<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1997
Securities Act File No. 2-34552
Investment Company Act File No. 811-1939
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM N-1A
Registration Statement Under The Securities Act Of 1933 /x/
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. 38 /x/
and/or
Registration Statement Under The Investment Company Act Of 1940 /x/
Amendment No. 26 /x/
(Check appropriate box or boxes)
Pilgrim America Investment Funds, Inc.
(Exact Name of Registrant Specified in Charter)
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 334-3444
James M. Hennessy, Esq.
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Name and Address of Agent for Service)
------------------------
With copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant /x/ on November 1, 1997 pursuant to
to paragraph (b) paragraph (b)
/ / 60 days after filing pursuant to / / on (date) pursuant to paragraph
paragraph (a)(1) (a)(1)
/ / 75 days after filing pursuant to / / on (date) pursuant to paragraph
paragraph (a)(2) (a)(2) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designated a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of shares of common stock under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant filed its Rule 24f-2 Notice for the fiscal year ended
June 30, 1997 on August 29, 1997.
================================================================================
<PAGE>
PILGRIM AMERICA INVESTMENT FUNDS, INC.
CROSS REFERENCE SHEET
N-1A Item
- --------- Location in Prospectus
----------------------
Part A (Caption)
- ------
Item 1. Cover Page.................................Cover Page
Item 2. Synopsis...................................The Funds at a Glance;
Summary of Expenses
Item 3. Condensed Financial Information............Financial Highlights
Item 4. General Description of Registrant..........The Fund's Investment
Objective and Policies;
Investment Practices and
Risk Considerations
Item 5. Management of the Registrant...............Management of the Funds
Item 5A. Management's Discussion of Fund
Performance..............................*
Item 6. Capital Stock and Other Securities.........Dividends, Distributions &
Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered.......Shareholder Guide - Pilgrim
America Purchase Options;
Shareholder Guide -
Purchasing Shares
Item 8. Redemption or Repurchase...................How to Redeem Shares
Item 9. Pending Legal Proceedings..................Not Applicable
Location in Statement of
Additional Information
------------------------
Part B (Caption)
- ------
Item 10. Cover Page.................................Cover Page
Item 11. Table of Contents..........................Table of Contents
Item 12. General Information and History............History of the Fund; General
Information
Item 13. Investment Objectives and Policies.........Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund.....................Directors and Officers;
Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities...............................Directors and Officers;
General Information
Item 16. Investment Advisory and Other Services.....Management of the Fund
Item 17. Brokerage Allocation and Other Practices...Execution of Portfolio
Transactions
Item 18. Capital Stock and Other Securities.........Distributions; General
Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.................Determination of Share
Price; Additional Purchase
and Redemption Information
Item 20. Tax Status.................................Tax Considerations
Item 21. Underwriters...............................Management of the Fund
Item 22. Calculation of Performance Data............Performance Information
Item 23. Financial Statements.......................Financial Statements
- ------------
* Contained in the Annual Report of the Registrant
<PAGE>
EXPLANATORY NOTE
This registration statement contains a single prospectus to be used by
both series of the Registrant and is followed by a separate Statement of
Additional Information for each of the Registrant's Series.
<PAGE>
Prospectus
Elite Series
LOGO Pilgrim America MagnaCap Fund
Pilgrim America High Yield Fund
Pilgrim Government Securities Income Fund
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
management 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 November 1, 1997, as amended from time to time, 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 November 1, 1997
<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 generally selects
secondary consideration. companies that meet the 'Rising
Invests in equity securities that are Dividends' criteria: consistent dividend
determined to be of high quality by the increases; substantial dividend
Investment Manager based upon certain increases; reinvested substantial
selection criteria. earnings; strong balance sheets; and
Normally fully invested. attractive prices.
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
Invests at least 65% of its assets in a that do not, in its opinion, involve
diversified portfolio of high-yielding debt undue risk relative to the securities'
securities commonly referred to as 'junk return characteristics.
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
Normally fully invested. expect greater fluctuation in the value
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
Normally invests at least 70% of its assets those offering the highest yield
in securities issued or guaranteed by the consistent with maintaining liquidity and
U.S. Government, or certain of its agencies preserving capital.
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
Normally fully invested. shares in response to changes in interest
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 approximately $2.6 billion in assets for the
Pilgrim America Funds and private accounts.
</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.
2
<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, B and M shares of each Fund for the fiscal year ended June 30,
1997. 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.................... 0.76% 0.30% 0.40% 1.46%
Class B.................... 0.76% 1.00% 0.40% 2.16%
Class M.................... 0.76% 0.75% 0.40% 1.91%
<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.................... 0.69% 0.25% 0.06% 1.00%
Class B.................... 0.69% 1.00% 0.06% 1.75%
Class M.................... 0.69% 0.75% 0.06% 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% 0.67% 1.42%
Class B.................... 0.50% 1.00% 0.67% 2.17%
Class M.................... 0.50% 0.75% 0.67% 1.92%
</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, 1998. Without such
waiver, the annualized total fund operating expenses for the fiscal year
ended June 30, 1997 would have been 1.42% for Class A, 2.17% for Class B,
and 1.92% 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, 1997, there was no
reimbursement of expenses.
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)
reinvestment of all dividends and distributions, (ii) 5% annual return and (iii)
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............... $ 72 $ 101 $ 133 $ 222 $57 $78 $ 100 $ 164 $61 $ 90 $ 121 $ 210
Class B............... 72 98 136 232* 68 85 115 186* 72 98 136 231*
Class B (assuming no
redemption)......... 22 68 116 232* 18 55 95 186* 22 68 116 231*
Class M............... 54 93 135 250 47 78 112 206 51 91 133 250
</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.
- ------------------
* The ten year calculations for Class B shares assume conversions of the Class B
shares to Class A shares at the end of the eighth year following the date of
purchase.
4
<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, 1997 for MagnaCap
Fund, High Yield Fund, and Government Securities Income Fund. For the fiscal
year ended June 30, 1997, the periods ended June 30, 1996 and 1995 for MagnaCap
Fund and Government Securities Income Fund and for the fiscal years ended June
30, 1997 and 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>
CLASS A
--------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------------
1997 1996 1995(B) 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................ $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93 $ 10.74 $ 10.52
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income............. 0.10 0.09 0.12 0.15 0.14 0.13 0.20 0.15
Net realized and unrealized gain
(loss) on investments........... 4.16 2.87 2.29 0.89 0.82 1.16 0.33 1.24
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.................... 4.26 2.96 2.41 1.04 0.96 1.29 0.53 1.39
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income............. 0.10 0.06 0.14 0.14 0.12 0.24 0.16 0.17
Distributions in excess of net
investment income............... 0.02 -- -- -- -- -- -- --
Realized gains on investments..... 4.16 0.24 0.60 0.59 0.77 -- 0.18 1.00
Distributions in excess of net
realized gains.................. 0.75 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions............. 5.03 0.30 0.74 0.73 0.89 0.24 0.34 1.17
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period..... $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93 $ 10.74
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN(C).................... 30.82% 21.31% 20.61% 9.13% 8.21% 11.93% 5.21% 13.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $290,355 $235,393 $211,330 $190,435 $197,250 $196,861 $199,892 $224,059
Ratios to average net assets:
Expenses.......................... 1.46% 1.68% 1.59% 1.53% 1.53% 1.60% 1.50% 1.50%
Net investment income............. 0.64% 0.54% 0.98% 1.16% 1.09% 1.20% 2.00% 1.40%
Portfolio turnover rate............ 77% 15% 6% 7% 36% 49% 182% 12%
Average commission rate paid....... $ 0.0686 -- -- -- -- -- -- --
<CAPTION>
CLASS A CLASS B CLASS M
------------------- --------------------- ---------------------
YEAR YEAR JULY 17, YEAR JULY 17,
ENDED ENDED 1995(A) TO ENDED 1995(A) TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1989 1988 1997 1996 1997 1996
-------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................ $ 9.12 $ 11.56 $ 16.59 $ 14.22 $ 16.63 $ 14.22
-------- -------- -------- ---------- -------- ----------
Income from investment operations:
Net investment income............. 0.17 0.15 -- 0.06 0.02 0.08
Net realized and unrealized gain
(loss) on investments........... 1.39 (0.74) 4.13 2.61 4.16 2.63
-------- -------- -------- ---------- -------- ----------
Total from investment
operations.................... 1.56 (0.59) 4.13 2.67 4.18 2.71
-------- -------- -------- ---------- -------- ----------
Less distributions from:
Net investment income............. 0.16 0.12 -- 0.06 0.02 0.06
Distributions in excess of net
investment income............... -- -- -- -- 0.01 --
Realized gains on investments..... -- 1.73 4.13 0.24 4.16 0.24
Distributions in excess of net
realized gains.................. -- -- 0.78 -- 0.75 --
-------- -------- -------- ---------- -------- ----------
Total distributions............. 0.16 1.85 4.91 0.30 4.94 0.30
-------- -------- -------- ---------- -------- ----------
Net asset value, end of period..... $ 10.52 $ 9.12 $ 15.81 $ 16.59 $ 15.87 $ 16.63
-------- -------- -------- ---------- -------- ----------
-------- -------- -------- ---------- -------- ----------
TOTAL RETURN(C).................... 17.32% (6.64)% 29.92% 18.98% 30.26% 19.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $204,552 $211,064 $ 37,427 $ 10,509 $ 6,748 $ 1,961
Ratios to average net assets:
Expenses.......................... 1.60% 1.50% 2.16% 2.38%(d) 1.91% 2.13%(d)
Net investment income............. 1.80% 1.60% (0.04%) 0.07%(d) 0.22% 0.32%(d)
Portfolio turnover rate............ 129% 206% 77% 15% 77% 15%
Average commission rate paid....... -- -- $ 0.0686 -- $ 0.0686 --
</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.
5
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------
EIGHT MONTHS
YEAR ENDED JUNE 30, ENDED YEAR ENDED OCTOBER 31,
--------------------- JUNE 30, ---------------------------
1997 1996 1995(B)(C) 1994 1993 1992
------------------- ------------------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................ $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77 $ 5.70
------- ------- ------------ ------- ------- -------
Income (loss) from investment
operations:
Net investment income............. 0.61 0.59 0.35 0.54 0.53 0.63
Net realized and unrealized gain
(loss) on investments........... 0.43 0.16 0.21 (0.51) 0.70 0.07
------- ------- ------------ ------- ------- -------
Total from investment
operations.................... 1.04 0.75 0.56 0.03 1.23 0.70
------- ------- ------------ ------- ------- -------
Less distributions from:
Net investment income............. 0.60 0.54 0.36 0.55 0.53 0.63
Realized gains on investments..... -- -- -- -- -- --
------- ------- ------------ ------- ------- -------
Total distributions............. 0.60 0.54 0.36 0.55 0.53 0.63
------- ------- ------------ ------- ------- -------
Net asset value, end of period..... $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
TOTAL RETURN(D).................... 17.14% 12.72% 9.77% 0.47% 22.12% 12.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands).................... $35,940 $18,691 $ 15,950 $16,046 $18,797 $17,034
Ratios to average net assets:
Expenses.......................... 1.00%(e) 1.00%(f) 2.25%(g)(h) 2.00%(h) 2.02% 2.03%
Net investment income............. 9.54%(e) 9.46%(f) 8.84%(g)(h) 8.73%(h) 8.36% 10.93%
Portfolio turnover rate............ 394% 339% 166% 192% 116% 193%
<CAPTION>
CLASS A CLASS B CLASS M
------------------------------------- ------------------------- -----------------------
JULY 17, JULY 17,
YEAR ENDED OCTOBER 31, YEAR ENDED 1995(A) TO YEAR ENDED 1995(A) TO
------------------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1991 1990 1989 1988 1997 1996 1997 1996
------- ------- ------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................ $ 5.03 $ 6.46 $ 7.29 $ 7.25 $ 6.36 $ 6.20 $ 6.36 $ 6.20
------- ------- ------- ------- ---------- ---------- ---------- ----------
Income (loss) from investment
operations:
Net investment income............. 0.66 0.82 0.88 0.89 0.57 0.48 0.58 0.50
Net realized and unrealized gain
(loss) on investments........... 0.74 (1.40) (0.80) 0.03 0.41 0.14 0.41 0.14
------- ------- ------- ------- ---------- ---------- ---------- ----------
Total from investment
operations.................... 1.40 (0.58) 0.08 0.92 0.98 0.62 0.99 0.64
------- ------- ------- ------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income............. 0.68 0.85 0.91 0.88 0.56 0.46 0.57 0.48
Realized gains on investments..... 0.05 -- -- -- -- -- -- --
------- ------- ------- ------- ---------- ---------- ---------- ----------
Total distributions............. 0.73 0.85 0.91 0.88 0.56 0.46 0.57 0.48
------- ------- ------- ------- ---------- ---------- ---------- ----------
Net asset value, end of period..... $ 5.70 $ 5.03 $ 6.46 $ 7.29 $ 6.78 $ 6.36 $ 6.78 $ 6.36
------- ------- ------- ------- ---------- ---------- ---------- ----------
------- ------- ------- ------- ---------- ---------- ---------- ----------
TOTAL RETURN(D).................... 30.00% (10.08)% 0.94% 13.54% 16.04% 10.37% 16.29% 10.69%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands).................... $23,820 $21,598 $31,356 $41,910 $ 40,225 $2,374 $8,848 $1,243
Ratios to average net assets:
Expenses.......................... 1.89% 1.75% 1.79% 1.46% 1.75%(e) 1.75%(f)(g) 1.50%(e) 1.50%(f)(g)
Net investment income............. 12.40% 14.11% 12.61% 12.20% 8.64%(e) 9.02%(f)(g) 8.93%(e) 9.41%(f)(g)
Portfolio turnover rate............ 173% 183% 210% 80% 394% 339% 394% 339%
</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) Effective November 1, 1994, High Yield Fund changed its year end to June 30.
(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 year ended June
30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17% and
1.92% and the ratios of net investment income to average net assets were
9.09%, 8.18% and 8.47% for Class A, B and M shares, respectively.
(f) 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.
(g) Annualized.
(h) 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 for Class A shares. 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 for Class A shares.
6
<PAGE>
GOVERNMENT SECURITIES INCOME FUND*
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------------
1997 1996 1995(B) 1994 1993(C) 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period...................... $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76 $ 13.76 $ 13.79 $ 14.23 $ 14.23
------- ------- ------- ------- ------- ------- -------- -------- --------
Income (loss) from investment
operations:
Net investment income....... 0.69 0.75 0.84 0.84 1.13 1.19 1.25 1.25 1.31
Net realized and unrealized
gain (loss) on
investments............... 0.20 (0.32) 0.24 (1.17) 0.18 -- (0.03) (0.38) 0.02
------- ------- ------- ------- ------- ------- -------- -------- --------
Total from investment
operations.............. 0.89 0.43 1.08 (0.33) 1.31 1.19 1.22 0.87 1.33
------- ------- ------- ------- ------- ------- -------- -------- --------
Less distributions from:
Net investment income....... 0.69 0.75 0.84 0.90 1.11 1.19 1.25 1.31 1.33
Distributions in excess of
net investment income..... 0.04 -- -- -- -- -- -- -- --
Tax return of capital....... 0.04 0.06 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------- -------- --------
Total distributions....... 0.77 0.81 0.84 0.90 1.11 1.19 1.25 1.31 1.33
------- ------- ------- ------- ------- ------- -------- -------- --------
Net asset value, end of
period...................... $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76 $ 13.76 $ 13.79 $ 14.23
------- ------- ------- ------- ------- ------- -------- -------- --------
------- ------- ------- ------- ------- ------- -------- -------- --------
TOTAL RETURN(D)............... 7.33% 3.34% 8.96% (2.50)% 9.82% 8.98% 9.27% 6.51% 10.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(thousands)............... $29,900 $38,753 $43,631 $61,100 $87,301 $96,390 $110,674 $122,212 $144,769
Ratios to average net assets:
Expenses.................... 1.42% 1.51%(e) 1.40%(g) 1.21% 1.12% 1.10% 1.14% 1.14% 1.06%
Net investment income....... 5.78% 5.64%(e) 6.37%(g) 6.44% 8.06% 8.59% 9.09% 9.02% 9.45%
Portfolio turnover rate....... 172% 170% 299% 402% 466% 823% 429% 448% 537%
<CAPTION>
CLASS A CLASS B CLASS M
-------- ------------------------- -------------------------
YEAR YEAR JULY 17, YEAR JULY 17,
ENDED ENDED 1995(A) TO ENDED 1995(A) TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1988 1997 1996 1997 1996
-------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period...................... $ 14.51 $ 12.59 $12.95 $ 12.59 $12.95
-------- ------------- ---------- ------------- ----------
Income (loss) from investment
operations:
Net investment income....... 1.34 0.67 0.66 0.70 0.68
Net realized and unrealized
gain (loss) on
investments............... (0.25) 0.11 (0.37) 0.14 (0.36)
-------- ------------- ---------- ------------- ----------
Total from investment
operations.............. 1.09 0.78 0.29 0.84 0.32
-------- ------------- ---------- ------------- ----------
Less distributions from:
Net investment income....... 1.37 0.67 0.65 0.70 0.68
Distributions in excess of
net investment income..... -- 0.02 -- -- --
Tax return of capital....... -- -- -- 0.01 --
-------- ------------- ---------- ------------- ----------
Total distributions....... 1.37 0.69 0.65 0.71 0.68
-------- ------------- ---------- ------------- ----------
Net asset value, end of
period...................... $ 14.23 $ 12.68 $12.59 $ 12.72 $12.59
-------- ------------- ---------- ------------- ----------
-------- ------------- ---------- ------------- ----------
TOTAL RETURN(D)............... 8.00% 6.38% 2.25% 6.88% 2.52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(thousands)............... $183,979 $ 1,534 $ 73 $ 61 $ 24
Ratios to average net assets:
Expenses.................... 0.98% 2.17% 2.26%(e)(f) 1.92% 2.01%(e)(f)
Net investment income....... 9.50% 4.92% 4.98%(e)(f) 5.25% 5.73%(e)(f)
Portfolio turnover rate....... 360% 172% 170% 172% 170%
</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) 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.
