... 3.50% 3.63% 2.75%
$250,000 but less than $500,000......................... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000....................... 2.00% 2.04% 1.75%
</TABLE>

<TABLE>
<CAPTION>
HIGH YIELD FUND AND GOVERNMENT SECURITIES INCOME FUND
- ------------------------------------------------------------------------------------------------------------
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- -------------------------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000....................................... 4.75% 4.99% 4.25%
$50,000 but less than $100,000.......................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000......................... 3.50% 3.63% 3.00%
$250,000 but less than $500,000......................... 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000....................... 2.00% 2.04% 1.75%
</TABLE>

14
<PAGE>
There is no initial sales charge on purchases of $1,000,000 or more. However,
the Distributor will pay Authorized Dealers of record commissions at the rates
shown in the table below for investments subject to a CDSC. If shares are
redeemed within one or two years of purchase, depending on the amount of the
purchase, a CDSC will be imposed on certain redemptions as follows:

<TABLE>
<CAPTION>
DEALER PERIOD DURING
ON PURCHASES OF: CDSC ALLOWANCE WHICH CDSC APPLIES
- ------------------------------------------------------------ ----- --------- ------------------
<S> <C> <C> <C>
$1,000,000 but less than $2,500,000......................... 1.00% 1.00% 2 Years
$2,500,000 but less than $5,000,000......................... 0.50% 0.50% 1 Year
$5,000,000 and over......................................... 0.25% 0.25% 1 Year
</TABLE>

CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. If you choose the deferred
sales charge alternative, you will purchase Class B shares at their NAV per
share without the imposition of a sales charge at the time of purchase. Class B
shares that are redeemed within six years of purchase, however, will be subject
to a CDSC as described in the table that follows. Class B shares of the Funds

are subject to a distribution fee at an annual rate of 1.00% of the average
daily net assets of the Class, which is higher than the distribution fees of
Class A or Class M shares. The higher distribution fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower NAV than Class A or Class M shares. In connection with sales of Class B
shares, the Distributor compensates Authorized Dealers at a rate of 4% of
purchase payments subject to a CDSC. Orders for Class B shares in excess of
$250,000 will be accepted as orders for Class A shares or declined.

The amount of the CDSC charge is determined as a percentage of the lesser of the
NAV of the Class B shares at the time of purchase or redemption. No charge will
be imposed for any net increase in the value of shares purchased during the
preceding six years in excess of the purchase price of such shares or for shares
acquired either by reinvestment of net investment income dividends or capital
gain distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:

<TABLE>
<CAPTION>
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- ------------------------------------------------------------------ ----
<S> <C>
First........................................................... 5%
Second.......................................................... 4%
Third........................................................... 3%
Fourth.......................................................... 3%
Fifth........................................................... 2%
Sixth........................................................... 1%
Seventh and following........................................... 0%
</TABLE>

To determine the CDSC payable on redemptions of Class B shares, the Funds will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible CDSC rate.

Class B shares will automatically convert into Class A shares approximately
eight years after purchase. For additional information on the CDSC and the
conversion of Class B shares, see the Statement of Additional Information.

CLASS M SHARES: LOWER INITIAL SALES CHARGE ALTERNATIVE. An investor who
purchases Class M shares pays a sales charge at the time of purchase that is
lower than the sales charge applicable to Class A shares and does not pay any
CDSC upon redemption. Class M shares have a higher annual distribution fee than
Class A shares, but lower than Class B. The higher distribution fees mean a
higher expense ratio than Class A but lower than Class B. Class M shares pay
correspondingly lower dividends and may have a lower NAV per share than Class A
shares, but generally pay higher dividends and have a higher NAV per share than

Class B shares. Orders for Class M shares in excess of $1,000,000 will be
accepted as an order for Class A

15
<PAGE>
shares or declined. The public offering price of Class M shares is the NAV of
each Fund plus a sales charge, which, as set forth below, varies based on the
size of the purchase:

<TABLE>
<CAPTION>
MAGNACAP FUND
- ------------------------------------------------------------------------------------------------------------
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- -------------------------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000....................................... 3.50% 3.63% 3.00%
$50,000 but less than $100,000.......................... 2.50% 2.56% 2.00%
$100,000 but less than $250,000......................... 1.50% 1.52% 1.00%
$250,000 but less than $500,000......................... 1.00% 1.01% 1.00%
$500,000 and over....................................... None None None
</TABLE>

<TABLE>
<CAPTION>
HIGH YIELD FUND AND GOVERNMENT SECURITIES INCOME FUND
- ------------------------------------------------------------------------------------------------------------
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- -------------------------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000....................................... 3.25% 3.36% 3.00%
$50,000 but less than $100,000.......................... 2.25% 2.30% 2.00%
$100,000 but less than $250,000......................... 1.50% 1.52% 1.25%
$250,000 but less than $500,000......................... 1.00% 1.01% 1.00%
$500,000 and over....................................... None None None
</TABLE>

Class M shares do not convert to Class A.

REDUCED SALES CHARGES. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A or Class M shares of a Fund or for other Funds
in the Pilgrim America Group which offer Class A shares, Class M Shares, or
shares with front-end sales charges ('Participating Funds') by completing the
Letter of Intent section of the Application. Executing the Letter of Intent
expresses an intention to invest during the next 13 months a specified amount,
which, if made at one time, would qualify for a reduced sales charge. An amount
equal to the Letter amount multiplied by the maximum sales charge imposed on
purchases of the applicable Fund and class will be restricted within your

account to cover additional sales charges that may be due if your actual total
investment fails to qualify for the reduced sales charges. See the New Account
Application or the Statement of Additional Information for details on the Letter
of Intent option or contact the Shareholder Servicing Agent at (800) 331-1080
for more information.

The sales charge for your investment may also be reduced by taking into account
the current value of your existing holdings in the Fund or any other funds in
the Pilgrim America Group (excluding Pilgrim America Money Market Shares)
('Rights of Accumulation'). The reduced sales charges apply to quantity
purchases made at one time or on a cumulative basis over any period of time by:
(I) an investor; (ii) the investor's spouse and children under the age of
majority; (iii) the investor's custodian account(s) for the benefit of a child
under the Uniform Gifts to Minors Act; (iv) a trustee or other fiduciary of a
single trust estate or a single fiduciary account (including a pension,
profit-sharing and other employee benefit plans qualified under Section 401 of
the Internal Revenue Code); and (v) by trust companies, registered investment
advisers, banks and bank trust departments for accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. See the New Account Application
or the Statement of Additional Information for details or contact the
Shareholder Servicing Agent at (800) 331-1080 for more information.

For the purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the Pilgrim America Group of Funds which impose a
CDSC may be combined with Class A or Class M shares for a reduced sales charge
but will not affect any CDSC which may be imposed upon the redemption of shares
of a Fund which imposes a CDSC.

WAIVERS OF CDSC. The CDSC on Class A or Class B shares will be waived in the
case of redemption following the death or permanent disability of a shareholder
if made within on year of death or initial determination of

16
<PAGE>
permanent disability. The waiver is available for total or partial redemptions
of shares of each Fund owned by an individual or an individual in joint tenancy
(with rights of survivorship), but only for those share held at the time of
death or initial determination of permanent disability. The CDSC also may be
waived for Class B Shares redeemed pursuant to a Systematic Withdrawal Plan, up
to a maximum of 12% per year of a shareholder's account value based on the value
of the account at the time the plan is established and annually thereafter,
provided all dividends and distributions are reinvested and the total
redemptions do not exceed 12% annually. In determining whether a CDSC is
applicable, it will be assumed that shares held in the shareholder's account
that are not subject to such charge are redeemed first.

The CDSC also will be waived in the case of a total or partial redemption of
shares in a Fund in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The shareholder must have attained the
age of 70 1/2 to qualify for the CDSC waiver relating to mandatory
distributions. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation of service. The
shareholder must notify the Transfer Agent either directly or through the

Distributor, at the time of redemption, that the shareholder is entitled to a
waiver of the CDSC. The CDSC Waiver Form included in the New Account Application
must be completed and provided to the Transfer Agent at the time of the
redemption request. The waiver will be granted subject to confirmation of the
grounds for the waiver. The foregoing waivers may be changed at any time.