(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 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% for Class A shares.
* 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.
7
<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 (ordinarily not to
exceed 35% of the Fund's assets) may be invested 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
Corporation (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, 1997, 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--10.09%, B--67.56%, CCC--3.42%, and CC--0.43%, respectively, and
(2) unrated High Yield Securities as a group--18.50%.
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 a 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
Objectives 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.
13
<PAGE>
SHAREHOLDER GUIDE
PILGRIM AMERICA PURCHASE OPTIONSTM
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 orders 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 other open-end
funds in the Pilgrim America Funds 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 open-end
funds in the Pilgrim America Funds (excluding Pilgrim America General 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 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 one 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 shares 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 open-end Pilgrim America 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
open-end Pilgrim America 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 Pilgrim America Capital
Corporation (Pilgrim 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) Broker-dealers, who have signed selling group agreements with the
Distributor, and registered representatives and employees of such
broker-dealers, for their own accounts or for members of their families
(defined as current spouse, children, parents, grandparents, uncles,
aunts, siblings, nephews, nieces, step relations, relations-at-law and
cousins).
9) Broker-dealers using third party administrators for qualified
retirement plans who have entered into an agreement with the Pilgrim
America Funds or an affiliate, subject to certain operational and
minimum size requirements specified from time-to-time by the Pilgrim
America Funds.
10) 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 open-end Pilgrim America Funds. 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 open-end Pilgrim America Funds 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
shareholder 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
18
<PAGE>
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 be
reimbursable in future months or years in the amounts of $3,241,425 for MagnaCap
Fund (0.97% of its net assets), $468,951 for High Yield Fund (0.55% of its net
assets), and $712,412 for Government Securities Income Fund (2.26% of its net
assets) as of June 30, 1997.
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 General 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.
19
<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 Funds 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 Investment 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
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order will be deemed to be in proper form after the telephone notification and
the federal funds wire have 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 and Simple 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 open-end Pilgrim America Fund other than Pilgrim America General 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
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may be exchanged for shares of Money Market, and shares of Money Market acquired
in the exchange may subsequently be exchanged for shares of an open-end Pilgrim
America Fund 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 other open-end Pilgrim America 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 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
With an initial account balance of at least $5,000 and 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
open-end 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
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Redemption By Contacting Your Authorized Dealers may communicate redemption orders by wire or telephone to the
Authorized Dealer 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 the Pilgrim America Funds 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 and select
option 3. 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>
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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.
The Investment Manager and Pilgrim America Securities, Inc. (Distributor), the
Funds' principal underwriter, are indirect, wholly owned subsidiaries of Pilgrim
America Capital Corporation
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(NASDAQ: PACC). Through its subsidiaries, Pilgrim America Capital Corporation
engages in the financial services business, focusing on providing investment
advisory, administrative and distribution services to open-end and closed-end
investment companies and private accounts. For more information on Pilgrim
America Capital Corporation 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, 1998. 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.
INVESTMENT PERSONNEL. Howard N. Kornblue, Vice President, Head of Equity and
Senior Portfolio Manager for the Investment Manager. Mr. Kornblue is a
co-manager of MagnaCap Fund and has served as a 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.
Carl Dorf, Senior Vice President and Senior Portfolio Manager for the Investment
Manager, is a co-manager of MagnaCap Fund. Mr. Dorf joined the Investment
Manager's predecessor in 1991 as portfolio manager for the Pilgrim America Bank
and Thrift Fund, Inc., a position which he still holds today. Prior to joining
the Investment Manager, he was a principal of Dorf & Associates Investment
Counsel. His 30 plus years of portfolio management and research experience
include positions with Moody's Investors Service, Inc., as an analyst in the
Banking & Finance Department; with Nuveen Corp. as a financial securities
analyst; with Loews Corp. as a fund manager with responsibility for $150 to $250
million in utility and financial stocks; with BA Investment Corp. as a senior
financial stock analyst; and with RNC Capital Management as manager of 150
individual, pension, and profit-sharing accounts. A Chartered Financial Analyst,
Mr. Dorf earned both BA/Finance and Investments and MBA/Finance degrees from the
Bernard Baruch School of Business and Public Administration, The City College of
New York.
G. David Underwood, Vice President, Director of Research and Senior Portfolio
Manager for the Investment Manager, is a co-manager of MagnaCap Fund. Prior to
joining the Investment Manager in December, 1996, Mr. Underwood served as
Director of Funds Management for First Interstate Capital Management. Mr.
Underwood's prior experience includes a 10 year association with Integra Trust
Company of Pittsburgh where he served as Director of Research and Senior
Portfolio Manager and two years with C.S. McKee Investment Advisors as a
Portfolio Manager. A Chartered Financial Analyst and past
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president of the Pittsburgh Society of Financial Analysts, Mr. Underwood
received his B.S. degree from Arizona State University and has done graduate
work in economics and finance at Washington and Jefferson College. He is a
graduate of Pennsylvania Bankers Trust School.
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.
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 securities 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.
SHAREHOLDER SERVICING AGENT. Pilgrim America Group, Inc. serves as Shareholder
Servicing Agent for the Funds. The Shareholder Servicing Agent is responsible
for responding to written and telephonic inquiries from shareholders. Each Fund
pays the Shareholder Servicing Agent a monthly fee on a per-contact basis, based
upon incoming and outgoing telephonic and written correspondence.
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. 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.
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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. To qualify, a Fund must meet certain income,
asset diversification and distribution requirements. In any fiscal year in which
a Fund so qualifies and distributes to shareholders all of its taxable income,
the Fund itself generally is relieved of federal income and excise taxes.
Dividends paid out of a Fund's investment company taxable income (including
dividends, interest and short-term capital gains) will be taxable to a U.S.
shareholder as ordinary income. If a portion of a Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the Fund
may be eligible for the corporate dividends-received deduction. The Funds expect
that distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses), if any, designated as capital gain
dividends should be taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares.
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 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.
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a gain or loss which will be a capital gain or loss if the shares are
held as a capital asset and, if so, may be eligible for reduced federal tax
rates, depending on the shareholder's holding period for the shares.
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.
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.
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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.
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[PILGRIM AMERICA FUNDS 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.
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1. ACCOUNT REGISTRATION
TYPE OF ACCOUNT
(Check one only)
/ / INDIVIDUAL
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First Name Middle Last Name Social Security Number*
Initial (first individual only)
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/ / JOINT TENANT
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Joint Tenant's First Name Middle Last Name
Initial
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/ / GIFT/TRANSFER TO MINOR
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Custodian's Name (one only) Minor's Name (one only)
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Under Uniform Gift/Transfers to Minors Act of (State) Minor's Social Security
Number*
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/ / GUARDIANSHIP/CONSERVATORSHIP
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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
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Exact Name of Corporation, Partnership or other Organization Taxpayer Identification
Number*
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Trustee Accounts Only: Name of all Trustees required by trust agreement to sell/purchase shares
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<S> <C> <C>
------------------------ -------------------------------------------------- -----------------------
Date of Trust Agreement Name of Trust Taxpayer Identification
Number*
</TABLE>
/ / OTHER
<TABLE>
<S> <C>
--------------------------------------------------
* Pilgrim America Funds reserve the right to reject any application which does
not include a certified Social Security Number or Taxpayer Identification
Number ('TIN'), or does not indicate that such number has been applied for by
checking the 'Awaiting TIN' box on page 31.
- --------------------------------------------------------------------------------
2. MAILING ADDRESS
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------- --------- ---------- --------- --------
Street Address Apartment City State Zip Code
Number
</TABLE>
<TABLE>
<S> <C>
( ) ( )
---------------------------- -------------------------------
Business Phone Home Phone
</TABLE>
29
<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 Funds is included for $__________.
/ / Payment has been made by Dealer purchase on
____________ $_____________ ______________________________________________
(Date) (Amount) (Order Number)
<TABLE>
<S> <C> <C>
/ / Payment has been made by Federal funds wire _____________ on ________ ______________ $____________
(Reference No.) (Date) (Account No.) (Amount)
</TABLE>
- --------------------------------------------------------------------------------
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 Fund using the Dividend Transfer Option.
_______________________________________________________________ ______________
Fund Name Account Number
<TABLE>
<S> <C>
/ / 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>
30
<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 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.
ATTACH VOIDED CHECK HERE -------------------->
(IF APPROPRIATE)
For Corporations, Trusts, or Partnerships: We hereby certify that each of the
persons listed below has been duly elected, and is now legally holding the
offices set forth opposite his/her name and has the authority to make this
authorization. Please print titles below if signing on behalf of a business or
trust to establish this account.
CERTIFICATION: UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT:
I am not subject to backup withholding because I have not been notified by the
IRS that I am subject to backup withholding as a result of a failure to report
all interest or dividends or because the IRS has notified me that I am no longer
subject to backup withholding. (If you are currently subject to backup
withholding as a result of a failure to report all interest or dividends, please
cross out the preceding statement), AND (CHECK AS APPROPRIATE):
/ / The number shown above is my correct TIN, or that of the minor named in
section I.
/ / Awaiting TIN. I have not previously been issued a TIN, have applied for one
or intend to apply for one in the near future, and am waiting for a number
to be issued to me. I understand that if I do not provide a certified TIN to
Pilgrim America within 60 days, Pilgrim America is required to commence 31%
backup withholding until I provide a certified TIN and may be required
immediately to impose 31% backup withholding on certain withdrawals from my
account until I provide a certified TIN.
/ / Exempt Payee. The account owner is an exempt payee. Individuals cannot be
exempt. Check this box only after reading the instructions on page 41 to see
whether the account owner is an exempt payee. (You must still provide a
TIN.)
<TABLE>
<S> <C>
Permanent address for tax purposes:
----------------------------------------------------------------------------------------------------------------------
Street address City State Country Postal code
</TABLE>
NOTE: THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISIONS OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
<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 States 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.
31
<PAGE>
- --------------------------------------------------------------------------------
7. PURCHASE OPTIONS
REDUCED SALES CHARGE
/ / I qualify for Reduced Sales Charges 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.
<TABLE>
<S> <C>
- ------------------------------------------------------ ---------------------------------------------
Fund Name Account Number
- ------------------------------------------------------ ---------------------------------------------
Fund Name Account Number
- ------------------------------------------------------ ---------------------------------------------
Fund Name Account Number
</TABLE>
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.)
<TABLE>
<S> <C> <C>
------------------------------- ----------------------------------- ---------------------------------
Fund Name Fund Name Fund Name
</TABLE>
<TABLE>
<S> <C> <C>
Amount $________________________, to start / / 5th or / / 20th of _______________, ___________________
Minimum $100 Month Year
</TABLE>
/ / 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.
32
<PAGE>
- --------------------------------------------------------------------------------
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, proceeds 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 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 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 #______________
$______(min. of $50) into the ________________ Fund, Account #______________
$______(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 as discussed in
'Waivers of CDSC', in the Prospectus.)
/ / 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.)
33
<PAGE>
- --------------------------------------------------------------------------------
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.
34
<PAGE>
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.
Pilgrim America 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_______________________________________________________________________________
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__________________________________________________________
35
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
36
<PAGE>
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 Funds,
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 Dividend 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.
37
<PAGE>
7 PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)
- --------------------------------------------------------------------------------
You can qualify for reduced sales charges via the Letter of Intent or Rights of
Accumulation privileges.
The Letter of Intent allows you to qualify for reduced sales charges
immediately.
Rights of Accumulation allow 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 bank 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).
38
<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 ______________________________
39
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
40
<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
SIGNATURES 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 and check the 'Awaiting TIN' box in the SIGNATURES
section of this application.
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>
<S> <C>
- ---------------------------------- ----------------------------
GUIDELINES FOR DETERMINING GIVE THE
PROPER NUMBER SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------- ----------------------------
<CAPTION>
<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
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
(Uniform Gift to Minors Act)
5. Adult and minor The adult or if the minor is
the only contributor, the
minor
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person
designated ward, minor or
incompetent person
7. a. The usual revocable The grantor-trustee
savings trust account
(grantor is also trustee)
b. So called trust account
that is not a legal or valid The actual owner
trust under state law
8. Sole proprietorship account The owner
</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. Check the 'Exempt Payee' box in the SIGNATURES 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--
- ---------------------------------- ----------------------------
<CAPTION>
<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.)
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>
- ---------------------------------- ----------------------------
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42
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43
<PAGE>
ELITE SERIES
PILGRIM AMERICA MAGNACAP FUND
PILGRIM AMERICA HIGH YIELD FUND
PILGRIM GOVERNMENT
SECURITIES INCOME FUND
40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004
1-800-331-1080
TABLE OF CONTENTS
PAGE
----
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 OptionsTM.................... 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.................................. 27
NEW ACCOUNT APPLICATION................................. 29
[PILGRIM AMERICA FUNDS LOGO]
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004
DISTRIBUTOR
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIAN
Investors Fiduciary Trust Company
801 Pennsylvania
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
NOVEMBER 1, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1997
PILGRIM AMERICA HIGH YIELD FUND
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Pilgrim America High Yield Fund (the "Fund") is a diversified series of Pilgrim
America Investment Funds, Inc., an open-end management investment company (the
"Company"). The Fund's primary investment objective is to seek a high level of
current income, with capital appreciation as a secondary investment objective.
Preservation of principal also is an important consideration in attaining these
objectives. To achieve its objectives, the Fund will invest at least 65% of its
total assets in a diversified portfolio consisting primarily of high-yielding,
fixed income securities believed by Pilgrim America Investments, Inc. (the
"Investment Manager") not to involve undue risk ("High Yield Securities"). The
Fund may invest the balance of its total assets in other securities, which
include, among other things, debt obligations, common and preferred stock not
considered High Yield Securities; securities issued by the U.S. Government, its
agencies or instrumentalities; warrants; mortgage-related securities not
considered High Yield Securities; financial futures and related options;
participation interests in floating rate loans; and debt securities of any
rating issued by foreign issuers. During periods of bond market weakness, the
Fund may establish a temporary defensive position to preserve capital by having
all or any part of its assets invested in short-term fixed income securities or
retained in cash or cash equivalents.
A Prospectus for the Fund dated November 1, 1997, which provides the
basic information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address listed above. This Statement of
Additional Information is not a prospectus. It is intended to provide additional
information regarding the activities and operations of the Fund, and should be
read in conjunction with the Prospectus. Copies of the Prospectus may be
obtained at no charge by calling (800) 331-1080.
TABLE OF CONTENTS
Page
----
General Information and History ................ 2
Investment Objectives and Policies ............. 2
Investment Restrictions ........................ 15
Directors and Officers ......................... 16
Principal Shareholders ......................... 19
Management of the Fund ......................... 19
Pilgrim America ................................ 20
Distribution Plan .............................. 21
Execution of Portfolio Transactions ............ 23
Additional Purchase and Redemption Information.. 25
Determination of Share Price ................... 29
Shareholder Services and Privileges ............ 29
Distributions .................................. 32
Tax Considerations ............................. 32
Performance Information ........................ 35
General Information ............................ 38
Financial Statements ........................... 38
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<PAGE>
GENERAL INFORMATION AND HISTORY
On August 18, 1989, shareholders of the Fund approved a proposal to reorganize
the Fund from a New York common law trust to a series of Pilgrim America High
Yield Trust, a Massachusetts business trust. Effective January 18, 1990, Pilgrim
High Yield Trust changed its name to Pilgrim Strategic Investment Series
("PSIS") and the Fund became a series of PSIS. Subsequently, on April 4, 1995,
shareholders approved a proposal to reorganize the Fund from a series of PSIS to
a series of Pilgrim America Investment Funds, Inc. (the "Company"), a Maryland
corporation, pursuant to the sale by the former Pilgrim Management Corporation
of its name and its books and records related to the Fund to a subsidiary of
Express America Holdings Corporation. This reorganization, while having no
ramifications with respect to the investment objectives, policies, or
restrictions of the Fund, did result in a change of manager and distributor. See
"Management of the Fund" for a description of the manager and "Distributor" for
a description of the underwriting agreement between the Fund and the
distributor. Shares of the Fund may be purchased through independent financial
professionals, national and regional brokerage firms and other financial
institutions ("Authorized Dealers") or by completing the Fund's investment
application and having the Authorized Dealer forward it to the Fund's Transfer
Agent.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion of investment policies supplements the Fund's
investment objectives and policies set forth in the Prospectus under the heading
"Investment Objectives and Policies."
High Yield Securities
High Yield Securities are those rated lower than Baa by Moody's or BBB by S&P.
These securities tend to have speculative characteristics or are speculative,
and generally involve more risk of loss of principal and income than
higher-rated securities. Also, their yields and market values tend to fluctuate
more. Fluctuations in value do not affect the cash income from the securities,
but are reflected in the Fund's net asset value. The greater risks and
fluctuations in yield and value occur, in part, because investors generally
perceive issuers of lower-rated and unrated securities to be less creditworthy.
Many fixed income securities may present risks based on payment expectations.