REINSTATEMENT PRIVILEGE. Class B shareholders who have redeemed their shares in
any Pilgrim America Group mutual fund within the previous 90 days may repurchase
Class B shares at NAV (at the time of reinstatement) in an amount up to the
redemption proceeds. Reinstated Class B shares will retain their original cost
and purchase date for purposes of the CDSC. The amount of any CDSC also will be
reinstated.

To exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent or be postmarked within 90 days after the date of
redemption. This privilege can be used only once per calendar year. If a loss is
incurred on the redemption and the reinstatement privilege is used, some or all
of the loss may not be allowed as a tax deduction. See 'Tax Considerations' in
the Statement of Additional Information.

SPECIAL PURCHASE WITHOUT A SALES CHARGE. Class A or Class M shares may be
purchased at NAV without a sales charge by:

1) Class A or Class M shareholders who have redeemed their shares in any
Pilgrim America Group mutual fund within the previous 90 days. These
shareholders may repurchase shares at NAV in an amount equal to their
net redemption proceeds. Authorized Dealers who handle these purchases
may charge fees for this service.

2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of shares
from any unrelated mutual fund on which a sales charge was paid or which
were subject at any time to a CDSC.

3) Any charitable organization or governmental entity that has determined
that a Fund is a legally permissible investment and which is prohibited
by applicable law from paying a sales charge or commission in connection
with the purchase of shares of any mutual fund.

4) Officers, directors and full-time employees of Express America Holdings
Corporation (Express America) and its subsidiaries.

5) Certain fee based broker-dealers or registered representatives thereof
or registered investment advisers under certain circumstances making
investments on behalf of their clients.

6) Shareholders who have authorized the automatic transfer of dividends
from the same class of another Pilgrim America Fund distributed by the
Distributor or from Pilgrim America Prime Rate Trust.

7) Registered investment advisors, trust companies and bank trust
departments investing in Class A shares on their own behalf or on behalf
of their clients, provided that the aggregate amount invested in any
Fund alone or in any combination of shares of any Fund plus Class A

shares of certain other Participating Funds as described herein under
'Pilgrim America Purchase

17
<PAGE>
Options(Trademark)--Reduced Sales Charges', during the 13 month period
commencing with the first investment pursuant hereto equals at least $1
million. The Distributor may pay Authorized Dealers through which
purchases are made an amount up to 0.50% of the amount invested, over a
12 month period following the transaction.

8) Accounts as to which a banker or broker-dealer charges an account
management fee ('wrap accounts').

The Funds may terminate or amend the terms of offering shares at NAV to these
investors at any time. For additional information, contact the Shareholder
Servicing Agent at (800) 331-1080, or see the Statement of Additional
Information.

INCENTIVES. The Distributor, at its expense, will provide additional
promotional incentives to Authorized Dealers in connection with sales of shares
of the Funds and other mutual funds in the Pilgrim America Group. In some
instances, additional compensation or promotional incentives will be offered to
Authorized Dealers that have sold or may sell significant amounts of shares
during specified periods of time. Such compensation and incentives may include,
but are not limited to, cash, merchandise, trips and financial assistance in
connection with pre-approved conferences or seminars, sales or training programs
for invited sales personal, payment for travel expenses (including meals and
lodging) incurred by sales personnel to various locations for such seminars or
training programs, seminars for the public, advertising and sales campaigns
regarding the Funds or other mutual funds in the Pilgrim America Group and/or
other events sponsored by Authorized Dealers.

In addition, the Distributor may, at its own expense, pay concessions in
addition to those described above to dealers that satisfy certain criteria
established from time to time by the Distributor. These conditions relate to
increasing sales of shares of the Funds over specified periods and to certain
other factors. These payments may, depending on the dealer's satisfaction of the
required conditions, be periodic and may be up to (1) 0.25% of the value of the
Funds' shares sold by the dealer during a particular period, and (2) 0.10% of
the value of the Funds' shares held by the dealer's customers for more than one
year, calculated on an annual basis.

RULE 12B-1 PLAN. Each Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of that Fund (Rule 12b-1 Plan).
Under the Rule 12b-1 Plan, the Distributor may receive from each Fund an annual
fee in connection with the offering sale and shareholder servicing of Class A,
Class B and Class M shares at an annual rate of up to 0.25% (0.30% in the case
of MagnaCap Fund), 1.00%, and 1.00%, respectively, of the average daily net
assets of the Funds. Currently, the Board of Directors has approved annual fees
of 0.25% (0.30% in the case of MagnaCap Fund), 1.00%, and 0.75%, respectively,
which are accrued daily and paid monthly. Of these amounts, fees equal to an
annual rate of 0.25% of the average daily net assets of each Fund is for
shareholder servicing for each of the classes. Fees paid under the Rule 12b-1

Plan may be used to cover the expenses of the Distributor from the sale of Class
A, Class B or Class M shares of the Funds, including payments to Authorized
Dealers, and for shareholder servicing. These fees may be used to pay the costs
of the following; payments to Authorized Dealers; promotional activities;
preparation and distribution of advertising materials and sales literature;
expenses of organizing and conducting sales seminars; personnel costs and
overhead of the Distributor; printing of prospectuses and statements of
additional information (and supplements thereto) and reports for other than
existing shareholders; supplemental payments to Authorized Dealers that provide
shareholders services; interest on accrued distribution expenses; and costs of
administering the Rule 12b-1 Plan. No more than 0.75% per annum of a Fund's
average net assets may be used to finance distribution expenses, exclusive of
shareholder servicing payments, and no Authorized Dealer may receive shareholder
servicing payments in excess of 0.25% per annum of a Fund's average net assets
held by the Authorized Dealer's clients or customers. The Distributor will be
reimbursed for its actual expenses incurred under the 12b-1 Plan, with respect
to the Class A shares. With respect to the Class B and Class M shares, the
Distributor will receive payment without regard to actual distribution expenses
that it incurs. Fees paid by one of the Funds under the Rule 12b-1 Plan may be
used to finance distribution of the shares of that Fund and the servicing of
shareholders of the Fund as well as the other Pilgrim America Funds. The
Distributor has informed MagnaCap Fund, High Yield Fund and Government
Securities Income Fund that it incurred costs and expenses with respect to Class
A shares that may

18
<PAGE>
be reimbursable in future months or years in the amounts of $2,352,801 for
MagnaCap Fund (0.95% of its net assets), $150,269 for High Yield Fund (0.67% of
its net assets), and $466,046 for Government Securities Income Fund (1.20% of
its net assets) as of June 30, 1996.

Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for distribution and shareholder servicing at the annual rate
of 0.25%, 0.25%, and 0.40% (0.65% in the case of MagnaCap Fund) of the Fund's
average daily NAV of Class A, Class B, and Class M shares, respectively, that
are registered in the name of that Authorized Dealer as nominee or held in a
shareholder account that designates that Authorized Dealer as the dealer of
record. Rights to these ongoing payments begin to accrue in the 13th month
following a purchase of Class A or B shares and on the anniversary date in the
1st month following the date of purchase of Class M shares, and they cease upon
exchange (or purchase) into Pilgrim America Money Market Shares. The payments
are also subject to the continuation of the relevant distribution plan, the
terms of the service agreements between dealers and the Distributor, and any
applicable limits imposed by the National Association of Securities Dealers,
Inc.

OTHER EXPENSES. In addition to the management fee and other fees described
previously, each Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among all of the outstanding shares of
that Fund. However, the Rule 12b-1 Plan fees for each class of shares are
charged proportionately only to the outstanding shares of that class.

<PAGE>
PURCHASING SHARES

Your Authorized Dealer can help you establish and maintain your account, and the
Shareholder Servicing Agent is available to assist you with any questions you
may have.

The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for IRA's).

<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENT
<S> <C> <C>
By contacting your The minimum initial investment in a Fund is The minimum for additional investment in a
Authorized Dealer $1,000 ($250 for IRAs). Fund is $100.

Visit or consult an Authorized Dealer. Visit or consult your Authorized Dealer.
By mail Make your check payable to the Pilgrim Fill out the Account Additions form
America Group and mail it, along with a included on the bottom of your account
completed Application, to the address statement along with your check payable to
indicated on the Application. Please the Fund and mail them in the envelope
indicate an Authorized Dealer on the New provided with the account statement.
Account Application. Remember to write your account number on
the check.

By wire Call the Pilgrim America Order Department Call the Pilgrim America Order Department
at (800) 336-3436 to obtain an account at (800) 336-3436 to obtain a wire
number and indicate an Authorized Dealer on reference number. Give that number to your
the account. Instruct your bank to wire bank and have them wire the funds in the
funds to the Fund in care of: same manner described under 'Initial
Investors Fiduciary Trust Co. Investment.'
ABA #101003621
Kansas City, MO
credit to:
Pilgrim ------------------------------
(Fund)
A/C #752-4854; for further credit to:
Shareholder A/C
#
------------------------------------------
(A/C # you received over the telephone)
Shareholder Name:
------------------------------------------
(Your Name Here)
After wiring funds you must complete the
New Account Application and send it to:
Pilgrim America Order Dept.
P.O. Box 419368
Kansas City, MO 64141-6368

The Funds and the Distributor reserve the right to reject any purchase order. Please note third party
checks will not be accepted. The Manager reserves the right to waive minimum investment amounts.

</TABLE>

PRICE OF SHARES. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of each Fund, determined after the order is received
by the Transfer Agent or Distributor, plus any applicable sales charge (Public
Offering Price).

Purchases of each class of a Fund's shares are effected at that Fund's Public
Offering Price determined after a purchase order has been received in proper
form. A purchase order will be deemed to be in proper form when all of the
required steps have been completed. In the case of an investment by wire,
however, the order will be deemed to be in proper form after the telephone
notification and the federal funds wire have

20
<PAGE>
been received. A shareholder who purchases by wire must submit an application
form in a timely fashion. If an order or payment by wire is received after the
close of the New York Stock Exchange, 4:00 p.m. Eastern Time (1:00 p.m., Pacific
Time), the shares will not be credited until the next business day.

You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued
unless you request them in writing.

DETERMINATION OF NET ASSET VALUE. The NAV of each class of each Fund's shares
will be determined daily as of the close of trading on the New York Stock
Exchange (usually at 4:00 p.m. New York City time) on each day that it is open
for business. Each class' NAV represents that class' pro rata share of that
Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), and divided by that class' outstanding shares. In
general, the value of each Fund's assets is based on actual or estimated market
value, with special provisions for assets not having readily available market
quotations and short-term debt securities. The NAV per share of each class of
each Fund will fluctuate in response to changes in market conditions and other
factors. Portfolio securities for which market quotations are readily available
are stated at market value. Short-term debt securities having a maturity of 60
days or less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. In other cases, securities are valued at their fair value as
determined in good faith by the Board of Directors, although the actual
calculations will be made by persons acting under the supervision of the Board.
For information on valuing foreign securities, see each Fund's Statement of
Additional Information.

PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, see the New Account Application
or contact the Shareholder Servicing Agent at (800) 331-1080.

RETIREMENT PLANS. The Funds have available prototype qualified retirement plans

for both corporations and for self-employed individuals. They also have
available prototype IRA plans (for both individuals and employers), Simplified
Employee Pension Plans, Pension and Profit Sharing Plans and Tax Sheltered
Retirement Plans for employees of public educational institutions and certain
non-profit, tax-exempt organizations. Investors Fiduciary Trust Company ('IFTC')
acts as the custodian under these plans. For further information, contact the
Shareholder Servicing Agent at (800) 331-1080. IFTC currently receives a $12
custodian fee annually for the maintenance of IRA accounts.

TELEPHONE ORDERS. The Funds and their Transfer Agent will not be responsible for
the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Funds and their Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include: (i) recording telephone instructions for
exchanges and expedited redemptions; (ii) requiring the caller to give certain
specific identifying information; and (iii) providing written confirmation to
shareholders of record not later than five days following any such telephone
transactions. If the Funds and their Transfer Agent do not employ these
procedures, they may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Telephone redemptions may be executed on all accounts
other than retirement accounts.

EXCHANGE PRIVILEGES AND RESTRICTIONS

An exchange privilege is available. Exchange requests may be made in writing to
the Transfer Agent or by calling the Transfer Agent at (800) 992-0180. There is
no specific limit on exchange frequency; however, the Funds are intended for
long term investment and not as a trading vehicle. The Investment Manager
reserves the right to prohibit excessive exchanges (more than four per year).
The Investment Manager reserves the right, upon 60 days' prior notice, to
restrict the frequency of, otherwise modify, or impose charges of up to $5.00
upon exchanges. The total value of shares being exchanged must at least equal
the minimum investment requirement of the fund into which they are being
exchanged.

Shares of one class of a Fund may be exchanged for shares of that same class of
any other Pilgrim America Group mutual fund other than Pilgrim America Money
Market Shares ('Money Market'), at NAV without payment of any additional sales
charge. If you exchange and subsequently redeem your shares, any applicable CDSC
will be based on the full period of the share ownership. Shares of a Fund that
are not subject to a CDSC may be exchanged for shares of Money Market, and
shares of Money Market acquired in the exchange may

21
<PAGE>
subsequently be exchanged for shares of a mutual fund in the Pilgrim America
Group of the same class as the original shares acquired. Shares of a Fund that
are subject to a CDSC may be redeemed to purchase shares of Money Market upon
payment of the CDSC. Shareholders exercising the exchange privilege with any of
Pilgrim America Group's other funds should carefully review the prospectus of
that fund. Exchanges of shares are sales and may result in a gain or loss for
federal and state income tax purposes. You will automatically be assigned the
telephone exchange privilege unless you mark the box on the New Account

Application that signifies that you do not wish to have this privilege. The
exchange privilege is only available in states where shares of the Fund being
acquired may be legally sold.

SYSTEMATIC EXCHANGE PRIVILEGE

Subject to the information and limitations outlined above, you may elect to have
a specified dollar amount of shares systematically exchanged, monthly,
quarterly, semi-annually or annually (on or about the 10th of the applicable
month), from your account to an identically registered account in the same class
of any other Pilgrim America Fund.

The exchange privilege may be modified at any time or terminated upon 60 days
written notice to shareholders.

HOW TO REDEEM SHARES

Shares of each Fund will be redeemed at the NAV (less any applicable CDSC and/or
federal income tax withholding) next determined after receipt of a redemption
request in good form on any day the New York Stock Exchange is open for
business.

<TABLE>
<CAPTION>
METHOD PROCEDURES
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption orders by wire or telephone to the
Distributor. These firms may charge for their services in connection with your
redemption request but neither the Funds nor the Distributor imposes any such
charge.

Redemption By Mail A written request for redemption must be received by the Transfer Agent in order
to constitute a valid tender. If certificated shares have been issued, the
certificate must accompany the written request. The Transfer Agent may also
require a signature guarantee by an eligible guarantor. It will also be necessary
for corporate investors and other associations to have an appropriate
certification on file authorizing redemptions by a corporation or an association
before a redemption request will be considered in proper form. A suggested form
of such certification is provided on the New Account Application. If you are
entitled to a CDSC waiver, you must complete the CDSC waiver form in the New
Account Application. To determine whether a signature guarantee or other
documentation is required, shareholders may call the Shareholder Servicing Agent
at (800) 331-1080.

Expedited Redemption The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (maximum $50,000) mailed to an
address which has been on record with Pilgrim America for at least 60 days. This
privilege is automatically assigned to you unless you check the box on the New
Account Application which signifies that you do not wish to utilize such option.
The Expedited Redemption Privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. But, this aspect of the Expedited Redemption
privilege will NOT automatically be assigned to you. If you want to take
advantage of this aspect of the privilege, please check the appropriate box and

attach a voided check to the New Account Application. Under normal circumstances,
proceeds will be transmitted to your bank on the second business day following
receipt of your instructions, provided redemptions may be made. To effect an
Expedited Redemption, please call the Transfer Agent at (800) 992-0180. In the
event that share certificates have been issued, you may not request a wire
redemption by telephone or wire. This option is not available for retirement
accounts.
</TABLE>

22
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply if you purchased Class A or B shares.

The number of full and fractional shares equal in value to the amount of the
payment will be redeemed at NAV (less any applicable CDSC). Such redemptions are
normally processed on the fifth day prior to the end of the month, quarter or
year. Checks are then mailed or proceeds are forwarded to your bank account on
or about the first of the following month. Shareholders who elect to have a
systematic cash withdrawal must have all dividends and capital gains reinvested.
To establish a systematic cash withdrawal, please complete the Systematic
Withdrawal Plan section of the New Account Application. To have funds deposited
to your bank account, follow the instructions on the New Account Application.