For example, a fixed income security may contain redemption or call provisions.
These features allow an issuer to call, or buy back, these securities.
Typically, an issuer will exercise a redemption or call provision when interest
rates decline, in order to take advantage of less expensive financing. Such a
call or redemption is usually made at par or at a premium to par. The Fund then
would be forced to replace a called security with a lower yielding security,
thereby decreasing the Fund's rate of return.
High Yield Securities are subject to special risks. These risks cannot be
eliminated, but may be reduced significantly through a careful analysis of
prospective portfolio securities and through diversification. The Fund, by
pooling the funds of many investors, gives each shareholder an opportunity to
participate in the High Yield Securities market with a relatively small
investment. The size and volume of the Fund's portfolio transactions frequently
enable it to obtain better net prices and a resulting higher net yield to
shareholders. In addition, the Fund may further increase its income (see "Option
Writing").
As with any other investment, there is no assurance that the Fund will achieve
its objectives.
The yields earned on High Yield Securities generally are related to the quality
ratings assigned by recognized rating agencies. The medium- to lower-rated and
unrated securities in which the Fund invests tend to offer higher yields than
those of other securities with the same maturities because of the additional
risks associated with them. These risks include:
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<PAGE>
High Yield Bond Market. A severe economic downturn or increase in interest rates
might increase defaults in High Yield Securities issued by highly leveraged
companies. An increase in the number of defaults could adversely affect the
value of all outstanding High Yield Securities, thus disrupting the market for
such securities.
Sensitivity to interest rate and economic changes. High Yield Securities are
more sensitive to adverse economic changes or individual corporate developments
but less sensitive to interest rate changes than are Treasury or investment
grade bonds. As a result, when interest rates rise, causing bond prices to fall,
the value of high yield debt bonds tend not to fall as much as Treasury or
investment grade corporate bonds. Conversely when interest rates fall, high
yield bonds tend to underperform Treasury and investment grade corporate bonds
because high yield bond prices tend not to rise as much as the prices of these
bonds.
The financial stress resulting from an economic downturn or adverse corporate
developments could have a greater negative effect on the ability of issuers of
High Yield Securities to service their principal and interest payments, to meet
projected business goals and to obtain additional financing than on more
creditworthy issuers. Holders of High Yield Securities could also be at greater
risk because High Yield Securities are generally unsecured and subordinate to
senior debt holders and secured creditors. If the issuer of a High Yield
Security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of High Yield
Securities and the Fund's net asset value. Furthermore, in the case of High
Yield Securities structured as zero coupon or pay-in-kind securities, their
market prices are affected to a greater extent by interest rate changes and
thereby tend to be more speculative and volatile than securities which pay in
cash.
Payment Expectations. High Yield Securities present risks based on payment
expectations. For example, High Yield Securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Also, the value of High
Yield Securities may decrease in a rising interest rate market. In addition,
there is a higher risk of non-payment of interest and/or principal by issuers of
High Yield Securities than in the case of investment grade bonds.
Liquidity and Valuation Risks. Lower-rated bonds are typically traded among a
smaller number of broker-dealers rather than in a broad secondary market.
Purchasers of High Yield Securities tend to be institutions, rather than
individuals, a factor that further limits the secondary market. To the extent
that no established retail secondary market exists, many High Yield Securities
may not be as liquid as Treasury and investment grade bonds. The ability of the
Company's Board of Directors to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of High Yield
Securities more than other securities, especially in a thinly-traded market. To
the extent the Fund owns illiquid or restricted High Yield Securities, these
securities may involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties.
Zero Coupon and Pay-In-Kind Securities. The Fund may invest in zero coupon and
pay-in-kind securities, which do not pay interest in cash. In the event of a
default, the Fund may receive no return on its investment.
Taxation. Special tax consideration are associated with investing in High Yield
Securities structured as zero coupon or pay-in-kind securities. The Fund reports
the interest on these securities as income even though it receives no cash
interest until the security's maturity or payment date.
Limitations of Credit Ratings. The credit ratings assigned to High Yield
Securities may not accurately reflect the true risks of an investment. Credit
ratings typically evaluate the safety of principal and interest payments, rather
than the market value risk of High Yield Securities. In addition, credit
agencies may fail to adjust credit ratings to reflect rapid changes in economic
or company conditions that affect a security's market value. Although the
ratings of recognized rating services such as Moody's and S&P are considered,
the Investment Manager primarily relies on its own credit analysis, which
includes a study of existing debt, capital structure, ability to service debts
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of
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<PAGE>
earnings. Thus, the achievement of the Fund's investment objective may be more
dependent on the Investment Manager's own credit analysis than might be the case
for a fund which invests in higher quality bonds. The Investment Manager
continually monitors the investments in the Fund's portfolio and carefully
evaluates whether to dispose of or retain High Yield Securities whose credit
ratings have changed. The Fund may retain a security whose rating has been
changed.
Congressional Proposals. New laws and proposed new laws may have a negative
impact on the market for High Yield Securities. As examples, recent legislation
requires federally-insured savings and loan associations to divest themselves of
their investments in High Yield Securities and pending proposals are designed to
limit the use of, or tax and eliminate other advantages of, High Yield
Securities. Any such proposals, if enacted, could have a negative effect on the
Fund's net asset value.
Option Writing
The Fund may write only covered call option contracts. Currently, the principal
exchanges on which such options may be written are the Chicago Board Option
Exchange and the American, Philadelphia and Pacific Stock Exchanges. In
addition, and in certain instances, the Fund may purchase and sell options in
the over-the-counter market ("OTC Options"). The Fund's ability to close option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options. The writing of option contracts is a highly
specialized activity that involves investment techniques and risks different
from those ordinarily associated with investment companies. A call option gives
the purchaser of the option the right to buy the underlying security from the
writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price so long as the option remains open and covered, except insofar as
the premium represents such a profit.
The Fund may purchase options only to close out a position. In order to close
out a position, the Fund will make a "closing purchase transaction"--the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option that it has previously written on any
particular security. The Fund will effect a closing purchase transaction so as
to close out any existing call option on a security that it intends to sell. The
Fund will realize a profit or loss from a closing purchase transaction if the
amount paid to execute a closing purchase transaction is less or more than the
amount received from the sale thereof. In determining the term of any option
written, the Fund will consider the Internal Revenue Code's limitations on the
sale or disposition of securities held for less than three months in order to
maintain its status as a regulated investment company.
The staff of the Securities and Exchange Commission (the "SEC") has taken the
position that purchased over-the-counter options ("OTC Options") and the assets
used as cover for written OTC Options are illiquid securities. The Fund will
write OTC Options only with primary U.S. Government Securities dealers
recognized by the Board of Governors of the Federal Reserve System or member
banks of the Federal Reserve System ("primary dealers"). In connection with
these special arrangements, the Fund intends to establish standards for the
creditworthiness of the primary dealers with which it may enter into OTC Option
contracts and those standards, as modified from time to time, will be
implemented and monitored by the Investment Manager. Under these special
arrangements, the Fund will enter into contracts with primary dealers that
provide that the Fund has the absolute right to repurchase an option it writes
at any time at a repurchase price which represents the fair market value, as
determined in good faith through negotiation between the parties, but that in no
event will exceed a price determined pursuant to a formula contained in the
contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Fund for writing the option, plus the
amount, if any, by which the option is "in-the-money." The formula will also
include a factor to account for the difference between the price of the security
and the strike price of the option if the option is written "out-of-the-money."
"Strike price" refers to the price at which an option will be exercised. "Cover
assets" refers to the amount of cash or liquid assets that must be segregated to
collateralize the value of the futures contracts written by the Fund. Under such
circumstances, the Fund will treat as illiquid that amount of the cover assets
equal to the amount by which the formula price for the repurchase of the option
is
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<PAGE>
greater than the amount by which the market value of the security subject to the
option exceeds the exercise price of the option (the amount by which the option
is "in-the-money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall not exceed
the maximum determined pursuant to the formula), the formula price will not
necessarily reflect the market value of the option written. Therefore, the Fund
might pay more to repurchase the OTC Option contract than the Fund would pay to
close out a similar exchange traded option.
The Fund will receive a premium (less any commissions) from the writing of such
contracts, and it is believed that the total return to the Fund can be increased
through such premiums consistent with the Fund's investment objectives.
Generally, the Fund expects that options written by it will be conducted on
recognized securities exchanges.
In determining the Fund's net asset value, the current market value of any
option written by the Fund is subtracted from net asset value. If the current
market value of the option exceeds the premium received by the Fund, the excess
represents an unrealized loss, and, conversely, if the premium exceeds the
current market value of the option, such excess would be unrealized gain.
Financial Futures Contracts and Related Options
The Fund may use financial futures contracts and related options to hedge
against changes in the market value of its portfolio securities or securities
that it intends to purchase. Hedging is accomplished when an investor takes a
position in the futures market opposite to his cash market position. There are
two types of hedges -long (or buying) and short (or selling) hedges.
Historically, prices in the futures market have tended to move in concert with
cash market prices, and prices in the futures market have maintained a fairly
predictable relationship to prices in the cash market. Thus, a decline in the
market value of securities in the Fund's portfolio may be protected against to a
considerable extent by gains realized on futures contracts sales. Similarly, it
is possible to protect against an increase in the market price of securities
that the Fund may wish to purchase in the future by purchasing futures
contracts.
The Fund may purchase or sell any financial futures contracts which are traded
on a recognized exchange or board of trade. Financial futures contracts consist
of interest rate futures contracts and securities index futures contracts. A
public market presently exists in interest rate futures contracts covering
long-term U.S. Treasury bonds, U.S. Treasury notes, three-month U.S. Treasury
bills and GNMA certificates. Securities index futures contracts are currently
traded with respect to the Standard & Poor's 500 Composite Stock Price Index and
such other broad-based stock market indices as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Price Index. A clearing
corporation associated with the exchange or board of trade on which a financial
futures contract trades assumes responsibility for the completion of
transactions and also guarantees that open futures contracts will be performed.
An interest rate futures contract obligates the seller of the contract to
deliver, and the purchaser to take delivery of, the interest rate securities
called for in the contract at a specified future time and at a specified price.
A stock index assigns relative values to the common stocks included in the
index, and the index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. An option on a financial futures contract
gives the purchaser the right to assume a position in the contract (a long
position if the option is a call and short position if the option is a put) at a
specified exercise price at any time during the period of the option.
In contrast to the situation when the Fund purchases or sells a security, no
security is delivered or received by the Fund upon the purchase or sale of a
financial futures contract. Initially, the Fund will be required to deposit in a
segregated account with its custodian bank an amount of cash and/or liquid
assets. This amount is known as initial margin and is in the nature of a
performance bond or good faith deposit on the contract. The current initial
margin deposit required per contract is approximately 5% of the contract amount.
Brokers may establish deposit
-5-
<PAGE>
requirements higher than this minimum. Subsequent payments, called variation
margin, will be made to and from the account on a daily basis as the price of
the futures contract fluctuates. This process is known as marking to market. At
the time of purchase of a futures contract or a call option on a futures
contract, an amount of cash, U. S. Government securities or other appropriate
high-grade securities equal to the market value of the futures contract minus
the Fund's initial margin deposit with respect thereto will be deposited in a
segregated account with the Fund's custodian bank to collateralize fully the
position and thereby ensure that it is not leveraged. The extent to which the
Fund may enter into financial futures contracts and related options may also be
limited by the requirements of the Internal Revenue Code for qualification as a
regulated investment company.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual delivery or
acceptance of securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Fund will pay commissions on financial futures contracts and related options
transactions. These commissions may be higher than those that would apply to
purchases and sales of securities directly.
Limitations on Futures Contracts and Related Options. The Fund may not engage in
transactions in financial futures contracts or related options for speculative
purposes but only as a hedge against anticipated changes in the market value of
its portfolio securities or securities that it intends to purchase. The Fund may
not purchase or sell financial futures contracts or related options if,
immediately thereafter, the sum of the amount of initial margin deposits on the
Fund's existing futures and related options positions and the premiums paid for
related options would exceed 2% of the market value of the Fund's total assets
after taking into account unrealized profits and losses on any such contracts.
At the time of purchase of a futures contract or a call option on a futures
contract, an amount of cash, U.S. Government securities or other appropriate
high-grade debt obligations equal to the market value of the futures contract
minus the Fund's initial margin deposit with respect thereto will be deposited
in a segregated account with the Fund's custodian bank to collateralize fully
the position and thereby ensure that it is not leveraged.
The extent to which the Fund may enter into financial futures contracts and
related options also may be limited by the requirements of the Internal Revenue
Code for qualification as a regulated investment company. See "Federal Tax
Treatment of Dividends and Distributions."
Risks Relating to Futures Contracts and Related Options. Positions in futures
contracts and related options may be closed out only on an exchange that
provides a secondary market for such contracts or options. The Fund will enter
into an option or futures position only if there appears to be a liquid
secondary market. However, there can be no assurance that a liquid secondary
market will exist for any particular option or futures contract at any specific
time. Thus, it may not be possible to close out a futures or related option
position. In the case of a futures position, in the event of adverse price
movements the Fund would continue to be required to make daily margin payments.
In this situation, if the Fund has insufficient cash to meet daily margin
requirements it may have to sell portfolio securities at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to
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<PAGE>
take or make delivery of the securities underlying the futures contracts it
holds. The inability to close out futures positions also could have an adverse
impact on the Fund's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as a
hedging device. While hedging can provide protection against an adverse movement
in market prices, it can also preclude a hedger's opportunity to benefit from a
favorable market movement. In addition, investing in futures contracts and
options on futures contracts will cause the Fund to incur additional brokerage
commissions and may cause an increase in the Fund's portfolio turnover rate.
The successful use of futures contracts and related options also depends on the
ability of the Investment Manager to forecast correctly the direction and extent
of market movements within a given time frame. To the extent market prices
remain stable during the period a futures contract or option is held by the Fund
or such prices move in a direction opposite to that anticipated, the Fund may
realize a loss on the hedging transaction that is not offset by an increase in
the value of its portfolio securities. As a result, the Fund's return for the
period may be less than if it had not engaged in the hedging transaction.
Utilization of futures contracts by the Fund involves the risk of imperfect
correlation in movements in the price of futures contracts and movements in the
price of the securities that are being hedged. If the price of the futures
contract moves more or less than the price of the securities being hedged, a
Fund will experience a gain or loss that will not be completely offset by
movements in the price of the securities. It is possible that, where the Fund
has sold futures contracts to hedge its portfolio against a decline in the
market, the market may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose money on the
futures contract and would also experience a decline in value in its portfolio
securities. Where futures are purchased to hedge against a possible increase in
the prices of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline; if the Fund then determines not to invest in
securities (or options) at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
that would not be offset by a reduction in the price of the securities
purchased.
The market prices of futures contracts may be affected if participants in the
futures market elect to close out their contracts through off-setting
transactions rather than to meet margin deposit requirements. In such a case,
distortions in the normal relationship between the cash and futures markets
could result. Price distortions could also result if investors in futures
contracts opt to make or take delivery of the underlying securities rather than
to engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of market trends may still not result in a successful transaction.
Compared to the purchase or sale of futures contracts, the purchase of put or
call options on futures contracts involves less potential risk for the Fund
because the maximum amount at risk is the premium paid for the options plus
transaction costs. However, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Fund while the
purchase or sale of the futures contract would not have resulted in a loss, such
as when there is no movement in the price of the underlying securities.
Mortgage-Related Securities
The Fund may invest in certain types of mortgage related securities. One type of
mortgage-related security includes certificates that represent pools of mortgage
loans assembled for sale to investors by various governmental and private
organizations. These securities provide a monthly payment, which consists of
both an interest and a principal payment that is in effect a "pass-through" of
the monthly payment made by each individual borrower on his or her residential
mortgage loan, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying residential property,
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refinancing, or foreclosure, net of fees or costs that may be incurred. Some
certificates (such as those issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, regardless of whether the mortgagor actually makes
the payment.
A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) are backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/services that include state and federally chartered
savings and loan associations, mutual saving banks, commercial banks, credit
unions and mortgage bankers.
GNMA Certificates. Certificates of the GNMA ("GNMA Certificates") evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds, in that principal is paid back monthly as payments of principal,
including prepayments, on the mortgages in the underlying pool are passed
through to holders of GNMA Certificates representing interests in the pool,
rather than returned in a lump sum at maturity. The GNMA Certificates that the
Fund may purchase are the "modified pass-through" type. "Modified pass-through"
GNMA Certificates entitle the holder to receive a share of all interest and
principal payments paid or owed to the mortgage pool, net of fees paid or due to
the "issuer" and GNMA regardless of whether or not the mortgagor actually makes
the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA") or guaranteed by the Veterans Administration ("VA").
GNMA is also empowered to borrow without limitation from the U.S. Treasury, if
necessary, to make payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is likely to
be substantially less than the stated maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal investment
long before the maturity of the mortgages in the pool. Foreclosures impose no
risk of loss of the principal balance of a Certificate, because of the GNMA
guarantee, but foreclosure may impact the yield to shareholders because of the
need to reinvest proceeds of foreclosure. As prepayment rates of individual
mortgage pools vary widely, it is not possible to predict accurately the average
life of a particular issue of GNMA Certificates. However, statistics published
by the FHA indicate that the average life of single family dwelling mortgages
with 25 to 30-year maturities, the type of mortgages backing the vast majority
of GNMA Certificates, is approximately 12 years. Prepayments are likely to
increase in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities that prepay fully in the
twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the certificates, by the amount of the fees
paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield that will be earned on GNMA Certificates. First, GNMA
Certificates may be issued at a premium or discount rather than at par, and,
after issuance, GNMA Certificates may trade in the secondary market at a premium
or discount. Second, interest is earned monthly, rather than semi-annually as
with traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying it. For example, if interest rates
decline, prepayments may occur faster than had been originally projected and the
yield to maturity and the investment income of the Fund would be reduced.