You may change the amount, frequency and payee, or terminate this plan by giving
written notice to the Transfer Agent. As shares of a Fund are redeemed under the
Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be modified at any time by the Fund or terminated
upon written notice by you or the relevant Fund.

PAYMENTS. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within seven days after receipt by the Transfer Agent of a written
request in good order. A Fund may delay the mailing of a redemption check until
the check used to purchase the shares being redeemed has cleared which may take
up to 15 days or more. To reduce such delay, all purchases should be made by
bank wire or federal funds. A Fund may suspend the right of redemption under
certain extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. Due to the relatively high cost of handling
small investments, the Funds reserve the right upon 30 days written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. Each Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, a Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, a Fund could elect to make payment in securities
for redemptions in excess of $250,000 or 1% of its net assets during any 90-day
period for any one shareholder. An investor may incur brokerage costs in
converting such securities to cash.

MANAGEMENT OF THE FUNDS

MORE ABOUT THE FUNDS. MagnaCap Fund and High Yield Fund are series of Pilgrim
America Investment Funds, Inc., which is a registered investment company that
was organized as a Maryland corporation in July 1969. Government Securities
Income Fund is the single series of Pilgrim Government Securities Income Fund,
Inc., which is a registered investment company that was organized as a
California corporation in May 1984. Each Fund is governed by its Board of
Directors, which oversees the operations of the Fund. The majority of Directors
are not affiliated with the Investment Manager.

INVESTMENT MANAGER. The Investment Manager serves as investment manager to each
Fund. The Investment Manager is responsible for managing the general day-to-day
operations of each Fund including selecting the Fund's investments and placing
each Fund's portfolio transactions. Each Fund and the Investment Manager have
entered into an agreement that requires the Investment Manager to provide all
investment advisory and portfolio management services for the Fund. It also
requires the Investment Manager to assist in managing and supervising all
aspects of the general day-to-day business activities and operations of the
Funds, including custodial, transfer agency, dividend disbursing, accounting,
auditing, compliance and related services. The Investment Manager provides the
Funds with office space, equipment and personnel necessary to administer the
Funds. The agreement with the Investment Manager can be canceled by the Board of
Directors of each Fund upon 60 days written notice. Organized in December 1994,
the Investment Manager is registered as an investment adviser with the
Securities and Exchange Commission.

The Investment Manager acquired certain assets of the previous adviser to the
Funds in a transaction that closed on April 7, 1995. Although the Investment
Manager has not previously served as an investment adviser to a registered
investment company, investment personnel of the Investment Manager have

23
<PAGE>
managed other registered investment companies and private accounts. In addition,
other personnel of the Investment Manager have serviced registered investment
companies.

The Investment Manager and Pilgrim America Securities, Inc. (Distributor), the
Funds' principal underwriter, are indirect, wholly owned subsidiaries of Express
America (NASDAQ: EXAM). Through its subsidiaries, Express America engages in the
financial services business, focusing on providing investment advisory,
administrative and distribution services to open-end and closed-end investment
companies. For more information on Express America, please see the Statement of
Additional Information.

The Investment Manager bears its expenses of providing the services described
above. MagnaCap Fund pays the Investment Manager a fee at an annual rate of
1.00% of the average daily net assets of the Fund up to $30 million; 0.75% of
the average daily net assets above $30 million to $250 million; 0.625% of the
average daily net assets above $250 million to $500 million; and 0.50% of the
average daily net assets in excess of $500 million. These fees are computed and
accrued daily and paid monthly. High Yield Fund pays the Investment Manager a

fee at an annual rate of 0.75% of the average daily net assets of the Fund on
the first $25 million of net assets; 0.625% of the average daily net assets over
$25 million to $100 million; 0.50% of the average daily net assets over $100
million to $500 million; and 0.40% of the average daily net assets in excess of
$500 million. Effective July 1, 1995, the Investment Manager has voluntarily
agreed to waive all or a portion of its fees and to reimburse operating expenses
of the Fund, excluding distribution fees, interest, taxes, brokerage and
extraordinary expenses, so that total operating expenses do not exceed 1.00% for
Class A, 1.75% for Class B and 1.50% for Class M. This expense limitation will
apply until June 30, 1997. Government Securities Income Fund pays the Investment
Manager a fee at an annual rate of 0.50% of the average daily net assets of the
Fund up to $500 million; 0.45% of the average daily net assets above $500
million to $1 billion; and 0.40% of the average daily net assets in excess of $1
billion. The agreement with the Investment Manager for the Government Securities
Income Fund provides that the Investment Manager will reimburse the Government
Securities Income Fund to the extent that the gross operating costs and expenses
of that Fund, excluding any interest, taxes, brokerage commissions, amortization
of organizational expenses, extraordinary expenses, and distribution (Rule
12b-1) fees on Class B and Class M shares in excess of an annual rate of 0.25%
of the average daily net assets of these classes, exceed 1.50% of the Fund's
average daily net asset value for the first $40 million of net assets and 1.00%
of average daily net assets in excess of $40 million for any one fiscal year.
This reimbursement policy cannot be changed unless the agreement is amended,
which would require shareholder approval.

The Investment Manager of MagnaCap Fund and High Yield Fund will reduce its
aggregate fees for any fiscal year, or reimburse the Fund, to the extent
required so that the Funds' expenses do not exceed the expense limitations
applicable to the Funds under the securities laws or regulations of those states
or jurisdictions in which the Funds' shares are registered or qualified for
sale. See the Statement of Additional Information for further information.

INVESTMENT PERSONNEL. Howard N. Kornblue, Vice President, Head of Equity and
Senior Portfolio Manager for the Investment Manager, has served as portfolio
manager of MagnaCap Fund since 1989. Prior to joining Pilgrim America Group (and
its predecessor) in 1986, Mr. Kornblue was Vice President, Director of Research
and Portfolio Manager at First Wilshire Securities Management; supervised
mergers and acquisitions for Getty Oil Company; was portfolio manager and
research analyst in both the fixed-income and equity departments for Western
Asset Management Company; and was research analyst and pension fund manager at
Southern California Edison Company. Mr. Kornblue received a B.S. from U.C.L.A.,
and M.S. and M.B.A. from U.S.C.

Kevin G. Mathews, Vice President and Senior Portfolio Manager of the Investment
Manager, has served as Portfolio Manager of High Yield Fund since June 1995 and
also served as Portfolio Manager of Government Securities Income Fund from June
1995 through September 1996. Prior to joining the Investment Manager, Mr.
Mathews was Vice President and Senior Portfolio Manager of Van Kampen American
Capital. Since 1987, Mr. Mathews' responsibilities included the management of
open-end high yield bond funds, two New York Stock Exchange listed closed-end
bond funds, variable annuity high yield products and individual institutional
high yield asset managed accounts. In a prior position, Mr. Mathews was a high
yield portfolio fixed income credit analyst. Mr. Mathews received a B.A. from
the University of Illinois and an M.B.A. from Drake University.

24
<PAGE>
Charles G. Ullerich has served as Portfolio Manager of Government Securities
Income Fund since September 1996 and served as Assistant Portfolio Manager of
that Fund from August 1995 to September 1996. Prior to joining Pilgrim America
Group, Mr. Ullerich was Vice President of Treasury Services for First Liberty
Bank of Macon, GA, where he was Portfolio Manager for a conservatively-managed
$150 million mortgage and treasury security portfolio, since 1991. Before that,
he was an internal auditor for Georgia Federal Bank in Atlanta. Mr. Ullerich
received a B.S. from Arizona State University, and he holds the professional
designations of Chartered Financial Analyst and Certified Internal Auditor. He
is Past President of the Georgia Chapter of the Arizona State University Alumni
Association.

DISTRIBUTOR. In addition to providing for the expenses discussed above, the Rule
12b-1 Plan also recognizes that the Investment Manager may use its investment
management fees or other resources to pay expenses associated with activities
primarily intended to result in the promotion and distribution of the Funds'
shares. The Distributor will, from time to time, pay to Authorized Dealers in
connection with the sale or distribution of shares of a Fund material
compensation in the form of merchandise or trips. Salespersons and any other
person entitled to receive any compensation for selling or servicing Fund shares
may receive different compensation with respect to one particular class of
shares over another in a Fund.