FHLMC Securities. "FHLMC" is a federally chartered corporation created in 1970
through enactment of Title III of the Emergency Home Finance Act of 1970. Its
purpose is to promote development of a nationwide secondary
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market in conventional residential mortgages. The FHLMC issues two types of
mortgage pass-through securities, mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made or owed on the underlying pool. The FHLMC guarantees timely payment of
interest on PCs and the ultimate payment of principal. Like GNMA Certificates,
PCs are assumed to be prepaid fully in their twelfth year. GMCs also represent a
pro rata interest in a pool of mortgages. However, these instruments pay
interest annually and return principal once a year in guaranteed minimum
payments. The expected average life of these securities is approximately ten
years.
FNMA Securities. "FNMA" is a federally chartered and privately owned corporation
that was established in 1938 to create a secondary market in mortgages insured
by the FHA. It was originally established as a government agency and was
transformed into a private corporation in 1968. FNMA issues guaranteed mortgage
pass-through certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA
Certificates in that each FNMA Certificate represents a pro rata share of all
interest and principal payments made or owed on the underlying pool. FNMA
guarantees timely payment of interest on FNMA certificates and the full return
of principal. Like GNMA Certificates, FNMA Certificates are assumed to be
prepaid fully in twelfth year.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of return than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers and
the mortgage poolers.
The Fund expects that governmental or private entities may create mortgage loan
pools offering pass-through investments in addition to those described above. As
new types of pass-through securities are developed and offered to investors, the
Investment Manager may, consistent with the Fund's investment objectives,
policies and restrictions, consider making investments in such new types of
securities.
Other types of mortgage-related securities include debt securities that are
secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.
Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations ("CMOs").
Mortgage-backed bonds are secured by pools of mortgages, but unlike pass-through
securities, payments to bondholders are not determined by payments on the
mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity. CMOs have
characteristics of both pass-through securities and mortgage-backed bonds. CMOs
are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to bondholders, but there is
not a direct "pass-through" of payments. CMOs are structured into multiple
classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity class receive principal only after the shorter
maturity classes have been retired.
CMOs are issued by entities that operate under order from the SEC exempting such
issuers from the provisions of the 1940 Act. Until recently, the staff of the
SEC had taken the position that such issuers were investment companies and that,
accordingly, an investment by an investment company (such as the Fund) in the
securities of such issuers was subject to the limitations imposed by Section 12
of the 1940 Act. However, in reliance on SEC staff interpretations, the Fund may
invest in securities issued by certain "exempted issuers" without regard to the
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limitations of Section 12 of the 1940 Act. In its interpretation, the SEC staff
defined "exempted issuers" as unmanaged, fixed asset issuers that: (a) invest
primarily in mortgage-backed securities; (b) do not issue redeemable securities
as defined in Section 2(a)(32) of the 1940 Act; (c) operate under the general
exemptive orders exempting them from all provisions of the 1940 Act; and (d) are
not registered or regulated under the 1940 Act as investment companies.
Investments in mortgage-related securities involve certain risks. 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 such
prepayments must be reinvested by the issuer at lower rates. In addition, the
value of such securities may fluctuate in response to the market's perception of
the creditworthiness of the issuers of mortgage-related securities owned by the
Fund. Because investments in mortgage-related securities are interest sensitive,
the ability of the issuer to reinvest favorably in underlying mortgages may be
limited by government regulation or tax policy. For example, action by the Board
of Governors of the Federal Reserve System to limit the growth of the nation's
money supply may cause interest rates to rise and thereby reduce the volume of
new residential mortgages. Additionally, although mortgages and mortgage-related
securities are generally supported by some form of government or private
guarantees and/or insurance, there is no assurance that private guarantors or
insurers will be able to meet their obligations. Further, stripped
mortgage-backed securities are likely to experience greater price volatility
than other types of mortgage securities. The yield to maturity on the interest
only class is extremely sensitive, both to changes in prevailing interest rates
and to the rate of principal payments (including prepayments) on the underlying
mortgage assets. Similarly, the yield to maturity on CMO residuals is extremely
sensitive to prepayments on the related underlying mortgage assets. In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are made. A Fund could fail to fully recover its initial investment
in a CMO residual or a stripped mortgage-backed security.
Subordinated Mortgage Securities. The Fund may also invest in subordinated
mortgage securities that have certain characteristics and certain associated
risks. In general, the subordinated mortgage securities in which the Fund may
invest consist of a series of certificates issued in multiple classes with a
stated maturity or final distribution date. One or more classes of each series
may be entitled to receive distributions allocable only to principal, principal
prepayments, interest or any combination thereof prior to one or more other
classes, or only after the occurrence of certain events, and may be subordinated
in the right to receive such distributions on such certificates to one or more
senior classes of certificates. The rights associated with each class of
certificates are set forth in the applicable pooling and servicing agreement,
form of certificate and offering documents for the certificates.
The subordination terms are usually designed to decrease the likelihood that the
holders of senior certificates will experience losses or delays in the receipt
of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
In some cases, the aggregate losses in respect of defaulted mortgage loans that
must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current
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values of an objective interest index or a variable rate based on a weighted
average of the interest rate on the mortgage loans underlying or constituting
the mortgage assets. In addition, the underlying mortgage loans may have
variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.
The amount of interest that accrues during any interest accrual period and over
the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates, which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
A mortgage-related security that is senior to a subordinated residential
mortgage security will not bear a loss resulting from the occurrence of a
default on an underlying mortgage until all credit enhancement protecting such
senior holder is exhausted. For example, the senior holder will only suffer a
credit loss after all subordinated interests have been exhausted pursuant to the
terms of the subordinated residential mortgage security. The primary credit risk
to the Fund by investing in subordinated residential mortgage securities is
potential losses resulting from defaults by the borrowers under the underlying
mortgages. The Fund would generally realize such a loss in connection with a
subordinated residential mortgage security only if the subsequent foreclosure
sale of the property securing a mortgage loan does not produce an amount at
least equal to the sum of the unpaid principal balance of the loan as of the
date the borrower went into default, the interest that was not paid during the
foreclosure period and all foreclosure expenses.
The Investment Manager will seek to limit the risks presented by subordinated
residential mortgage securities by reviewing and analyzing the characteristics
of the mortgage loans that underlie the pool of mortgages securing both the
senior and subordinated residential mortgage securities. The Investment Manager
has developed a set of guidelines to assist in the analysis of the mortgage
loans underlying subordinated residential mortgage securities. Each pool
purchase is reviewed against the guidelines. The Fund seeks opportunities to
acquire subordinated residential mortgage securities where, in the view of the
Investment Manager, the potential for a higher yield on such instruments
outweighs any additional risk presented by the instruments. The Investment
Manager will seek to increase yield to shareholders by taking advantage of
perceived inefficiencies in the market for subordinated residential mortgage
securities.
Credit Enhancement. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master service to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master service may also be required to obtain a pool
insurance policy to cover losses in an amount up to a certain percentage of the
aggregate principal balance of the mortgage loans in the pool to the extent not
covered by a primary mortgage insurance policy by reason of default in payments
on mortgage loans.
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Optional Termination of a Trust. A pooling and servicing agreement may provide
that the depositor and master service could effect early termination of a trust,
after a certain specified date or the date on which the aggregate outstanding
principal balance of the underlying mortgage loans is less than a specific
percentage of the original aggregate principal balance of the underlying
mortgage loans by purchasing all of such mortgage loans at a price, unless
otherwise specified, equal to the greater of a specified percentage of the
unpaid principal balance of such mortgage loans, plus accrued interest thereon
at the applicable certificate interest rate, or the fair market value of such
mortgage assets. Generally, the proceeds of such repurchase would be applied to
the distribution of the specified percentage of the principal balance of each
outstanding certificate of such series, plus accrued interest, thereby retiring
such certificates. Notice of such optional termination would be given by the
trustee prior to such distribution date.
Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.
Various services provide certain customary servicing functions with respect to
the mortgage loans pursuant to servicing agreements entered into between each
service and the master service. A service duties generally include collection
and remittance of principal and interest payments, administration of mortgage
escrow accounts, collection of insurance claims, foreclosure procedures and, if
necessary, the advance of funds to the extent certain payments are not made by
the mortgagors and are recoverable under applicable insurance policies or from
proceeds of liquidation of the mortgage loans.
The mortgage pool is administered by a master service who (a) establishes
requirements for each service, (b) administers, supervises and enforces the
performance by the services of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates. The master service may be an affiliate of the depositor and
also may be the service with respect to all or a portion of the mortgage loans
contained in a trust fund for a series of certificates.
International Debt Securities.
The Fund may invest in debt obligations (which may be denominated in U.S. dollar
or in non-U.S. currencies) of any rating 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 American Depository Receipts.
No more than 10% of the Fund's total assets, at the time of purchase, will be
invested in securities of foreign issuers. These investments may include debt
obligations such as bonds (including sinking fund and callable bonds),
debentures and notes, together with preferred stocks, pay-in-kind securities,
and zero coupon securities.
In determining whether to invest in debt obligations of foreign issuers, the
Fund will consider the relative yields of foreign and domestic High Yield
Securities, the economies of foreign countries, the condition of such countries'
financial markets, the interest rate climate of such countries and the
relationship of such countries' currency to the U.S. Dollar. These factors are
judged on the basis of fundamental economic criteria (e.g., relative inflation
levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. Subsequent foreign
currency losses may result in the Fund having previously distributed more income
in a particular period than was available from investment income, which could
result in a return of capital to shareholders. The Fund's portfolio of foreign
securities may include those of a number of foreign countries, or, depending
upon market conditions, those of a single country.
Investments in securities of issuers in non-industrialized countries generally
involve more risk and may be considered highly speculative. Although a portion
of the Fund's investment income may be received or realized in foreign
currencies, the Fund will be required to compute and distribute its income in
U.S. dollars and absorb the
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cost of currency fluctuations and the cost of currency conversions. Investment
in foreign securities involves considerations and risks not associated with
investment in securities of U.S. issuers. For example, foreign issuers are not
required to use generally accepted accounting principles. If foreign securities
are not registered under the Securities Act of 1933, as amended, the issuer does
not have to comply with the disclosure requirements of the Securities Exchange
Act of 1934, as amended. The values of foreign securities investments will be
affected by incomplete or inaccurate information available to the Investment
Manager as to foreign issuers, changes in currency rates, exchange control
regulations or currency blockage, expropriation or nationalization of assets,
application of foreign tax laws (including withholding taxes), changes in
governmental administration or economic or monetary policy. In addition, it is
generally more difficult to obtain court judgments outside the United States.
When-Issued Securities
The Fund may invest up to 10% of its net assets in High Yield Securities or
Other Securities on a when-issued basis. Under such an arrangement, delivery of,
and payment for, the instruments occur up to 45 days after the agreement to
purchase the instrument is made by the Fund. The purchase price to be paid by
the Fund and the interest rate on the instruments to be purchased are both
determined when the Fund agrees to purchase the securities "when issued." The
Fund is permitted to sell when-issued securities prior to the issuance of such
securities, but will not purchase such securities with the intent to make such a
sale. Securities purchased on a when-issued basis are subject to the risk that
yields available in the market, when delivery takes place, may be higher or
lower than the rate to be received on the securities the Fund is committed to
purchase. After the Fund is committed to purchase when-issued securities, but
prior to the issuance of said securities, the Fund is subject to adverse changes
in the value of these securities based upon changes in interest rates, as well
as changes based upon the public perception of the issuer and its
creditworthiness. The Fund will maintain a segregated account with its
custodian, consisting of cash and liquid assets at least equal to the value of
purchase commitments until payment is made.
Restricted and Illiquid Securities
The Fund may purchase restricted securities (i.e., securities the disposition of
which may be subject to legal restrictions) and securities that may not be
readily marketable. Because of the nature of these securities, a considerable
period of time may elapse between the Fund's decision to dispose of these
securities and the time when the Fund is able to dispose of them, during which
time the value of the securities could decline. The expenses of registering
restricted securities (excluding securities that may be resold by the Fund
pursuant to Rule 144A) may be negotiated at the time such securities are
purchased by the Fund. When registration is required before the securities may
be resold, a considerable period may elapse between the decision to sell the
securities and the time when the Fund would be permitted to sell them. Thus, the
Fund may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Fund may also acquire securities through
private placements. Such securities may have contractual restrictions on their
resale, which might prevent their resale by the Fund at a time when such resale
would be desirable. Securities that are not readily marketable will be valued by
the Fund in good faith pursuant to procedures adopted by the Company's Board of
Directors.
Zero Coupon and Pay-In-Kind Securities
The Fund may invest in zero coupon and pay-in-kind securities. Zero coupon, or
deferred interest securities are debt obligations that do not entitle the holder
to any periodic payment of interest prior to maturity or a specified date when
the securities begin paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from their face amounts or par
value. The discount varies, depending on the time remaining until maturity or
cash payment date, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity or cash
payment date of the security approaches. The market prices of zero coupon and
delayed interest securities generally are more volatile than the market prices
of securities that pay interest periodically and are likely to respond to
changes in interest rates to a greater degree than do non-zero coupon securities
having similar maturities and credit quality. Current federal income tax law
requires holders of zero coupon securities to report as interest income each
year the portion of the original issue discount on such securities (other than
tax-exempt
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original issue discount from a zero coupon security) that accrues that year,
even though the holders receive no cash payments of interest during the year.
Pay-in-kind securities are securities that pay interest or dividends through the
issuance of additional securities. The Fund will be required to report as income
annual inclusions of original issue discount over the life of such securities as
if it were paid on a current basis, although no cash interest or dividend
payments are received by the Fund until the cash payment date or the securities
mature. Under certain circumstances, the Fund could also be required to include
accrued market discount or capital gain with respect to its pay-in-kind
securities.
The risks associated with lower rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, the Fund may realize no return on its investment, because
these securities do not pay cash interest.
Lending of Portfolio Securities
In order to generate additional income, the 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 Pilgrim America
Investments, Inc. (the "Investment Manager"). The borrower at all times during
the loan must maintain with the Fund cash or cash equivalent collateral or
provide to the Fund 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. Loans
are subject to termination at the option of the Fund or the borrower at any
time. The Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the income earned on
the cash to the borrower or placing broker.
Participation Interests
The Fund may invest in participation interests, subject to the limitation on its
net assets that may be invested in illiquid investments. Participation interests
provide the Fund an undivided interest in a loan made by a bank or other
financial institution in the proportion that the Fund's participation interest
bears to the total principal amount of the loan. No more than 5% of the Fund's
net assets can be invested in participation interests of the same issuing bank.
The Fund must look to the creditworthiness of the borrowing corporation, which
is obligated to make payments of principal and interest on the loan. In the
event the borrower fails to pay scheduled interest or principal payments, the
Fund would experience a reduction in its income and might experience a decline
in the net asset value of its shares. In the event of a failure by the bank to
perform its obligations in connection with the participation agreement, the Fund
might incur certain costs and delays in realizing payment or may suffer a loss
of principal and/or interest.
Repurchase Agreements
The Fund may invest any portion of its assets otherwise invested in money market
instruments in U.S. Government securities and concurrently enter into repurchase
agreements with respect to such securities. Such repurchase agreements will be
made only with government securities dealers recognized by the Board of
Governors of the Federal Reserve System or with member banks of the Federal
Reserve System. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The resale price is in
excess of the purchase price and reflects an agreed upon interest rate for the
period of time the agreement is outstanding. The period of these repurchase
agreements is usually quite short, from overnight to one week, while the
underlying securities generally have longer maturities.
The Fund will always receive as collateral, securities acceptable to it whose
market value is equal to at least 100% of the amount invested by the Fund, and
the Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the seller
defaults, the Fund might
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incur a loss or delay in the realization of proceeds if the value of the
collateral securing the repurchase agreement declines and it might incur
disposition costs in liquidating the collateral. The Fund may not enter into a
repurchase agreement with more than seven days to maturity if, as a result, more
than 10% of the value of the Fund's total assets would be invested in such
repurchase agreements.
Banking Industry Obligations
The Fund may invest in banking industry obligations, including certificates of
deposit, bankers' acceptances, and fixed time deposits, with a maturity of one
year or less. The Fund will not invest in obligations issued by a bank unless
(i) the bank is a U.S. bank and a member of the FDIC and (ii) the bank has total
assets of at least $1 billion (U.S.) or, if not, the Fund's investment is
limited to the FDIC-insured amount of $100,000.
INVESTMENT RESTRICTIONS
The following additional fundamental policies and investment restrictions have
been adopted by the Fund and cannot be changed without approval by the vote of a
majority of the outstanding voting securities of the Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). (All policies of
the Fund not specifically identified in this Statement of Additional Information
or the Prospectus as fundamental may be changed without a vote of the
shareholders.)
The Fund may not:
1. Issue senior securities. Good faith hedging transactions and similar
investment strategies will not be treated as senior securities for purposes
of this restriction so long as they are covered in accordance with
applicable regulatory requirements and are structured consistent with
current SEC interpretations.
2. Underwrite securities of other issuers.
3. Invest in commodities except that the Fund may purchase and sell futures
contracts, including those relating to securities, currencies, indexes and
options on futures contracts or indexes and currencies underlying or
related to any such futures contracts.