PORTFOLIO TRANSACTIONS. The Investment Manager will place orders to execute
securities transactions that are designed to implement each Fund's investment
objectives and policies. The Investment Manager will use its reasonable efforts
to place all purchase and sale transactions with brokers, dealers and banks
('brokers') that provide 'best execution' of these orders. In placing purchase
and sale transactions, the Investment Manager may consider brokerage and
research services provided by a broker to the Investment Manager, and a Fund may
pay a commission for effecting a securities transaction that is in excess of the
amount another broker would have charged if the Investment Manager determines in
good faith that the amount of commission is reasonable in relation to the value
of the brokerage and research services provided by the broker. In addition, the
Investment Manager may place securities transactions with brokers that provide
certain services to a Fund. The Investment Manager also may consider a broker's
sale of Fund shares if the Investment Manager is satisfied that the Fund would
receive best execution of the transaction from that broker.

DIVIDENDS, DISTRIBUTIONS & TAXES

DIVIDENDS AND DISTRIBUTIONS. MagnaCap Fund makes semi-annual payments from net
investment income and one or more payments from net realized capital gains, if
any. High Yield Fund and Government Securities Income Fund each have a policy of
paying monthly dividends from their net investment income, and paying capital
gains, if any, annually following the Fund's fiscal year end. Dividends and
distributions will be determined on a class basis.

Any dividends and distributions paid by a Fund will be automatically reinvested
in additional shares of the respective class of that Fund, unless you elect to
receive distributions in cash. When a dividend or distribution is paid, the NAV

per share is reduced by the amount of the payment.

You may, upon written request or by completing the appropriate section of the
New Account Application in this Prospectus, elect to have all dividends and
other distributions paid on a Class A, B or M account in a Fund invested into a
Pilgrim America Fund which offers Class A, B or M shares. Both accounts must be
of the same class. If you are a shareholder of Pilgrim America Prime Rate Trust,
whose shares are not held in a broker or nominee account, you may, upon written
request, elect to have all dividends invested into a pre-existing Class A
account of any Pilgrim America Fund which offers Class A, B, or M shares.
Distributions are invested into the selected funds at the net asset value as of
the payable date of the distribution only if shares of such selected funds have
been registered for sale in the investor's state.

FEDERAL TAXES. Each Fund intends to operate as a 'regulated investment company'
under the Internal Revenue Code. In any fiscal year in which a Fund so qualifies
and distributes to shareholders all of its net investment income and net capital
gains, the Fund itself is relieved of federal income tax.

All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been

25
<PAGE>
paid by a Fund and received by shareholders on December 31 of the calendar year
in which declared, rather than the calendar year in which the dividends are
actually received.

If you have not furnished a certified correct taxpayer identification number
(generally your Social Security number) and have not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Fund that
the taxpayer identification number listed on your account is incorrect according
to their records or that you are subject to backup withholding, federal law
generally requires the Fund to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Amounts withheld are applied to
your federal tax liability; a refund may be obtained from the Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from ordinary dividends paid
to certain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.

The Funds may be required to pay withholding and other taxes imposed by various
countries in connection with its investments outside the U.S. generally at rates
from 10% to 40%, which would reduce a Fund's investment income.

This is a brief summary of some of the tax laws that affect your investment in a
Fund. Please see the Statement of Additional Information and your tax adviser
for further information.

PERFORMANCE INFORMATION

From time to time, a Fund may advertise its average annual total return over
various periods of time as well as the Fund's current yield. The total return
figures show the average percentage change in value of an investment in the Fund
from the beginning date of the measuring period. The figures reflect changes in
the price of the Fund's shares and assume that any income dividends and/or
capital gains distributions made by the Fund during the period were reinvested
in shares of the Fund. Figures will be given for one, five and ten year periods
(if applicable) and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). Total
returns and current yield are based on past results and are not necessarily a
prediction of future performance. The Fund will compute its yield by dividing
its net investment income per share during a 30-day base period by the maximum
offering price on the last day of the base period. This 30-day yield is then
compounded over six monthly periods and multiplied by two to provide an
annualized yield.

The Fund may also publish a distribution rate in investor communications
preceded or accompanied by a copy of the current Prospectus. The current
distribution rate for the Fund will be calculated by dividing the maximum
offering price per share into the annualization of the total distributions made
by the Fund during a 30-day period. The current distribution rate may differ
from current yield because the distribution rate may contain items of capital
gain and other items of income, while yield reflects only earned net investment
income. In each case, the yield, distribution rates and total return figures
will reflect all recurring charges against Fund income and will assume the
payment of the maximum sales load.

ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.

ADDITIONAL INFORMATION

MORE ABOUT THE FUNDS. The Articles of Incorporation permit the Directors to
authorize the creation of additional funds, each of which may issue separate
classes of shares. A Fund may be terminated and liquidated under certain
circumstances.

SHAREHOLDERS HAVE CERTAIN VOTING RIGHTS. Each share of each Fund is given one
vote. Matters such as approval of new investment advisory agreements and changes
in fundamental policies of a Fund will require the affirmative vote of the
shareholders of that Fund. Matters affecting a certain class of a Fund will only
be voted on by shareholders of that particular class and Fund. The Funds are not
required to hold annual shareholder meetings, although special shareholder
meetings may be held from time to time.

<PAGE>
[LOGO]

NEW ACCOUNT APPLICATION

SEND COMPLETED APPLICATION TO: PILGRIM AMERICA FUNDS, P.O. BOX 419368, KANSAS
CITY, MISSOURI 64141-6368
SECTIONS 1 THROUGH 6 MUST BE COMPLETED FOR YOUR ACCOUNT TO BE ESTABLISHED.

- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION

TYPE OF ACCOUNT
(Check one only)
/ / INDIVIDUAL

- ------------------------- ---------- ---------------------------------- ---------------------------------------
First Name Middle Last Name Social Security Number*
Initial (first individual only)

/ / JOINT TENANT

- --------------------------- ---------- ---------------------------------- ---------------------------------------
Joint Tenant's First Name Middle Last Name
Initial

/ / GIFT/TRANSFER TO MINOR

- ------------------------------------------------------------------------- -------------------------------------------
Custodian's Name (one only) Minor's Name (one only)
</TABLE>

/ / GUARDIANSHIP/CONSERVATORSHIP

- ------------------------------------------------------------------------- -------------------------------------------
Under Uniform Gift/Transfers to Minors Act of (State) Minor's Social Security
Number*
</TABLE>

- ------------------------------------------------- --------------------------- ----------------------------------------

Guardian/Conservator Ward/Incompetent or Minor's Ward/Incompetent or Minor's
Name (one only) Social Security Number*
</TABLE>

/ / CORPORATION, PARTNERSHIP, TRUST OR OTHER ORGANIZATION

<TABLE>
<S> <C>
- -------------------------------------------------------------------- ------------------------------------------
Exact Name of Corporation, Partnership or other Organization Tax Identification Number*

- -------------------------------------------------------------------------------------------------
Trustee Accounts Only: Name of all Trustees required by trust agreement to sell/purchase shares
</TABLE>

<TABLE>
<S> <C> <C>
- -------------------------- --------------------------------------------------- ----------------------------------------
Date of Trust Agreement Name of Trust Tax Identification Number*
</TABLE>

/ / OTHER

<TABLE>
<S> <C>
/ / CHECK HERE IF YOU ARE SUBJECT TO BACKUP WITHHOLDING.
/ / CHECK HERE IF YOU ARE AWAITING THE ISSUANCE OF
- -------------------------------------------------------- SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER.
</TABLE>

* Pilgrim America reserves the right to reject any application which does not
include a certified Social Security Number or Taxpayer Identification Number,
or does not indicate that such number has been applied for by checking the
'awaiting Social Security or Taxpayer Identification Number' box.
- --------------------------------------------------------------------------------
2. MAILING ADDRESS

<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------- ----------- ----------- ---------- ---------------------------
Street Address Apartment City State Zip Code
Number
</TABLE>

( ) ( )
- ------------------------------ -----------------------------
Business Phone Home Phone

<PAGE>

- --------------------------------------------------------------------------------
3. INVESTMENT INFORMATION

PLEASE INDICATE DOLLAR AMOUNT AND FUND IN SPACES PROVIDED. $1,000 MINIMUM FOR
EACH FUND. IF MORE THAN ONE FUND IS SELECTED, ACCOUNT MUST HAVE IDENTICAL
REGISTRATIONS, CLASS OF SHARES AND OPTIONS. IF NO CLASS OF SHARES IS SELECTED,
CLASS A SHARES WILL BE AUTOMATICALLY SELECTED.