4. Make loans to persons except (a) through the purchase of a portion of an
issue of publicly distributed bonds, notes, debentures and other evidences
of indebtedness customarily purchased by institutional investors, (b) by
the loan of its portfolio securities in accordance with the policies
described under "Lending of Portfolio Securities," or (c) to the extent the
entry into a repurchase agreement is deemed to be a loan.
5. Purchase the securities of another investment company or investment trust,
except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
6. Purchase any securities on margin or effect a short sale of a security.
(This restriction does not preclude the Fund from obtaining such short-term
credits as may be necessary for the clearance of purchases and sales of its
portfolio securities.)
7. Buy securities from or sell securities to its investment adviser or
principal distributor or any of their affiliates or any affiliates of its
Directors, as principal.
8. Buy, lease or hold real property except for office purposes. (This
restriction does not preclude investment in marketable securities of
companies engaged in real estate activities.)
9. As to 75% of the value of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer (other than
the United States Government) or acquire more than 10% of the
-15-
<PAGE>
outstanding voting securities of any one issuer; but as to the remaining
25% of its total assets, it retains freedom of action.
10. Borrow money except from banks for temporary or emergency purposes and not
for investment purposes, and then only in amounts not in excess of 5% of
the value of its total assets.
11. Invest in the securities of any company that, including its predecessors,
has not been in business for at least three years.
12. Invest more than 25% of the value of its total assets in any one industry.
13. Invest in securities of any one issuer for the purpose of exercising
control or management.
Notwithstanding the restrictions above, the Fund will not, so long as its shares
are registered for sale in the State of South Dakota: (i) have more than 10% of
its total assets invested in securities of issuers that the Fund is restricted
from selling to the public without registration under the Securities Act of
1933, as amended; (ii) have more than 10% of its total assets invested in real
estate investment trusts or investment companies; (iii) have more than 5% of its
assets invested in options, financial futures or stock index futures, other than
hedging positions or positions that are covered by cash or securities; (iv) have
more than 5% of its assets invested in equity securities of issuers that are not
readily marketable and securities of issuers that have been in operation for
less than three years; and (v) invest any part of its total assets in real
estate or interests in real estate, excluding readily marketable securities and
real estate used for office purposes; commodities, other than precious metals
not to exceed 10% of the Fund's total assets; commodity futures contracts or
options other than as permitted by investment companies qualifying for an
exemption from the definition of commodity pool operator; or interests in
commodity pools or oil, gas or other mineral exploration or development
programs.
The Fund will not, so long as its shares are registered for sale in the State of
Texas, invest in oil, gas or other mineral leases or in real estate limited
partnerships. The Fund will limit its investments in warrants, valued at the
lower of cost or market, to 5% of its net assets. Included within that amount,
but not to exceed 2% of the Fund's net assets, may be warrants that are not
listed on the New York or American Stock Exchange. The Fund will not make loans
unless collateral values are continuously maintained at no less than 100% by
"marking to market" daily.
The Fund will not, so long as its shares are registered for sale in the State of
Ohio: (i) purchase or retain securities of any issuer if the officers or
directors of the Fund, its adviser or manager owning beneficially more than
one-half of one percent of the securities of an issuer together own beneficially
more than five percent of the securities of that issuer, or (ii) borrow, pledge,
mortgage or hypothecate its assets in excess of 1/3 of total Fund assets. The
Fund will only borrow money for emergency or extraordinary purposes.
DIRECTORS AND OFFICERS
The Board of Directors of the Company is elected by the shareholders. The Board
has responsibility for the overall management of the Fund, including general
supervision and review of its investment activities. The Directors, in turn,
elect the Officers of the Company who are responsible for administering the
day-to-day operations of the Fund. Current Directors and Officers, and their
affiliations and principal occupations during the past five years, are:
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 58.) Director. Realtor, Coldwell Banker Success Realty
(formerly, The Prudential Arizona Realty) for more than the last five
years. Ms. Baldwin is also Vice President, United States Olympic Committee
(November 1996 - Present), and formerly Treasurer, United States Olympic
Committee (November 1992 - November 1996). Ms. Baldwin is also a director
and/or trustee of each of the funds managed by the Investment Manager.
-16-
<PAGE>
John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06130. (Age
65.) Director. Commissioner of Banking, State of Connecticut (January 1995
- Present). Mr. Burke was formerly President of Bristol Savings Bank
(August 1992 - January 1995) and President of Security Savings and Loan
(November 1989 - August 1992). Mr. Burke is also a director and/or trustee
of each of the funds managed by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age
69.) Director. President of Al Burton Productions for more than the last
five years; formerly Vice President, First Run Syndication, Castle Rock
Entertainment (July 1992 - November 1994). Mr. Burton is also a director
and/or trustee of each of the funds managed by the Investment Manager.
Bruce S. Foerster, 4045 Sheridan Avenue, Suite 432, Miami Beach, Florida
33140. (Age 56.) Director. President, South Beach Capital Markets Advisory
Corporation (January 1995 - Present); Governor of the Philadelphia Stock
Exchange (October 1997 - present); Director of Mako Marine International
(since January 1996) and Aurora Capital, Inc. (since February 1995). Mr.
Foerster was formerly Managing Director, Equity Syndicate, Lehman Brothers
(June 1992 - December 1994). Mr. Foerster is also a director and/or trustee
of each of the funds managed by the Investment Manager.
Jock Patton, 40 North Central Avenue, Phoenix, Arizona 85004. (Age 51.)
Director. Private Investor. Director of Artisoft, Inc. Mr. Patton was
formerly President and Co-owner, StockVal, Inc. (April 1993 - June 1997)
and a partner and director of the law firm of Streich, Lang, P.A. (1972 -
1993). Mr. Patton is also a director and/or trustee of each of the funds
managed by the Investment Manager.
*Robert W. Stallings, 40 North Central Avenue, Suite 1200, Phoenix, AZ
85004. (Age 48.) Chairman, Chief Executive Officer, and President.
Chairman, Chief Executive Officer and President of Pilgrim America Group,
Inc. (since December 1994); Chairman, Pilgrim America Investments, Inc.
(since December 1994); Director, Pilgrim America Securities, Inc. (since
December 1994); Chairman, Chief Executive Officer and President of Pilgrim
America Bank and Thrift Fund, Inc., Pilgrim Government Securities Income
Fund, Inc. and Pilgrim America Investment Funds, Inc. (since April 1995).
Chairman and Chief Executive Officer of Pilgrim America Prime Rate Trust
(since April 1995). Chairman and Chief Executive Officer of Pilgrim America
Capital Corporation (formerly, Express America Holdings Corporation)
("Pilgrim America") (since August 1990).
* Interested person of the Fund, as defined in the Investment Company Act of
1940, as amended.
The Fund pays each Director who is not an interested person, be a pro rata
share, as described below, of (i) an annual retainer of $20,000; (ii) $1,500 per
quarterly and special Board meeting; (iii) $500 per committee meeting; (iv) $100
per special telephonic meeting; and (v) out of pocket expenses. During the
fiscal year ended June 30, 1997, the Fund paid an aggregate of approximately
$3,379 to the Directors. The pro rata share paid by the Fund is based on the
Fund's average net assets as a percentage of the average net assets of all the
funds managed by the Investment Manager for which the Directors serve in common
as directors/trustees.
Compensation of Directors. The following table sets forth information regarding
compensation of Directors by the Fund and other funds managed by the Investment
Manager for the fiscal year ended June 30, 1996. Officers of the Fund and
Directors who are interested persons of the Fund do not receive any compensation
from the Fund or any other funds managed by the Investment Manager. In the
column headed "Total Compensation From Registrant and Fund Complex Paid to
Directors," the number in parentheses indicates the total number of boards in
the fund complex on which the Director serves.
-17-
<PAGE>
Compensation Table
Fiscal Year Ended June 30, 1997
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
- ------------------------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Mary A Baldwin, Director (1)(4)...... $774 N/A N/A $29,946
(5 boards)
John P. Burke(2)(4), Director ....... $281 N/A N/A $7,200
(5 boards)
Al Burton, Director (3)(4)........... $774 N/A N/A $29,946
(5 boards)
Bruce S. Foerster, Director (1)(4)... $774 N/A N/A $29,946
(5 boards)
Jock Patton (4)(5)................... $774 N/A N/A $29,946
(5 boards)
Robert W. Stallings, Director and
Chairman (1)(6).................... $0 N/A N/A $0
(5 boards)
</TABLE>
- ------------
(1) Current Board member, term commencing April 7, 1995.
(2) Commenced service as Trustee on May 5, 1997.
(3) Board member since 1985.
(4) Member of Audit Committee.
(5) Current Board member, term commencing August 28, 1995.
(6) "Interested person", as defined in the Investment Company Act of 1940. As an
interested person of the Fund, Mr. Stallings will not receive any
compensation as a Director.
Officers
James R. Reis, Executive Vice President, Treasurer, Assistant Secretary and
Principal Accounting Officer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 40.)
Director, Vice Chairman (since December 1994), Executive Vice President
(since April 1995), and Treasurer (since September 1996), Pilgrim America
Group, Inc. and PAII; Director (since December 1994), Vice Chairman (since
November 1995) and Assistant Secretary (since January 1995) of PASI;
Executive Vice President, Treasurer, Assistant Secretary and Principal
Accounting Officer of most of the other funds in the Pilgrim America Group
of Funds, Chief Financial Officer (since December 1993), Vice Chairman and
Assistant Secretary (since April 1993) and former President (May 1991 -
December 1993), Pilgrim America (formerly Express America Holdings James R.
Reis, Executive Vice President, Treasurer, Assistant Secretary and
Principal Accounting Officer 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004. (Age 40.) Director, Vice Chairman (since December 1994),
Executive Vice President (since April 1995), and Treasurer (since September
1996), Pilgrim America Group, Inc. and PAII; Director (since December
1994), Vice Chairman (since November 1995) and Assistant Secretary (since
January 1995) of PASI; Executive Vice President, Treasurer, Assistant
Secretary and Principal Accounting Officer of most of the other funds in
the Pilgrim America Group of Funds, Chief Financial Officer (since December
1993), Vice Chairman and Assistant Secretary (since April 1993) and former
President (May 1991 - December 1993), Pilgrim America (formerly Express
America Holdings Corporation), Vice Chairman (since April 1993) and former
President (May 1991 - December 1993), Express America Mortgage Corporation.
Stanley D. Vyner, Executive Vice President
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 47.)
Executive Vice President (since August 1996), Pilgrim America Group, Inc.;
President and Chief Executive Officer (since August 1996), PAII; Executive
Vice President of (since July 1996) of most of the funds in the Pilgrim
America Group of Funds. Formerly Chief Executive Officer (November 1993 -
December 1995) HSBC Asset Management Americas, Inc., and Chief Executive
Officer, and Actuary (May 1986 - October 1993) HSBC Life Assurance Co.
-18-
<PAGE>
James M. Hennessy, Senior Vice President and Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 48.)
Senior Vice President and Secretary (since April 1995), Pilgrim America
(formerly Express America Holdings Corporation), Pilgrim America Group,
Inc., PASI and PAII; Senior Vice President and Secretary of each of the
funds in the Pilgrim America Group of Funds. Formerly Senior Vice
President, Express America Mortgage Corporation (June 1992 - August 1994)
and President, Beverly Hills Securities Corp. (January 1990 - June 1992).
Robert S. Naka, Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 34.) Vice
President, PAII (since April 1997) and Pilgrim America Group, Inc. (since
February 1997). Vice President and Assistant Secretary of each of the funds
in the Pilgrim America Group of Funds. Formerly Assistant Vice President,
Pilgrim America Group, Inc. (August 1995 - February 1997). Formerly,
Operations Manager, Pilgrim Group, Inc. (April 1992 - April 1995).
PRINCIPAL SHAREHOLDERS
As of September 30, 1997, the Directors and officers of the Fund owned less than
1% of any class of the Fund's outstanding shares. As of September 30, 1997, to
the knowledge of Management, no person owned beneficially or of record more than
5% of the outstanding shares of any class of the Funds, except with respect to
the Class A shares of the Fund, Merrill Lynch, Pierce Fenner & Smith, Inc., 4800
Deer Lake Drive, Jacksonville, Florida 32246-6484, owned 8.62% of the shares.
With respect to the Class B shares of the Fund, Merrill Lynch, Pierce Fenner &
Smith, Inc., 4800 Deer Lake Drive, Jacksonville, Florida 32246-6484, owned
24.78% of the shares.
MANAGEMENT OF THE FUND
Investment management services are provided to the Fund by Pilgrim America
Investments, Inc. pursuant to an Investment Management Agreement (the
"Agreement") dated April 7, 1995. As compensation for its services, the
Investment Manager is paid monthly an annual fee at the rate of 0.75% of the
average daily net asset value of the Fund on the first $25 million of net
assets; an annual rate of 0.625% on net assets from $25 million to $100 million;
an annual rate of 0.50% on net assets from $100 million to $500 million; and an
annual rate of 0.40% on net assets over $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, 1998.
The Fund pays its own operating expenses, which are not assumed by the
Investment Manager, such as expenses incurred in connection with the issuance,
registration and transfer of its shares; fees and costs of its custodian,
transfer and shareholder servicing agents; costs of pricing and calculating its
daily net asset value and of maintaining its books of account required by the
1940 Act, expenditures in connection with meetings of the Fund's shareholders;
salaries of officers and fees and expenses of Directors who are not members of
or affiliated with the Investment Manager, insurance premiums on property or
personnel of the Fund that inure to its benefit; salaries of personnel of the
Fund who are involved in placing orders for the execution of the Fund's
portfolio transactions and in maintaining registration of its shares under state
securities laws; the cost of preparing and printing reports and proxy statements
of the Fund for distribution to its shareholders; preparing and sending
prospectuses and statements of additional information to existing shareholders;
trade association dues; legal and accounting fees; and fees and expenses of
registering and maintaining registration of its shares for sale under Federal
and applicable state securities laws.
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<PAGE>
The Investment Manager will reduce its aggregate fees for any fiscal year, or
reimburse the Fund, to the extent required so that the Fund's expenses do not
exceed the expense limitations applicable to the Fund under the securities laws
or regulations of those states or jurisdictions in which the Fund's shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require the Investment Manager to reduce its
respective fees, or to reimburse the Fund, to the extent required so that the
Fund's expenses, as described above for any fiscal year do not exceed 2.50% of
the first $30 million of the Fund's average daily net assets, 2.00% of the next
$70 million of the Fund's average net assets and 1.50% of the Fund's remaining
average net assets. Expenses for purposes of this expense limitation include the
management fee, but exclude distribution expenses, brokerage commissions and
fees, taxes, interest and extraordinary expenses such as litigation paid or
incurred by the Fund. The Fund's expense limitation may change to reflect
changes in the expense limitations of the state having the most restrictive
limitation in which shares of the Fund are registered for sale. For the fiscal
years ended June 30, 1997 and June 30, 1996 and the fiscal period April 7, 1995
to June 30, 1995, the Fund paid management fees to the current Investment
Manager of approximately $332,032, $127,000 and $24,163. For the fiscal period
November 1, 1994 to April 7, 1995 and the fiscal year ended October 31, 1994,
the Fund paid management fees to the former manager of approximately $54,524 and
$135,300, respectively. During the period of April 7, 1995 to June 30, 1995, the
Fund made no reimbursements to the current Investment Manager for the costs of
personnel involved with recordkeeping and daily net asset value calculations,
portfolio trading, shareholder servicing, and state securities regulation and
compliance. During the period of November 1, 1994 to April 7, 1995 and the
fiscal year ended October 31, 1994, the Fund reimbursed the former manager
approximately $766 and $2,002, respectively, for the costs of personnel involved
with recordkeeping and daily net asset value calculations, portfolio trading,
shareholder servicing, and state securities regulation and compliance. For the
fiscal years ended June 30, 1997 and June 30, 1996, the eight month period ended
June 30, 1995 and the fiscal year ended October 31, 1994, the voluntary fee
reduction resulted in a waiver of $219,739, $127,903, $10,417 and $12,543,
respectively.
The Agreement will be continued in effect from year to year so long as such
continuation is approved at least annually (1) by the Board of Directors of the
Fund or the vote of a majority of the outstanding voting securities of the Fund,
and (2) by a majority of the Directors who are not interested persons of any
party to the Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Agreement may be terminated at any time without
penalty, by either the Fund or the Investment Manager upon 60 days' written
notice, and is automatically terminated in the event of its assignment as
defined in the 1940 Act. As used in this Statement of Additional Information,
the term "majority of the outstanding voting securities" means the affirmative
vote of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or
more of the shares present at a meeting if more than 50% of the outstanding
shares of the Fund, as appropriate, are represented at the meeting in person or
by proxy, whichever is less.
Distributor. Shares of the Fund are distributed by Pilgrim America Securities,
Inc. (the "Distributor") pursuant to a Distribution Agreement dated April 7,
1995. The Distribution Agreement requires the Distributor to use its best
efforts on a continuing basis to solicit purchases of shares of the Fund. The
Fund and the Distributor have agreed to indemnify each other against certain
liabilities. At the discretion of the Distributor, all sales charges may at
times be reallowed to an Authorized Dealer. The Distribution Agreement will
remain in effect from year to year only if its continuance is approved annually
by a majority of the Board of Directors who are not parties to such agreement or
"interested persons" of any such party and must be approved either by votes of a
majority of the Directors or a majority of the outstanding voting securities of
the Fund. See the Prospectus for information on how to purchase and sell shares
of the Fund, and the charges and expenses associated with an investment.