<TABLE>
<CAPTION>
FUND NAME AMOUNT CLASS OF SHARES (CHECK ONE)
<S> <C> <C>
1. $ A / / B / / M / /
------------------------------------------ -----------
2. $ A / / B / / M / /
------------------------------------------ -----------
3. $ A / / B / / M / /
------------------------------------------ -----------
4. $ A / / B / / M / /
------------------------------------------ -----------
5. $ A / / B / / M / /
------------------------------------------ -----------
6. $ A / / B / / M / /
------------------------------------------ -----------
</TABLE>

/ / A check payable to the Pilgrim America Group is included for $__________.

/ / Payment has been made by Dealer purchase on

____________ $_____________ _____________________________________________
(Date) (Amount) (Order Number)

/ / Payment has been made by Federal funds wire _______________ on ___________
(Reference No.) (Date)

_________________ $_______________
(Account No.) (Amount)

- -------------------------------------------------------------------------------
4. DIVIDEND AND DISTRIBUTION OPTIONS

(Check one only) -- If no option is selected, all distributions will be
reinvested.

/ / Reinvest all dividends and capital gains.

/ / Reinvest all dividends and capital gains into an existing account in
another Pilgrim America Account using the Dividend Transfer Option.

_________________________________ ________________________________
Fund Name Account Number

/ / Pay all dividends and reinvest capital I request the payable distributions be: (Check one.)
gains.
/ / Pay all capital gains in cash and
reinvest dividends. / / Sent to the address in Section 2.
/ / Pay all dividends and capital gains. / / Directly deposited in my bank account. (Please attach a
(IF ANY PAY OPTION IS SELECTED, voided check to Section 6). If voided check is not enclosed,
COMPLETE INFORMATION AT RIGHT) will be sent to address in Section 2.
/ / Sent to a special payee listed in Section 9.
</TABLE>

- --------------------------------------------------------------------------------
5. AUTHORIZED DEALER INFORMATION

<TABLE>
<S> <C>
- ---------------------------------------- ------------------------------------------
Authorized Dealer Name Registered Representative's Name

- ---------------------------------------- ------------------------------------------
Branch Office Address Registered Representative's Number

- ---------------------------------------- ---------------- --------------
City State Zip Code

- ---------------------------------------- ------------------------------------------
Registered Representative's Phone Authorized Signature of Authorized Dealer
</TABLE>

<PAGE>
- --------------------------------------------------------------------------------
6. SIGNATURES

I have read the prospectus and application for the Fund in which I am investing
and agree to its terms. I am also aware that a Telephone Exchange and Redemption
Privileges exist and that these privileges are automatically available unless
affirmatively declined. I also understand that if Pilgrim America, the Fund, the
Transfer Agent or the Sub-Transfer Agent fail to follow the procedures outlined
in the prospectus and in the Telephone Transaction Authorization hereto, such
entity may be liable for losses due to unauthorized or fraudulent instructions.
I further understand that I must carefully review each account confirmation
statement or other documentation of transaction that I receive to ensure that my
instructions have been properly acted upon. If any discrepancies are noted, I
agree to notify Pilgrim America, the Fund, the Transfer Agent or the
Sub-Transfer Agent in a timely manner, but in no event more than 15 days from
receipt of such confirmation statement or documentation of transaction. Failure
to notify one of the above entities on a timely basis will relieve such entities

of any liability with respect to the transaction and any discrepancy. See the
Exchange Privileges and Restrictions and How to Redeem Shares sections in the
Prospectus for procedures. I am of legal age. Sign below exactly as printed in
Section 1. For joint registration, all must sign. Under penalty of perjury, I
certify with my signature below that the number shown in Section 1 is my correct
taxpayer identification number. Also, I have not been notified by the Internal
Revenue Service that I am currently subject to backup withholding unless
otherwise indicated.

ATTACH VOIDED CHECK HERE [RIGHT ARROW]
(IF APPROPRIATE)

For Corporations, Trusts, or Partnerships: We hereby certify that each of the
persons listed below have been duly elected, and are now legally holding the
offices set forth opposite his/her name and have the authority to make this
authorization. Please print titles below if signing on behalf of a business or
trust to establish this account.

<TABLE>
<S> <C>
- ---------------------------------------- ----------------------------------------------------------
Signature Date President, Trustee, General Partner or Title

- ---------------------------------------- ----------------------------------------------------------
Signature Date Co-owner, Secretary of Corporation, Co-Trustee, etc.
</TABLE>

CHECK THE APPROPRIATE BOXES BELOW AND PROVIDE THE REQUESTED INFORMATION

/ / I am a United States Citizen

/ / I am a non-resident alien* (a Form W-8 will be provided to you by Pilgrim
America. Please complete it as requested as soon as possible).

/ / I am a resident alien and a social security number has been supplied on page
one of this New Account application (a Form 1078 will be provided to you by
Pilgrim America. Please complete it and return it as requested).

/ / If not a United Citizen, please indicate what country you are a permanent
tax resident of:

____________________________________________________________________________

* If the Pilgrim America account will be registered in joint registration with
another individual or individuals, each non-resident alien must complete and
return a Form W-8.

- --------------------------------------------------------------------------------
7. PURCHASE OPTIONS

REDUCED SALES CHARGE

/ / I qualify for Reduced Sales Charge with the account(s) listed below.
Included are the account numbers of all classes of shares of Pilgrim America
Funds that I or my immediate family (spouse and children under age 21) already
own.

- ---------------------------------------- ----------------------------------------------------------
Fund Name Account Number

- ---------------------------------------- ----------------------------------------------------------
Fund Name Account Number
</TABLE>

<PAGE>

LETTER OF INTENT (Check one only)

/ / I wish to establish a new Letter of Intent. (If Reduced Sales Charge or
90-day backdate privilege is applicable, provide the amount and
account(s) information below.) I agree to the terms of the Letter of
Intent as set forth in the Prospectus and Statement of Additional
Information, and grant Pilgrim America Securities, Inc. a security
interest in the escrowed shares as set forth in the Statement of
Additional Information. I understand that I am not obligated to invest
an aggregate amount equal to the amount checked below, but if I do not,
Pilgrim America Securities, Inc. may deduct the amount of any sales
charge owed from the escrowed shares.

/ / Please apply this purchase to an existing Letter of Intent with the
account(s) listed below.

/ / Please amend my existing Letter of Intent with the new amount indicated
below.

If establishing a Letter of Intent, you will need to purchase over a
thirteen-month period in accordance with the provisions of the Prospectus
and Statement of Additional Information. The aggregate amount of these
purchases will be at least equal to the amount listed below:

/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000

<TABLE>
<S> <C>
- ---------------------------------------- --------------------------------------------
Fund Name Account Number

- ---------------------------------------- --------------------------------------------
Fund Name Account Number
</TABLE>

- --------------------------------------------------------------------------------
PRE-AUTHORIZED INVESTMENT PLAN -- AUTOMATIC INVESTING

/ / I wish to invest on a monthly, quarterly, semi-annual or annual basis,
directly from my checking account into the following fund(s).
(PLEASE COMPLETE THE PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT HEREIN AND
ATTACH A VOIDED CHECK TO SECTION 6.)

Amount $________________________, to start / / 5th or
Minimum $100

/ / 20th of
_______________, ___________________
Month Year

/ / monthly / / quarterly / / semi-annual / / annual

- --------------------------------------------------------------------------------
SPECIAL PURCHASE WITHOUT A SALES CHARGE

/ / I (We) declare that the investment referenced herein is exempt from the
imposition of the normal front-end sales charge for the reason(s)
listed below (please refer to the 'Special Purchases Without a Sales
Charge' section of the prospectus):

- --------------------------------------------------------------------------------

The privilege will only be granted upon confirmation of your entitlement.
- --------------------------------------------------------------------------------
8. ADDITIONAL OPTIONS
TELEPHONE EXCHANGE PRIVILEGE -- IF ACCEPTED ACCOUNTS MUST HAVE THE SAME
ACCOUNT INFORMATION, OPTIONS AND CLASS OF SHARES. UNLESS YOU DECLINE THIS
PRIVILEGE BY CHECKING THE BOX BELOW, YOU WILL AUTOMATICALLY BE ASSIGNED
IT.*

/ / I decline telephone exchange, and do not want this privilege. (See
Exchange Privileges and Restrictions section for procedures.)

- -------------------------------------------------------------------------------
EXPEDITED REDEMPTION PRIVILEGE -- AVAILABLE ON ALL NON-RETIREMENT ACCOUNTS.

UNLESS YOU DECLINE THIS PRIVILEGE, YOU WILL AUTOMATICALLY BE ASSIGNED THE
ABILITY TO REQUEST, VIA THE TELEPHONE, REDEMPTION PROCEEDS TO BE SENT TO THE
ADDRESS IN SECTION 2.

/ / I wish to redeem shares by telephone and request that the proceeds be
directly deposited into my bank account. (Please attach a voided check
to Section 6.) (If voided check is not enclosed, will be sent to address
in Section 2.)

/ / I decline telephone redemption, and do not want this privilege.

See Expedited Redemption section for procedures.

* Pilgrim America is authorized to act upon instructions received from you or
anyone other than yourself representing himself as acting as your
representative who can provide personal identification information as it
appears in Pilgrim America's records.

Pilgrim America will employ reasonable procedures to confirm that instructions
communicated over the telephone are genuine. The Funds and their agents will
not be liable for any loss, injury, damage, or expense incurred as a result of
instructions

<PAGE>

communicated by telephone reasonably believed to be genuine. By accepting
this privilege, you agree to hold the Funds and their agents harmless from
any loss, claims, or liability arising from their compliance with such
instructions. Telephone exchange and expedited redemption privileges are
subject are subject to the terms and conditions set forth in the Prospectus
and each Fund's Statement of Additional Information.
- --------------------------------------------------------------------------------
SYSTEMATIC EXCHANGE PRIVILEGE

/ / I have at least $5,000 in my Pilgrim America________________Fund account,
for which no certificates have been issued and I would like to exchange:

$________(min. of $50) into the __________ Fund, Account #_______________

on a / / monthly or / / quarterly basis starting in the month of
_____________

(Systematic Exchange Privilege is only available within the same Class of
Shares)
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (SWP)
(Minimum account balance for a SWP is $10,000.)
(Class B SWP's are processed free of contingent deferred sales charge if 12%
or less of account value is redeemed on an annual basis.)

/ / I wish to automatically withdraw $_____________________ from this account.
Minimum $100

/ / Monthly / / Quarterly / / Semi-Annually / / Annually

I request this distribution be: (Check One)

/ / Sent to the address listed in Section 2. To begin
_____________of_________. (Withdrawal will occur about 5 business days
prior to the end of the month.)

/ / Sent to the payee listed in Section 9. To begin
_____________of_________. (Withdrawal will occur about 5 business days
prior to the end of the month.)

/ / Directly deposited in my bank account. (Please attach a voided check to
Section 6.)
To begin _____________of_________. (Withdrawal will occur about 5
business days prior to the end of the month.)
- --------------------------------------------------------------------------------

9. INTERESTED PARTY MAIL/DIVIDEND MAIL

/ / I wish to have my distributions sent to the address listed below.

/ / I wish to have duplicate confirmation statements sent to the interested
party listed below.

- --------------------------------------------------------------------------------
Name of Individual

- --------------------------------------------------------------------------------
Street Address

- ----------------------------- ------------------------------- ----------------
City State Zip Code

- --------------------------------------------------------------------------------
THIS APPLICATION IS NOT A PART OF THE PROSPECTUS.

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AUTHORIZED DEALER AGREEMENT

Under these plans, the Authorized Dealer signing the application acts as
principal in all purchases of Fund shares and appoints Pilgrim America as its
agent to execute the purchases and to confirm each purchase to the Investor.
PilgrimAmerica remits semi-monthly to the Authorized Dealer the amount of its
commissions. The Authorized Dealer hereby guarantees the genuineness of the
signature(s) on the application and represents that he is a duly licensed
Authorized Dealer and may lawfully sell Fund shares in the state designated by
the Investor's mailing address, and that he has entered into a Selling Group
Agreement with the Distributor with respect to the sale of fund shares. The
Authorized Dealer signature on the Application, signifies acceptance of the
concession terms, and acceptance of responsibility for obtaining additional
sales charges if specified purchases are not completed.

Cut on perforated line

-------------------------------------------------------------------------------

DETACH HERE AND RETURN THIS TO YOUR BANK IF YOU ARE
ESTABLISHING A PRE-AUTHORIZED INVESTMENT PLAN
(AUTHORIZATION TO HONOR CHECKS OR DEBIT INSTRUCTIONS DRAWN BY DST SYSTEMS, INC.,
ON BEHALF OF THE PILGRIM AMERICA FUNDS, FOR AUTOMATIC PURCHASE PLAN)

PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT

As a convenience, I (we) hereby request and authorize you to pay and charge
to my (our) account checks or debit instructions drawn on my (our) account by
DST Systems, Inc., the Fund's Agent and payable to the order of the Fund
provided there are sufficient collected funds in said account to pay the same
upon presentation: I (we) agree that your rights with respect to each such check
or debit instruction shall be the same as if it were a check or debit
instructions drawn on you and signed personally by me (us). This authority is to
remain in effect until revoked in writing and until you actually receive such
notice. I (we) agree that you shall be fully protected in honoring any such
checks or debit instructions.

I (we) further agree that if any such check or debit instruction is
dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.

Signature(s) of Depositor(s) (signed exactly as shown on bank records)

X_______________________________________________________________________________

________________________________________________________________ 19 ____________
Date Signed

(PLEASE PRINT)

Name of Depositor (as shown on bank records)____________________________________

Bank Account Number_____________________________________________________________

Name of Bank____________________________________________________________________

Address of Bank_________________________________________________________________

City/State/Zip of Bank__________________________________________________________

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<PAGE>

[LOGO]

INSTRUCTIONS FOR COMPLETING THE NEW ACCOUNT APPLICATION
- -------------------------------------------------------------------------------
This New Account Application can be used to open a new Pilgrim America Account,
establish Shareholder privileges on existing accounts and be used in providing
documentation for certain transactions. The completed Application should be
forwarded along with your investment check payable to the Pilgrim America Group,
or other appropriate documentation to: PILGRIM AMERICA FUNDS, P.O. BOX 419368,
KANSAS CITY, MISSOURI 64141-6368.

This New Account Application may not be used to open a qualified retirement plan
account for which Investors Fiduciary Trust Company acts as custodian.

1 ACCOUNT REGISTRATION

Check the appropriate box and provide the information requested. Unless
specified, accounts with more than one owner will be assumed to be 'Joint
Tenants With Rights of Survivorship'.

All investors must sign the Account Application, and authorize the requested
privileges.

For a child who is under the age of majority in your state of residence,
'Gift/transfer to minor' registration must be utilized.

2 MAILING ADDRESS

This is the address of record for your account. All account confirmation
statements will be forwarded to this address.

3 INVESTMENT INFORMATION

State the fund(s) in which you are investing and the dollar amount of the
investment. (Minimum initial investment is $1,000).

4 DIVIDEND AND DISTRIBUTION OPTIONS

Pilgrim America offers several options for the treatment of dividends and
capital gains distributions, if any, from your Pilgrim America investment.

You can have these payments distributed to you, or any other recipient you
choose, in cash; in additional shares of the Fund which is paying the
distribution or; in shares of another Pilgrim America Fund, at NAV without sales
charge, via the Dividends Transfer Option. The Dividend Transfer Option is
available only for open-end funds within the Pilgrim America Group.

5 AUTHORIZED DEALER INFORMATION

Your financial professional can complete this section.

6 SIGNATURES

All investors and authorized signers should sign in order to process the New
Account Application and to certify your Social Security, Tax identification
Number or if applicable, your foreign status.

35
<PAGE>
7 PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)

You can qualify for reduced sales charges via the Letter of Intent or Cumulative
Discount privileges.

The Letter of Intent allows you to qualify for reduced sales charges
immediately.

Cumulative Discount allows you to use the total of all of your Pilgrim America
open-end fund investments in determining the sales charge of a current
investment.

The Pre-Authorized Investment Plan provides a systematic method of investing
periodically in the Pilgrim America Fund(s) of your choice. Minimum investments
of at least $100 can be automatically debited from your bank account
periodically for investment purposes.

8 ADDITIONAL OPTIONS

The Telephone Exchange privilege will automatically be assigned to you unless
you check the box in Section 8 which states that you do not wish to have this
privilege.