PILGRIM AMERICA
The Investment Manager and the Distributor are wholly-owned subsidiaries of
Pilgrim America Group, Inc., a Delaware corporation, which in turn is a
wholly-owned subsidiary of Pilgrim America Capital Corporation ("Pilgrim
America") (formerly Express America Holdings Corporation), a Delaware
corporation the shares of which are traded on the NASDAQ National Market System
(NASDAQ: PACC). Pilgrim America is a holding company that through its
subsidiaries engages in the financial services business, focusing primarily on
the business
-20-
<PAGE>
of providing investment advisory, administrative and distribution services to
mutual funds, closed-end investment companies and private accounts. The
Investment Manager also acts as the investment manager to Pilgrim America
Masters Series, Inc., Pilgrim America MagnaCap Fund, Pilgrim Government
Securities Income Fund and Pilgrim America Bank and Thrift Fund, Inc., open-end
investment companies, and to Pilgrim America Prime Rate Trust, a closed-end
investment company. As of September 30, 1997, the Investment Manager had assets
under management of approximately $2.6 billion.
DISTRIBUTION PLAN
The Fund has a distribution plan pursuant to Rule 12b-1 under the 1940 Act
applicable to each class of shares of the Fund ("Rule 12b-1 Plan"). The Fund
intends to operate the Rule 12b-1 Plan in accordance with its terms and the
National Association of Securities Dealers, Inc. rules concerning sales charges.
Under the Rule 12b-1 Plan, the Distributor may be entitled to payment each month
in connection with the offering, sale, and shareholder servicing of Class A,
Class B, and Class M shares in amounts not to exceed the following: with respect
to Class A shares at an annual rate of up to 0.35% of the average daily net
assets of the Class A shares of the Fund; with respect to Class B shares at an
annual rate of up to 1.00% of the average daily net assets of the Class B shares
of the Fund; and with respect to Class M shares at an annual rate of up to 1.00%
of the average daily net assets of the Class M shares of the Fund. The Board of
Directors has approved under the Rule 12b-1 Plan payments of the following
amounts to the Distributor will be made each month in connection with the
offering, sale, and shareholder servicing of Class A, Class B, and Class M
shares as follows: (i) with respect to Class A shares at an annual rate equal to
0.25% of the average daily net assets of the Class A shares of the Fund; (ii)
with respect to Class B shares at an annual rate equal to 1.00% of the average
daily net assets of the Class B shares of the Fund; and (iii) with respect to
Class M shares at an annual rate equal to 0.75% of the average daily net assets
of the Class M shares of the Fund. Of these amounts, fees equal to an annual
rate of 0.25% of the average daily net assets of the Fund are for shareholder
servicing for each of the classes.
Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for both distribution and shareholder servicing at the annual
rate of 0.25%, 0.25%, and 0.40% of the Fund's average daily net assets 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 in the 1st month following a purchase of Class M shares. These
fees may be used to cover the expenses of the Distributor primarily intended to
result in the sale of Class A, Class B, and Class M shares of the Fund,
including payments to Authorized Dealers for selling shares of the Fund and for
servicing shareholders of these classes of the Fund. Activities for which these
fees may be used include: preparation and distribution of advertising materials
and sales literature; expenses of organizing and conducting sales seminars;
overhead of the Distributor; printing of prospectuses and statements of
additional information (and supplements thereto) and reports for other than
existing shareholders; payments to dealers and others that provide shareholder
services; and costs of administering the Rule 12b-1 Plan.
In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of the Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Plan terminates. The Distributor will be
reimbursed for its actual expenses incurred under the Rule 12b-1 Plan with
respect to the Class A shares. With respect to the Class B shares and Class M
shares, the Distributor will receive payment without regard to actual
distribution expenses it incurs.
In addition to providing for the expenses discussed above, the Rule 12b-1 Plan
also recognizes that the Investment Manager and/or the Distributor may use their
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares and other funds
managed by the Investment Manager. In some instances, additional compensation or
promotional incentives may be offered to 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
-21-
<PAGE>
to dealers in connection with pre-approved conferences or seminars, sales or
training programs for invited sales personnel, payment for travel expenses
(including meals and lodging) incurred by sales personnel and members of their
families, or other invited guests, to various locations for such seminars or
training programs, seminars for the public, advertising and sales campaigns
regarding the Fund or other funds managed by the Investment Manager and/or other
events sponsored by dealers.
The Rule 12b-1 Plan has been approved by the Board of Directors, including all
the Directors who are not interested persons of the Fund as defined in the 1940
Act, and by the Fund's shareholders. Each Rule 12b-1 Plan must be renewed
annually by the Board of Directors, including a majority of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such Directors be committed to the Directors who are not
interested persons. The Rule 12b-1 Plan and any distribution or service
agreement may be terminated as to a Fund at any time, without any penalty, by
such Directors or by a vote of a majority of the Fund's outstanding shares on 60
days' written notice. The Distributor or any Authorized Dealer may also
terminate its respective distribution or service agreement at any time upon
written notice.
In approving each Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
the Fund is necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including the Directors
who are not interested persons of the Fund, concluded that, in the exercise of
their reasonable business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Rule 12b-1 Plan, as tailored to each class
of the Fund, will benefit the Fund and the shareholders.
Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
a Fund without approval by a majority of the Fund's outstanding shares, and all
material amendments to a Plan or any distribution or service agreement shall be
approved by the Directors who are not interested persons of the Fund, cast in
person at a meeting called for the purpose of voting on any such amendment.
The Distributor is required to report in writing to the Board of Directors at
least quarterly on the monies reimbursed to it under each Rule 12b-1 Plan, as
well as to furnish the Board with such other information as may be reasonably
requested in connection with the payments made under the Rule 12b-1 Plan in
order to enable the Board to make an informed determination of whether the Rule
12b-1 Plan should be continued.
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of the Fund's Class A shares for the fiscal year
ended June 30, 1997 were $334,493, including expenses for: advertising - $6,776;
salaries and commissions - $222,808; printing, postage, and handling - $18,321;
brokers' servicing fees - $72,141 and miscellaneous and other promotional
activities - $14,447. Total distribution expenses incurred by the Distributor
for the costs of promotion and distribution of the Fund's Class B shares for the
fiscal year ended June 30, 1997 were $374,366, including expenses for:
advertising -- $7,584; salaries and commissions -- $249,367; printing, postage,
and handling -- $20,505; brokers' servicing fees -- $80,740; and miscellaneous
and other promotional activities -- $16,170. Total distribution expenses
incurred by the Distributor for the costs of promotion and distribution of the
Fund's Class M shares for the fiscal year ended June 30, 1997 were $82,279,
including expenses for: advertising -- $1,667; salaries and commissions --
$54,806; printing, postage, and handling -- $4,507; brokers' servicing fees --
$17,745; and miscellaneous and other promotional activities -- $3,554. Of the
total amount incurred by the Distributor during the fiscal year ended June 30,
1997, $408,333 was for the costs of personnel of the Distributor and its
affiliates involved in the promotion and distribution of the Fund's shares.
The sales charge retained by the Distributor and the commissions allowed to
selling dealers are not an expense of the Fund and have no effect on the net
asset value of the Fund. During the fiscal years ended June 30, 1997 and June
30, 1996, and the fiscal period of April 7, 1995 through June 30, 1995, the
Distributor received commissions, after allowance to dealers on the sale of the
Fund's shares, of $100,481, $1,125 and $209, respectively, or approximately
6.28%, 1.09% or 9.81%, respectively, of total commissions assessed on purchases
of the Fund.
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<PAGE>
During the fiscal period of November 1, 1994 through April 7, 1995, and during
the fiscal year ended October 31, 1994, the former distributor received
commissions, after allowance to dealers on the sale of the Fund's shares, of
$344 (approximately 16.15% of total commissions assessed on purchases of the
Fund) and $0, respectively.
Under the Glass-Steagall Act and other applicable laws, certain banking
institutions are prohibited from distributing investment company shares.
Accordingly, such banks may only provide certain agency or administrative
services to their customers for which they may receive a fee from the
Distributor under a Rule 12b-1 Plan. If a bank were prohibited from providing
such services, shareholders would be permitted to remain as Fund shareholders
and alternate means for continuing the servicing of such shareholders would be
sought. In such event, changes in services provided might occur and such
shareholders might no longer be able to avail themselves of any automatic
investment or other service then being provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the portfolio of the Fund, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Agreement, the Investment Manager determines, subject
to the instructions of and review by the Board of Directors of the Company,
which securities are to be purchased and sold by the Fund and which brokers are
to be eligible to execute portfolio transactions of the Fund. Purchases and
sales of securities in the over-the-counter market will generally be executed
directly with a "market-maker," unless in the opinion of the Investment Manager,
a better price and execution can otherwise be obtained by using a broker for the
transaction.
In placing portfolio transactions, the Investment Manager will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities and other factors. In those instances where it is reasonably
determined that more than one broker can offer the brokerage services needed to
obtain the most favorable price and execution available, consideration may be
given to those brokers that supply research and statistical information to the
Fund and/or the Investment Manager, and provide other services in addition to
execution services. The Investment Manager considers such information, which is
in addition to and not in lieu of the services required to be performed by the
Investment Manager under its Agreement with the Fund, to be useful in varying
degrees, but of indeterminable value. The placement of portfolio brokerage with
broker-dealers who have sold shares of the Fund is subject to rules adopted by
the NASD. Provided the Fund's officers are satisfied that the Fund is receiving
the most favorable price and execution available, the Fund may also consider the
sale of the Fund's shares as a factor in the selection of broker-dealers to
execute its portfolio transactions.
While it will continue to be the Fund's general policy to seek first to obtain
the most favorable price and execution available, in selecting a broker to
execute portfolio transactions for the Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund
or the Investment Manager, even if the specific services were not imputed just
to the Fund and were useful to the Investment Manager in advising other clients.
In negotiating commissions with a broker, the Fund may therefore pay a higher
commission than would be the case if no weight were given to the furnishing of
these supplemental services, provided that the amount of such commission has
been determined in good faith by the Investment Manager to be reasonable in
relation to the value of the brokerage and research services provided by such
broker, which services either produce a direct benefit to the Fund or assist the
Investment Manager in carrying out its responsibilities to the Fund.
During the Fund's fiscal years ended June 30, 1997 and June 30, 1996, the fiscal
period from November 1, 1994 to June 30, 1995, and the fiscal year ended October
31, 1994, total brokerage commissions paid by the Fund amounted to approximately
$0, $0, $0 and $275, respectively. The Fund does not intend to effect any
brokerage transaction in its portfolio securities with any broker-dealer
affiliated directly or indirectly with the Investment Manager, except for any
sales of portfolio securities pursuant to a tender offer, in which event the
Investment
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Manager will offset against the management fee a part of any tender fees that
legally may be received by such affiliated broker-dealer. During the year ended
October 31, 1994, the Fund reimbursed the former manager $2,002 for the costs of
personnel involved in placing orders for the execution of portfolio
transactions, shareholder servicing and maintaining registration of the Fund's
shares under state securities laws.
In addition to the foregoing, the Fund may obtain securities by exchanging its
shares for securities that meet its investment criteria (See the Fund's
prospectus, "Shareholder's Guide - How to Buy Shares of the Fund"). The
Investment Manager, subject to the instructions and review of the Company's
Board of Directors, will determine the value of securities to be exchanged for
Fund shares in the same manner as it values its portfolio securities. The Fund
will exchange securities for its shares at the public offering price. In this
regard, the Fund may be obligated to pay firms a dealer reallowance. In the
event the Fund has insufficient cash to pay the dealer reallowance for shares of
the Fund you purchase through an exchange, it may be required to sell some
portfolio securities. Such sale of portfolio securities may result in realized
loss at a time when the Fund would prefer to hold such securities, such as in a
rising market.
Investment decisions for the Fund are made independently from those of the other
Pilgrim America Funds, although it is possible that at times identical
securities will be selected for purchase or sale by more than one of such funds.
However, the position of each fund in the same issuer may vary and the length of
time that each fund may choose to hold its investment in the same issuer may
likewise vary. To the extent any of these funds seeks to acquire the same
security at the same time, one or more of the funds may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price for such security. Similarly, any of the funds may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security if either of the other funds desires to sell the same
security at the same time. If more than one of such funds simultaneously
purchases or sells the same security, each day's transaction in such security
will be averaged as to price and allocated between such funds in accordance with
the total amount of such security being purchased or sold by each of such funds.
It is recognized that in some cases this system could have a detrimental effect
on the price or value of the security insofar as the Fund is concerned.
A broker or dealer utilized by the Investment Manager may furnish statistical,
research and other information or services that are deemed by the Investment
Manager to be beneficial to a Fund's investment programs. Research services
received from brokers supplement the Investment Manager's own research, and may
include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to the Investment Manager and the Board Members
with respect to the performance, investment activities and fees and expenses of
other mutual funds. Such information may be communicated electronically, orally
or in written form. Research services may also include providing equipment used
to communicate research information, arranging meetings with management of
companies and providing access to consultants who supply research information.
The outside research assistance is useful to the Investment Manager since the
brokers utilized by the Investment Manager as a group tend to follow a broader
universe of securities and other matters than the Investment Manager's staff can
follow. In addition, this research provides the Investment Manager with a
diverse perspective on financial markets. Research services that are provided to
the Investment Manager by brokers are available for the benefit of all accounts
managed or advised by the Investment Manager. In some cases, the research
services are available only from the broker providing such services. In other
cases. the research services may be obtainable from alternative sources in
return for cash payments. The Investment Manager is of the opinion that because
the broker research supplements, rather than replaces, its research, the receipt
of such research does not tend to decrease its expenses, but tends to improve
the quality of its investment advice. However, to the extent that the Investment
Manager would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Investment
Manager could be considered to have been reduced accordingly. Certain research
services furnished by brokers or dealers may be useful to the Investment Manager
with respect to clients other than a specific Fund. The Investment Manager is of
the opinion that this material is
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beneficial in supplementing the Investment Manager's research and analysis, and,
therefore, it may benefit a Fund by improving the quality of the investment
advice. The advisory fees paid by a Fund are not reduced because the Investment
Manager receives such services.
For the fiscal periods ended June 30, 1997 and 1996, the Fund's portfolio
turnover rates were 394% and 339%, respectively. Because a high turnover rate
increases transaction costs and may increase taxable gains, the Investment
Manager carefully weighs the anticipated benefits of short-term investing
against these consequences. An increased portfolio turnover rate is due to a
greater volume of shareholder purchase orders and other special market
conditions.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by the Fund's
transfer agent, Investors Fiduciary Trust Company ("Transfer Agent"), plus, for
Class A and Class M shares, a varying sales charge depending upon the class of
shares purchased and the amount of money invested, as set forth in the
Prospectus. The Distributor may, from time to time, at its discretion, allow the
selling dealer to retain 100% of such sales charge, and such dealer may
therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended. The Distributor, at its expense, may also provide additional
promotional incentives to dealers in connection with sales of shares of the Fund
and other funds managed by the Investment Manager. In some instances, such
incentives may be made available only to dealers whose representatives have sold
or are expected to sell significant amounts of such shares. The incentives may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and members of their
families to locations within or outside of the United States, merchandise or
other items. Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of any state.
Certain investors may purchase shares of the Fund with liquid assets with a
value which is readily ascertainable by reference to a domestic exchange price
and which would be eligible for purchase by the Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Investment Manager intends to retain the security in the Fund as an
investment. Assets so purchased by the Fund will be valued in generally the same
manner as they would be valued for purposes of pricing the Fund's shares, if
such assets were included in the Fund's assets at the time of purchase. The Fund
reserves the right to amend or terminate this practice at any time.
Special Purchases at Net Asset Value
Class A or Class M shares of the Fund may be purchased at net asset value,
without a sales charge, by persons who have redeemed their Class A or Class M
shares of the Fund (or shares of other funds managed by the Investment Manager
in accordance with the terms of such privileges established for such funds)
within the previous 90 days. The amount that may be so reinvested in the Fund is
limited to an amount up to, but not exceeding, the redemption proceeds (or to
the nearest full share if fractional shares are not purchased). In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Fund's Transfer Agent, or be postmarked, within 90 days after
the date of redemption. This privilege may only be used once per calendar year.
Payment must accompany the request and the purchase will be made at the then
current net asset value of the Fund. Such purchases may also be handled by a
securities dealer who may charge a shareholder for this service. If the
shareholder has realized a gain on the redemption, the transaction is taxable
and any reinvestment will not alter any applicable Federal capital gains tax. If
there has been a loss on the redemption and a subsequent reinvestment pursuant
to this privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested, although such disallowance is added to the
tax basis of the shares acquired upon the reinvestment.
Class A or M shares may also be purchased at net asset value by 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
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<PAGE>
mutual fund on which a sales charge was paid or which were subject, at any time,
to a contingent deferred sales charge.
Class A or Class M shares of the Fund may also be purchased at net asset value
by any charitable organization or any state, county, or city, or any
instrumentality, department, authority or agency thereof that has determined
that the Fund is a legally permissible investment and that is prohibited by
applicable investment law from paying a sales charge or commission in connection
with the purchase of shares of any registered management investment company (an
"eligible authority"). If an investment by an eligible authority at net asset
value is made though a dealer who has executed a selling group agreement with
respect to the Fund (or the other Pilgrim America Funds), the Distributor may
pay the selling firm 0.25% of the amount invested.
Shareholders of Pilgrim America General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
or Class M shares of the Fund or open-end Pilgrim America Funds may reinvest
such amount plus any shares acquired through dividend reinvestment in Class A or
Class M shares of the Fund at its current net asset value, without a sales
charge.
Officers, directors and bona fide full-time employees of the Fund and officers,
directors and full-time employees of the Investment Manager, the Distributor,
the Fund's service providers or affiliated corporations thereof or any trust,
pension, profit-sharing or other benefit plan for such persons, broker-dealers,
for their own accounts or for members of their families (defined as current
spouse, children, parents, grandparents, uncles, aunts, siblings, nephews,
nieces, step-relations, relations at-law, and cousins) employees of such
broker-dealers (including their immediate families) and discretionary advisory
accounts of the Investment Manager, may purchase Class A or Class M shares of
the Fund at net asset value without a sales charge. Such purchaser may be
required to sign a letter stating that the purchase is for his own investment
purposes only and that the securities will not be resold except to the Fund. The
Fund may, under certain circumstances, allow registered investment advisers to
make investments on behalf of their clients at net asset value without any
commission or concession.
Class A or M shares may also be purchased at net asset value by certain fee
based registered investment advisers, trust companies and bank trust departments
under certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another Participating Fund or from Pilgrim America Prime Rate
Trust.
Letters of Intent and Rights of Accumulation
An investor may immediately qualify for a reduced sales charge on a purchase of
Class A or Class M shares of the Fund or any open-end Pilgrim America Fund which
offers Class A shares, Class M shares or shares with front-end sales charges, by
completing the Letter of Intent section of the Shareholder Application in the
Prospectus (the "Letter of Intent" or "Letter"). By completing the Letter, the
investor expresses an intention to invest during the next 13 months a specified
amount which if made at one time would qualify for the reduced sales charge. At
any time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment made will be entitled to the
sales charge applicable to the level of investment indicated on the Letter of
Intent as described above. Sales charge reductions based upon purchases in more
than one Pilgrim America Fund will be effective only after notification to the
Distributor that the investment qualifies for a discount. The shareholder's
holdings in the Investment Manager's funds (excluding Pilgrim America General
Money Market Shares) acquired within 90 days before the Letter of Intent is
filed will be counted towards completion of the Letter of Intent but will not be
entitled to a retroactive downward adjustment of sales charge until the Letter
of Intent is fulfilled. Any redemptions made by the shareholder during the
13-month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the Letter of Intent have been completed. If
the Letter of Intent is not completed within the 13-month period, there will be
an upward adjustment of the sales charge as specified below, depending upon the
amount actually purchased (less redemption) during the period.
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<PAGE>
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application in the Prospectus. A
minimum initial investment equal to 25% of the intended total investment is
required. An amount equal to 5.75% of the total intended purchase will be held
in escrow at Pilgrim America Funds, in the form of shares, in the investor's
name to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The shares in escrow will be included in the
total shares owned as reflected on the monthly statement; income and capital
gain distributions on the escrow shares will be paid directly to the investor.
The escrow shares will not be available for redemption by the investor until the
Letter of Intent has been completed, or the higher sales charge paid. If the
total purchases, less redemptions, equal the amount specified under the Letter,
the shares in escrow will be released. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by the Distributor and the dealer with whom purchases were made pursuant to
the Letter of Intent (to reflect such further quantity discount) on purchases
made within 90 days before, and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the applicable offering price. If the total purchases, less
redemptions, are less than the amount specified under the Letter, the investor
will remit to the Distributor an amount equal to the difference in dollar amount
of sales charge actually paid and the amount of sales charge which would have
applied to the aggregate purchases if the total of such purchases had been made
at a single account in the name of the investor or to the investor's order. If
within 10 days after written request such difference in sales charge is not
paid, the redemption of an appropriate number of shares in escrow to realize
such difference will be made. If the proceeds from a total redemption are
inadequate, the investor will be liable to the Distributor for the difference.
In the event of a total redemption of the account prior to fulfillment of the
Letter of Intent, the additional sales charge due will be deducted from the
proceeds of the redemption and the balance will be forwarded to the investor. By
completing the Letter of Intent section of the Shareholder Application, an
investor grants to the Distributor a security interest in the shares in escrow
and agrees to irrevocably appoint the Distributor as his attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due and authorizes the Transfer
Agent or Sub-Transfer Agent to receive and redeem shares and pay the proceeds as
directed by the Distributor. The investor or the securities dealer must inform
the Transfer Agent or the Distributor that this Letter is in effect each time a
purchase is made.
If at any time prior to or after completion of the Letter of Intent the investor
wishes to cancel the Letter of Intent, the investor must notify the Distributor
in writing. If, prior to the completion of the Letter of Intent, the investor
requests the Distributor to liquidate all shares held by the investor, the
Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at NAV to remit to the
Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other funds distributed by
the Distributor (excluding Pilgrim America General Money Market Shares) can be
combined with a current purchase to determine the reduced sales charge and
applicable offering price of the current purchase. The reduced sales charge
applies 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 accounts 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/or other employee benefit plans qualified under Section 401
of the Code), by trust companies, registered investment advisers, banks and bank
trust departments for accounts over which they exercise exclusive investment
discretionary authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity.
The reduced sales charge also applies on a non-cumulative basis, to purchases
made at one time by the customers of a single dealer, in excess of $1 million.
The Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other open-end Pilgrim America Funds (excluding Pilgrim
America General Money Market Shares) purchased and owned of record or
beneficially by a corporation, including employees of a single
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<PAGE>
employer (or affiliates thereof) including shares held by its employees, under
one or more retirement plans, can be combined with a current purchase to
determine the reduced sales charge and applicable offering price of the current
purchase, provided such transactions are not prohibited by one or more
provisions of the Employee Retirement Income Security Act or the Internal
Revenue Code. Individuals and employees should consult with their tax advisors
concerning the tax rules applicable to retirement plans before investing.
Redemptions
Payment to shareholders for shares redeemed will be made within three days after
receipt by the Fund's Transfer Agent of the written request in proper form,
except that the Fund may suspend the right of redemption or postpone the date of
payment as to the Fund during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the SEC or such Exchange is closed for
other than weekends and holidays; (b) an emergency exists as determined by the
SEC making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable; or (c) for such other period as the SEC may
permit for the protection of the Fund's shareholders. At various times, the Fund
may be requested to redeem shares for which it has not yet received good
payment. Accordingly, the Fund may delay the mailing of a redemption check until
such time as it has assured itself that good payment has been collected for the
purchase of such shares, which may take up to 15 days or longer.
The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise the Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, an investor may incur brokerage costs in converting such
securities to cash. However, the Fund has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contain a formula for
determining the minimum amount of cash to be paid as part of any redemption. In
the event the Fund must liquidate portfolio securities to meet redemptions, it
reserves the right to reduce the redemption price by an amount equivalent to the
pro-rated cost of such liquidation not to exceed one percent of the net asset
value of such shares.
Due to the relatively high cost of handling small investments, the Fund reserves
the right, upon 30 days' written notice, to redeem, at net asset value (less any
applicable deferred sales charge), the shares of any shareholder whose account
has a value of less than $1,000 in the Fund, other than as a result of a decline
in the net asset value per share. Before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares in the account is less than the minimum amount and will allow the
shareholder 30 days to make an additional investment in an amount that will
increase the value of the account to at least $1,000 before the redemption is
processed. This policy will not be implemented where the Fund has previously
waived the minimum investment requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Conversion of Class B Shares
A shareholder's Class B shares will automatically convert to Class A shares in
the Fund on the first business day of the month in which the eighth anniversary
of the issuance of the Class B shares occurs, together with a pro rata portion
of all Class B shares representing dividends and other distributions paid in
additional Class B shares. The conversion of Class B shares into Class A shares
is subject to the continuing availability of an opinion of counsel or an
Internal Revenue Service ("IRS") ruling to the effect that (1) such conversion
will not constitute taxable events for federal tax purposes; and (2) the payment
of different dividends on Class A and Class B shares does not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. The conversion
will be effected at the relative net asset values per share of the two Classes.
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DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of the Fund's
shares will be determined once daily as of the close of trading on the New York
Stock Exchange (4:00 p.m. New York time) during each day on which that Exchange
is open for trading. As of the date of this Statement of Additional Information,
the New York Stock Exchange is closed on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Portfolio securities, including any options written by the Fund, listed or
traded on a national securities exchange or included in the NASDAQ National
Market System will be valued at the last reported sale price on the valuation
day. Securities traded on an exchange or NASDAQ for which there has been no sale
that day and other securities traded in the over-the-counter market will be
valued at the last reported bid price on the valuation day. Portfolio securities
underlying traded call options written by the Fund will be valued at their
market price as determined above; however, the current market value of the
option written by the Fund will be subtracted from net asset value. In cases in
which securities are traded on more than one exchange, the securities are valued
on the exchange designated by or under the authority of the Board of Directors
as the primary market. Short-term obligations maturing in less than 60 days will
generally be valued at amortized cost. Securities for which quotations are not
readily available and all other assets will be valued at their respective fair
values as determined in good faith by or under the direction of the Board of
Directors of the Company. Any assets or liabilities initially expressed in terms
of non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
In computing the Fund's net asset value, all liabilities incurred or accrued are
deducted from the Fund's total assets. The resulting net assets are divided by
the number of shares of the Fund outstanding at the time of the valuation and
the result (adjusted to the nearest cent) is the net asset value per share.
The per share net asset value of Class A shares generally will be higher than
the per share net asset value of shares of the other classes, reflecting daily
expense accruals of the higher distribution fees applicable to Class B and Class
M shares. It is expected, however, that the per share net asset value of the
classes will tend to converge immediately after the payment of dividends or
distributions that will differ by approximately the amount of the expense
accrual differentials between the classes.
Orders received by dealers prior to the close of trading on the New York Stock
Exchange will be confirmed at the offering price computed as of the close of
trading on that Exchange provided the order is received by the Distributor prior
to its close of business that same day (normally 4:00 P.M. Pacific time). It is
the responsibility of the dealer to insure that all orders are transmitted
timely to the Fund. Orders received by dealers after the close of trading on the
New York Stock Exchange will be confirmed at the next computed offering price as
described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Fund provides a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of the Fund
on a regular basis. Such a Program may be started with an initial investment
($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no
obligation to continue. The Program may be terminated without penalty at any
time by the investor or the Fund. The minimum investment requirements may be
waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.
For investors purchasing shares of the Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of the Fund on
a periodic basis, the Fund may, in lieu of furnishing confirmations following
each purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act
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of 1934, as amended, and the rules thereunder. Such quarterly statements, which
would be sent to the investor or to the person designated by the group for
distribution to its members, will be made within five business days after the
end of each quarterly period and shall reflect all transactions in the
investor's account during the preceding quarter.
All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. Shareholders may rely on these statements in lieu
of certificates. Certificates representing shares of the Fund will not be issued
unless the shareholder requests them in writing.
Self-Employed and Corporate Retirement Plans
For self-employed individuals and corporate investors that wish to purchase
shares of the Fund, there is available through the Fund a Prototype Plan and
Custody Agreement. The Custody Agreement provides that Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as Custodian under the Plan, and will
furnish custodial services for an annual maintenance fee of $12.00 for each
participant, with no other charges. (This fee is in addition to the normal
Custodian charges paid by the Fund.) The annual contract maintenance fee may be
waived from time to time. For further details, including the right to appoint a
successor Custodian, see the Plan and Custody Agreements as provided by the
Fund. Employers who wish to use shares of the Fund under a custodianship with
another bank or trust company must make individual arrangements with such
institution.
Individual Retirement Accounts
Investors having earned income are eligible to purchase shares of the Fund under
an Individual Retirement Account ("IRA") pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Copies of a model Custodial Account Agreement are available
from the Distributor. Investors Fiduciary Trust Company, Kansas City, Missouri,
will act as the Custodian under this model Agreement, for which it will charge
the investor an annual fee of $12.00 for maintaining the Account (such fee is in
addition to the normal custodial charges paid by the Fund). Full details on the
IRA are contained in an IRS required disclosure statement, and the Custodian
will not open an IRA until seven (7) days after the investor has received such
statement from the Fund. An IRA using shares of the Fund may also be used by
employers who have adopted a Simplified Employee Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. Section 403(b) plans are arrangements by a public school organization
or a charitable, educational, or scientific organization that is described in
Section 501(c)(3) of the Internal Revenue Code under which employees are
permitted to take advantage of the federal income tax deferral benefits provided
for in Section 403(b) of the Code.
It is advisable for an investor considering the funding of any retirement plan
to consult with an attorney or to obtain advice from a competent retirement plan
consultant.
Telephone Redemption and Exchange Privileges
As discussed in the Prospectus, the telephone redemption and exchange privileges
are available for all shareholder accounts; however, retirement accounts may not
utilize the telephone redemption privilege. The telephone privileges may be
modified or terminated at any time. The privileges are subject to the conditions
and provisions set forth below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in good order
before the pricing of a Fund on any day on which the New York Stock
Exchange is open for business (a "Business Day"), but not later than 4:00
p.m. eastern time, will be processed at that day's closing net asset value.
For each exchange, the shareholder's account may be charged an exchange
fee. There is no fee for telephone
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redemption; however, redemptions of Class A and Class B shares may be
subject to a contingent deferred sales charge (See "Redemption of Shares"
in the Prospectus).
2. Telephone redemption and/or exchange instructions should be made by
dialing 1-800-992-0180 and selecting option 3.
3. Pilgrim America Funds will not permit exchanges in violation of any of
the terms and conditions set forth in the Funds' Prospectus or herein.
4. Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim America Funds:
(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address on
the registration. This address cannot reflect any change within
the previous sixty (60) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being mailed to
the address of record) can be processed with in a 30 day period.
(d) The maximum amount which can be liquidated and sent to the address
of record at any one time is $50,000.
(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.
5. If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment
requirement of the Pilgrim America Fund being acquired.
6. Any new account established through the exchange privilege will have the
same account information and options except as stated in the Prospectus.
7. Certificated shares cannot be redeemed or exchanged by telephone but
must be forwarded to Pilgrim America and deposited into your account before
any transaction may be processed.
8. If a portion of the shares to be exchanged are held in escrow in
connection with a Letter of Intent, the smallest number of full shares of
the Pilgrim America Fund to be purchased on the exchange having the same
aggregate net asset value as the shares being exchanged shall be
substituted in the escrow account. Shares held in escrow may not be
redeemed until the Letter of Intent has expired and/or the appropriate
adjustments have been made to the account.
9. Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Funds' then-current
prospectus.
10. Proceeds of a redemption may be delayed up to 15 days or longer until
the check used to purchase the shares being redeemed has been paid by the
bank upon which it was drawn.
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DISTRIBUTIONS
As noted in the Prospectus, the Fund's shareholders have the privilege of
reinvesting both income dividends and capital gains distributions, if any, in
additional shares of the same class at the then current net asset value with no
sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains distributions in cash. In the absence of such an
election, each purchase of shares of the Fund is made upon the condition and
understanding that the Fund's Transfer Agent is automatically the shareholder's
agent to receive his dividends and distributions upon all shares registered in
his name and to reinvest them in full and fractional shares of the Fund at the
applicable net asset value in effect at the close of business on the
reinvestment date. A shareholder may still at any time after a purchase of Fund
shares request that dividends and/or capital gains distributions be paid to him
in cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
incident to an investment in the Fund.
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund must,
among other things: (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loaned, gains from the sale or
other disposition of stock or securities and gains from the sale or other
disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) for
taxable years beginning prior to August 6, 1997, derive less than 30% of its
gross income from the sale or other disposition of the following assets held for
less than three months: (i) stock and securities, (ii) options, futures and
forward contracts (other than options, futures and forward contracts on foreign
currencies), and (iii) foreign currencies (and options, futures and forward
contracts on foreign currencies) which are not directly related to the Fund's
principal business of investing in stocks and securities (or options and futures
with respect to stock or securities); (c) diversify its holdings so that, at the
end of each quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, with such other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of the Fund's total assets in invested in the securities (other than U.S.
Government securities or securities of other regulated investment companies) of
any one issuer or of any two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related businesses;
and (d) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) each taxable year.
The U.S. Treasury Department is authorized to issue regulations providing that
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) will be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no such regulations have been issued.
The status of the Fund as a regulated investment company does not involve
government supervision of management or of their investment practices, or
policies. As a regulated investment company, the Fund generally will be relieved
of liability for U.S. federal income tax on that portion of its investment
company taxable income and net realized capital gains which it distributes as
dividends to its shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirement.
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Distributions
Dividends of investment company taxable income (including net short-term capital
gains) are taxable to shareholders as ordinary income. The Fund expects that
distributions of investment company taxable income are not expected to be
eligible for the corporate dividends-received deduction. Distributions of net
capital gains (the excess of net long-term capital gains over net short-term
capital losses) designated by the Fund as capital gain dividends should be
taxable to shareholders as long-term capital gains, regardless of the length of
time the Fund's shares have been hold by a shareholder, and are not eligible for
the dividends-received deduction. Generally, dividends and distributions are
taxable to shareholders, whether received in cash or reinvested in shares of the
Fund. Any distributions that are not from the Fund's investment company taxable
income or net capital gain may be characterized as a return of capital to
shareholders or, in some cases, as capital gain. Shareholders will be notified
annually as to the federal tax status of dividends and distributions they
receive and any tax withheld thereon.
Dividends, including capital gain 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 paid by the 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.
Distributions by the Fund reduce the net asset value of the Fund shares. Should
a distribution reduce the net asset value below a shareholder's cost basis, the
distribution nevertheless may be taxable to the shareholder as ordinary income
or capital gain an described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying shares just prior to a
distribution by the Fund. The price of shares purchased at that time includes
the amount of the forthcoming distribution, but the distribution will generally
be taxable to them.