The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (Maximum of $50,000) mailed
to your address of record. This privilege is automatically assigned to you
unless you check the box in this section which states you do not want to take
advantage of this privilege.

The Expedited Redemption privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. This privilege is NOT automatically assigned
to you. If you want to take advantage of this privilege, please check the
appropriate box and attach a voided check to section 6 of the New Account
Application.

The Systematic Exchange Privilege allows you to automatically exchange shares of
one fund for shares of the same class of another fund in regular pre-determined
amounts and at regular pre-determined intervals.

The Systematic Withdrawal Plan allows you to automatically have a specific share
or dollar amount ($100 minimum) liquidated from your account monthly, quarterly,
semi-annually, or annually and forwarded to you or the payee of your choosing as
long as the account has a current value of at least $10,000. Amounts designated
for deposit to your bank account can be forwarded via the Automated Clearing
House system by attaching a voided check for such basic account to Section 6 of
the New Account Application.

9 INTERESTED PARTY MAIL/DIVIDEND MAIL

You may authorize an additional party to receive copies of your confirmation
statements (your Authorized Dealer will automatically receive such copies). If
you wish to have additional copies of your confirmation statements mailed to an
address other than your address of record, check the appropriate box in Section
9 and indicate such address.

You may have your cash dividend payments forwarded to an address other than your
address of record by so indicating in Section 9. (If you wish your cash
dividends to be forwarded to a bank for deposit to an account, refer to Section
4 of the New Account Application).

<PAGE>

PILGRIM AMERICA FUNDS CLASS A AND B
CONTINGENT DEFERRED SALES CHARGE WAIVER FORM
(TO BE COMPLETED ONLY IF THE UNDERSIGNED BELIEVES THAT HE IS ENTITLED
TO A WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE.)

If you believe you are entitled to a waiver of the Contingent Deferred
Sales Charge in accordance with the terms set forth in the prospectus, you must
complete this Contingent Deferred Sales Charge Waiver Form and send it the
Fund's Transfer Agent at its address given below. The waiver will only be
granted upon confirmation of your entitlement.

Check the item below which the undersigned is relying upon for a waiver of
the Contingent Deferred Sales Charge and send any required documents specified
therein:

/ / Redemption is made upon the death or permanent disability of
shareholder. (Enclose either a certified death certificate or
certification of permanent disability (see below), whichever is
appropriate).

/ / Redemption is made in connection with mandatory distributions (upon
attainment of age 70 1/2) from and IRA or other qualified retirement
plan. (Enclose a certified birth certificate. Please contact Pilgrim
America for a Distribution Request Form for IRA or other qualified
retirement plan accounts where IFTC acts as custodian which must
accompany this Contingent Deferred Sales Charge Waiver Form).

________________________________________________________________________

Signature ______________________________________________________________
(Exactly as on Account Registration)
DATE ___________________________________________________________________

Name(s) ________________________________________________________________

________________________________________________________________________
(Please Print)

MAIL THE COMPLETED WAIVER FORM TO:
PILGRIM AMERICA FUNDS, P.O. BOX 419368, KANSAS CITY, MO 64141-6368

DEFINITION OF DISABILITY

An individual will be considered disabled if he meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code, which in pertinent
part defines a person as disabled if such peron is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long
continued and indefinite duration.

CERTIFICATION OF DISABILITY

I _____________________________________ certify that I am a licensed physician
Licensed Physician Name
in the State of _______________________________________________________________,
License # ____________ and that _________________ is under my care and is unable
to perform the material duties of his or her regular occupation or employment;
or is unable to engage in any substantial gainful activity by reason of a
physical or mental impairment which may result in death or be of continued and
indefinite duration. Date of determination of disability _______________________

Physician Signature _______________________ Date ______________________________

37
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<PAGE>

IMPORTANT INFORMATION REGARDING COMPLETION OF THE APPLICATION

Effective in 1989, the Fund, and other payers, must, according to IRS
regulations, withhold 31% of reportable dividends (whether paid or accrued) and
redemption payments if a shareholder fails to provide a taxpayer identification
number, and a certification that he is not subject to backup withholding in the
SHAREHOLDER CERTIFICATION section of the Account Application form.

(Section references are to the Internal Revenue Code, as amended).

BACKUP WITHHOLDING
You are subject to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the Fund in
the manner required, OR
(2) The Internal Revenue Service notifies the Fund that you furnished an
incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding under section
3406(a)(1)(C), OR
(4) For an interest or dividend account opened after December 31, 1983, you
fail to certify to the payer that you are not subject to backup withholding
under (3) above, or fail to certify your taxpayer identification number.
For payments other than interest or dividends, you are subject to backup
withholding only if (1) or (2) above applies.

OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS 5, application for a Social Security Number Card, or Form
SS 4, application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write 'applied for' in the space provided for a taxpayer identification
number on the application. Circle paragraph 3(b) of the Shareholder
Certification section.

WHAT NUMBER TO GIVE
Give the social security number or employer identification number of the record
owner of the account. If the account belongs to you as an individual, give your
social security number. If the account is in more than one name or is not in the
name of the actual owner, see the chart below for guidelines on which number to
report in completing the account registration section:
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.

PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable

cause and not to willful neglect.

<TABLE>
<CAPTION>
- ---------------------------------- ----------------------------
GUIDELINES FOR DETERMINING GIVE THE
PROPER NUMBER SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------- ----------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account to a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor The adult or if the minor is
the only contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor or
incompetent person
7. a. The usual revocable The grantor-trustee(5)
savings trust account
(grantor is also trustee)
b. So called trust account
that is not a legal or valid The actual owner(1)
trust under state law
8. Sole proprietorship account The owner(1)
- ---------------------------------- ----------------------------
</TABLE>

(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.

(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.

(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.

PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are specifically exempted from backup withholding on ALL

payments. Write 'exempt payee' after paragraph (3) of the Shareholder
Certification and Signature Certification section if your account falls into one
of the following categories. We will still need your taxpayer identification
number.
o A corporation
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
Payments of DIVIDENDS not generally subject to backup withholding include the
following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships NOT engaged in a trade or business in the U.S. and
which have at least one nonresident partner.

PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1984, payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.

<TABLE>
<CAPTION>
- ---------------------------------- ----------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------- ----------------------------
<S> <C> <C>
9. A valid trust, estate or Legal entity (Do not furnish
pension trust the identifying number of
the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club or other The organization
tax exempt organization
14. A broker or registered The broker or nominee

nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a state or local government,
school district, or prison)
that receives agricultural
program payments
- ---------------------------------- ----------------------------
</TABLE>

<PAGE>

ELITE SERIES [LOGO]
PILGRIM AMERICA MAGNACAP FUND
PILGRIM AMERICA HIGH YIELD FUND
PILGRIM GOVERNMENT
SECURITIES INCOME FUND

TWO RENAISSANCE SQUARE, 40 NORTH CENTRAL AVENUE, SUITE 1200,
PHOENIX, ARIZONA 85004
1-800-331-1080

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUNDS............................................... 1

THE FUNDS AT A GLANCE................................... 2

SUMMARY OF EXPENSES..................................... 3

FINANCIAL HIGHLIGHTS.................................... 5

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES........... 8

INVESTMENT PRACTICES AND RISK CONSIDERATIONS............ 9
All Funds: Diversification and Changes in Policies.... 13

SHAREHOLDER GUIDE....................................... 14
Pilgrim America Purchase Options(Trademark)........... 14
Purchasing Shares..................................... 20
Exchange Privileges and Restrictions.................. 21
Systematic Exchange Privilege......................... 22
How to Redeem Shares.................................. 22

MANAGEMENT OF THE FUNDS................................. 23

DIVIDENDS, DISTRIBUTIONS AND TAXES...................... 25

PERFORMANCE INFORMATION................................. 26

ADDITIONAL INFORMATION.................................. 26

NEW ACCOUNT APPLICATION................................. 27
</TABLE>

INVESTMENT MANAGER
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200,

Phoenix, Arizona 85004

DISTRIBUTOR
Pilgrim America Securities, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004

SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004

TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368

CUSTODIAN
Investors Fiduciary Trust Company
127 W. 10th Street/14th Floor
Kansas City, Missouri 64105

LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017

PROSPECTUS
OCTOBER 31, 1996