Original Issue Discount/Market Discount
Certain of the debt securities acquired by the Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount that accrues on a debt
security in a given year generally is treated for federal income tax purposes as
interest and, therefore, such income is subject to the distribution requirements
of the Code. If the Fund invests in certain high yield original issue discount
securities issued by corporations, a portion of the original issue discount
accruing on the securities may be eligible for the deduction for dividends
received by corporations. In such event, properly designated dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations.
Some of the debt securities may be purchased by the Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of the Fund, at a constant yield to maturity which takes
into account the semi-annual compounding of interest.
Foreign Currency Transactions
Under the Code, gains or losses attributable to fluctuations in foreign currency
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign
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currency and on disposition of certain financial contracts and options, gains or
losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains and losses, referred to under
the Code as "section 988" gains and losses, may increase or decrease the amount
of the Fund's net investment income to be distributed to its shareholders as
ordinary income.
Options and Hedging Transactions
Certain options and financial contracts in which the Fund may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses ("60/
40"); however, foreign currency gains or losses (as discussed below) arising
from certain section 1256 contracts may be treated as ordinary income or loss.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates as prescribed under the Code) are "marked-to-market"
with the result that unrealized gains or losses are treated as though they were
realized.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders an ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, notional principal contract, futures or forward
contract transaction with respect to the appreciated position or substantially
identical property. Appreciated financial positions subject to this constructive
sale treatment are interests (including options, futures and forward contracts
and short sales) in stock, partnership interests, certain actively traded trust
instruments and certain debt instruments. Constructive sale treatment of
appreciated financial positions does not apply to certain transactions closed in
the 90-day period ending with the 30th day after the close of the Fund's taxable
year, if certain conditions are met.
Requirements relating to the Fund's tax status as a regulated investment company
may limit the extent to which the Fund will be able to engage in transactions in
options and foreign currency forward contracts.
Sale of Shares
Upon the sale or taxable exchange of his shares, a shareholder will realize a
taxable gain or loss depending upon his basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, which generally may be eligible for reduced federal tax
rates, depending on the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent that the shares
disposed of are replaced (including replacement through the reinvesting of
dividends and capital gain distributions in the Fund) within a-period of 61 days
beginning 30 days before and ending 30 days after the
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disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of the Fund's shares held by the shareholder for six months or less
will be treated for federal income tax purposes as a long-term capital loss to
the extent of capital gain dividends received by the shareholder with respect to
such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Backup Withholding
The Fund generally will be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions, and
redemption proceeds to shareholders if (1) the shareholder fails to furnish the
Fund with the shareholder's correct taxpayer identification number or social
security number and to make such certifications as the Fund may require, (2) the
IRS notifies the shareholder or the Fund that the shareholder has failed to
report properly certain interest and dividend income to the IRS and to respond
to notices to that effect, or (3) when required to do so, the shareholder fails
to certify that he in not subject to backup withholding. Any amounts withheld
may be credited against the shareholder's federal income tax liability.
Other Taxes
Distributions also may be subject to state, local and foreign taxes. U.S. tax
rules applicable to foreign investors may differ significantly from those
outlined above. This discussion does not purport to deal with all of the tax
consequences applicable to shareholders. Shareholders are advised to consult
their own tax advisers for details with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
The Fund may, from time to time, include "total return" or "yield" in
advertisements or reports to shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5 and 10 years (up to the life of the Fund), calculated pursuant to the
following formula which is prescribed by the SEC:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
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From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These 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).
Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
a-b 6
2[(----- + 1) - 1]
cd
where:
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (1) computing the yield to maturity of each obligation
held by the Fund based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (2) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation for each day of the subsequent month that the obligation is in the
Fund's portfolio (assuming a month of 30 days) and (3) computing the total of
the interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period. In computing dividends
accrued, dividend income is recognized by accruing 1/360 of the stated dividend
rate of a security each day that the security is in the Fund's portfolio. For
purposes of "b" above, Rule 12b-1 Plan expenses are included among the expenses
accrued for the period. Any amounts representing sales charges will not be
included among these expenses; however, the Fund will disclose the maximum sales
charge as well as any amount or specific rate of any nonrecurring account
charges. Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price calculation required pursuant to "d" above.
The Fund may also from time to time advertise its yield based on a 30-day or
90-day period ended on a date other than the most recent balance sheet included
in the Fund's Registration Statement, computed in accordance with the yield
formula described above, as adjusted to conform with the differing period for
which the yield computation is based.
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Any quotation of performance stated in terms of yield (whether based on a 30-day
or 90-day period) will be given no greater prominence than the information
prescribed under SEC rules. In addition, all advertisements containing
performance data of any kind will include a legend disclosing that such
performance data represents past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
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.
Total returns and yields are based on past results and are not necessarily a
prediction of future performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, the Fund may compare the performance of its Class A,
Class B, and Class M shares with that of other mutual funds as listed in the
rankings prepared by Lipper Analytical Services, Inc., Morningstar, Inc., CDA
Technologies, Inc., Value Line, Inc. or similar independent services that
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. In addition, certain indexes may be used to illustrate
historic performance of select asset classes. The performance information may
also include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall
Street Journal. If the Fund compares its performance to other funds or to
relevant indexes, the Fund's performance will be stated in the same terms in
which such comparative data and indexes are stated, which is normally total
return rather than yield. For these purposes the performance of the Fund, as
well as the performance of such investment companies or indexes, may not reflect
sales charges, which, if reflected, would reduce performance results.
The average annual total return of the Class A shares of the Fund for the one,
five and ten year periods ended June 30, 1997 was 11.53%, 10.86% and 9.28%,
respectively. The average annual total return for the Class B shares for the one
year period ended June 30, 1997, and for the period from July 17, 1995
(commencement of operations) through June 30, 1997, was 11.00% and 12.52%,
respectively. The average annual total return for the Class M shares for the one
year period ended June 30, 1997, and for the period from July 17, 1995
(commencement of operations) through June 30, 1997, was 12.57% and 11.83%,
respectively.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including but not limited to age characteristics, of various countries and
regions in which the Fund may invest, as compiled by various organizations, and
projections of such information; (ii) the performance of worldwide equity and
debt markets; (iii) the capitalization of U.S. and foreign stock markets
prepared or published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization; (iv) the geographic
distribution of the Fund's portfolio; (v) the major industries located in
various jurisdictions; (vi) the number of shareholders in the Fund or other
Pilgrim America Funds and the dollar amount of the assets under management;
(vii) descriptions of investing methods such as dollar-cost averaging, best
day/worst day scenarios, etc.; (viii) comparisons of the average price to
earnings ratio, price to book ratio, price to cash flow and relative currency
valuations of the Fund and individual stocks in the Fund's portfolio,
appropriate indices and descriptions of such comparisons; (ix) quotes from the
portfolio manager of the Fund or other industry specialists; (x) lists or
statistics of certain of the Fund's holdings including, but not limited to,
portfolio composition, sector weightings, portfolio turnover rate, number of
holdings, average market capitalization, and modern portfolio theory statistics;
and (xi) NASDAQ symbols for each class of shares of the Fund.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, Pilgrim America, Pilgrim America Group, Inc.
or affiliates of the Fund, the Investment Manager, Pilgrim America or Pilgrim
America Group, Inc. including (i) performance rankings of other funds managed by
the Investment Manager, or the individuals employed by the Investment Manager
who exercise responsibility for the day-to-day
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<PAGE>
management of the Fund, including rankings of mutual funds published by Lipper
Analytical Services, Inc., Morningstar, Inc., CDA Technologies, Inc., or other
rating services, companies, publications or other persons who rank mutual funds
or other investment products on overall performance or other criteria; (ii)
lists of clients, the number of clients, or assets under management; (iii)
information regarding the acquisition of the Pilgrim America Funds by Pilgrim
America, (iv) the past performance of Pilgrim America and Pilgrim America Group,
Inc.; (v) the past performance of other funds managed by the Investment Manager;
and (vi) information regarding rights offerings conducted by closed-end funds
managed by the Investment Manager.
GENERAL INFORMATION
The Articles of Incorporation of the Company dated July 7, 1969, a copy of which
is on file in the office of the Secretary of the State of Maryland, authorizes
the issuance of shares of the Fund. The Company's authorized capital stock
consists of 500,000,000 shares of $.10 par value each, of which 200,000,000
shares are classified as shares of the Fund, 200,000,000 shares are classified
as shares of Pilgrim America MagnaCap Fund, and 100,000,000 shares are not
classified. All shares when issued are fully paid, non-assessable, and
redeemable. Shares have no preemptive rights. Each share of the Fund has one
vote and shares equally in dividends and distributions when and if declared by
the Fund and in the Fund's net assets upon liquidation. Shares of the Company do
not have cumulative voting rights and, as such, holders of at least 50% of the
shares voting for Directors can elect all Directors and the remaining
shareholders would not be able to elect any Directors.
The Board of Directors may classify or reclassify any unissued shares of the
Fund into shares of any series by setting or changing in any one or more
respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, or qualifications, of such shares. Any such
classification or reclassification will comply with the provisions of the 1940
Act.
The Board of Directors may create additional series (or classes of series) of
shares without shareholder approval. Any series or class of shares may be
terminated by a vote of the shareholders of such series or class entitled to
vote or by the Directors of the Company by written notice to shareholders of
such series or class.
The overall management of the business of the Fund is vested with the Board of
Directors. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund. The
day-to-day operations of the Fund are delegated to the Fund's officers subject
to the investment objective and policies of the Fund, the general supervision of
the Company's Board of Directors and the applicable laws of the State of
Maryland.
Generally, there will not be annual meetings of shareholders. Shareholders may
remove Directors from office by votes cast at a meeting of shareholders or by
written consent.
Custodian. The cash and securities owned by the Fund are held by Investors
Fiduciary Trust Company, Kansas City, Missouri, as Custodian, which takes no
part in the decisions relating to the purchase or sale of the Fund's portfolio
securities.
Independent Auditors. KPMG Peat Marwick LLP, 725 South Figueroa Street, Los
Angeles, California 90017, acts as independent auditors for the Fund.
Legal Counsel. Legal matters for the Fund are passed upon by Dechert Price &
Rhoads, 1500 K Street, N.W., Washington, D.C. 20005.
Other Information. The Fund is registered with the SEC as a management
investment company. Such registration does not involve supervision of the
management or policies of the Fund. The Prospectus and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the Commission, and copies of such information
may be obtained from the Commission upon payment of the prescribed fee or
examined at the Commission in Washington, D.C. without charge.
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<PAGE>
Investors in the Fund will be kept informed of its progress through periodic
reports showing diversification of portfolio, statistical data and any other
significant data. Financial statements audited by independent public accountants
will be submitted to shareholders at least annually.
FINANCIAL STATEMENTS
The Financial Statements of the Fund for the year ended June 30, 1997 are
incorporated herein by reference from the Fund's 1997 Annual Report to
Shareholders. Copies of the Fund's Annual Report may be obtained without charge
by contacting the Fund at Suite 1200, 40 North Central Avenue, Phoenix, Arizona
85004, (800) 331-1080.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1997
PILGRIM AMERICA MAGNACAP FUND
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Pilgrim America MagnaCap Fund (the "Fund") is a diversified series of Pilgrim
America Investment Funds, Inc., an open-end management investment company (the
"Company"). The principal investment objective of the Fund is to seek growth of
capital, and dividend income as a secondary investment consideration.
Preservation of capital also is an important consideration in attaining these
objectives. While the Fund's investments will generally be in common stocks, in
periods of stock market weakness the Fund may establish a defensive position to
preserve capital by having all or any part of its assets invested in high
quality short-term fixed income securities or retained in cash or cash
equivalents.
A Prospectus for the Fund, dated November 1, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund or the Fund's Principal Underwriter, Pilgrim
America Securities, Inc. (the "Distributor"), at the address listed above. This
Statement of Additional Information is not a prospectus. It is intended to
provide you additional information regarding the activities and operations of
the Fund, and should be read in conjunction with the Fund's Prospectus. Copies
of the Prospectus may be obtained at no charge by calling (800) 331-1080.
TABLE OF CONTENTS
Page
----
History of the Fund ............................ 2
Investment Objectives and Policies ............. 2
Investment Restrictions ........................ 4
Directors and Officers ......................... 5
Principal Shareholders ......................... 8
Management of the Fund ......................... 8
Pilgrim America ................................ 9
Distribution Plan .............................. 10
Execution of Portfolio Transactions ............ 12
Additional Purchase and Redemption Information.. 13
Determination of Share Price ................... 17
Shareholder Services and Privileges ............ 18
Distributions .................................. 20
Tax Considerations ............................. 21
Performance Information ........................ 23
General Information ............................ 25
Financial Statements ........................... 26
<PAGE>
HISTORY OF THE FUND
Pilgrim America MagnaCap Fund (the "Fund") is a diversified series of Pilgrim
America Investment Funds, Inc. (the "Company"), a Maryland corporation that was
organized in 1969. The Company consists of two series, the Fund and Pilgrim
America High Yield Fund. Shares of the Fund may be purchased through independent
financial professionals, national and regional brokerage firms and other
financial institutions ("Authorized Dealers") or by completing the Fund's
investment application and having the Authorized Dealer forward it to the Fund's
Transfer Agent.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion of investment policies supplements the Fund's
investment objectives and policies set forth in the Prospectus under the heading
"The Fund's Investment Objectives and Policies."
General
As noted in the Prospectus, the principal objective of the Fund is to attain
growth of capital, with dividend income as a secondary consideration.
Preservation of capital also is an important consideration in seeking to obtain
these objectives. There is, of course, no assurance that the Fund's objectives
will be achieved since all investments are inherently subject to market risk.
Common Stock, Convertible Securities and Other Equity Securities
The Fund will invest in common stocks, which represent an equity (ownership)
interest in a company. This ownership interest generally gives the Fund the
right to vote on issues affecting the company's organization and operations.
The Fund may also buy other types of equity securities such as convertible
securities, preferred stock, and warrants or other securities that are
exchangeable for shares of common stock. A convertible security is a security
that may be converted either at a stated price or rate within a specified period
of time into a specified number of shares of common stock. By investing in
convertible securities, the Fund seeks the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the securities are convertible, while investing at a better price than may
be available on the common stock or obtaining a higher fixed rate of return than
is available on common stocks.
Repurchase Agreements
The Fund may use any portion of its assets invested in U.S. Government
securities, and concurrently enter into repurchase agreements with respect to
such securities. Such repurchase agreements will be made only with government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal Reserve System. Under such agreements, the seller of the security
agrees to repurchase it at a mutually agreed upon time and price. The resale
price is in excess of the purchase price and reflects an agreed upon interest
rate for the period of time the agreement is outstanding. The period of these
repurchase agreements are usually quite short, from overnight to one week, while
the underlying securities generally have longer maturities.
The Fund will always receive as collateral for such repurchase agreements, U.S.
Government securities acceptable to it whose market value is equal to at least
100% of the amount invested by the Fund, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of its Custodian Bank. If the seller defaults, the Fund might incur a
loss or delay in the realization of proceeds if the value of the collateral
securing the repurchase agreement declines and it might incur disposition costs
in liquidating the collateral. The Fund may not enter into a repurchase
agreement with more than seven days to maturity if, as a result, more than 10%
of the value of the Fund's total assets would be invested in such repurchase
agreements.
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<PAGE>
Lending of Portfolio Securities
In order to generate additional income, the 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 Pilgrim America
Investments, Inc. (the "Investment Manager"). The borrower at all times during
the loan must maintain with the Fund cash or cash equivalent collateral or
provide to the Fund 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 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. Loans are subject to
termination at the option of the Fund or the borrower at any time. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the income earned on the cash to the borrower or
placing broker.
Foreign Securities
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delivery of securities may not occur at the same time as payment in some foreign
markets. Delays in settlement could result in temporary periods when a portion
of the assets of the Fund is uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
As foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to domestic companies, there may be less publicly available information about
certain foreign companies than about domestic companies. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States. A foreign
government may impose exchange control regulations that may have an impact on
currency exchange rates, and there is the possibility of expropriation, regular
and confiscatory taxation, political or social instability, or diplomatic
developments that could affect U.S. investments in those countries.
Although the Fund will use reasonable efforts to obtain the best available price
and the most favorable execution with respect to all transactions and the
Investment Manager will consider the full range and quality of services offered
by the executing broker or dealer when making these determinations, fixed
commissions on many foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Certain foreign governments levy withholding
taxes against dividend and interest income or may impose other taxes. Although
in some countries a portion of these taxes is recoverable, the non-recovered
portion of foreign withholding taxes will reduce the income received by the Fund
on these investments. However, these foreign withholding taxes are not expected
to have a significant impact on the Fund, since the Fund's investment objective
is to seek growth of capital, and dividend income as a secondary consideration.
There are certain additional risks in owning foreign securities, including those
resulting from: (i) fluctuations in currency exchange rates; (ii) devaluation of
currencies; (iii) future 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
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<PAGE>
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.
Banking Industry Obligations
The Fund may invest in banking industry obligations, including certificates of
deposit, bankers' acceptances, and fixed time deposits, with a maturity of one
year or less. The Fund will not invest in obligations issued by a bank unless
(i) the bank is a U.S. bank and a member of the FDIC and (ii) the bank has total
assets of at least $1 billion (U.S.) or, if not, the Fund's investment is
limited to the FDIC-insured amount of $100,000.
Portfolio Turnover
In seeking growth of capital, the Fund reserves the right to dispose of any
security without regard to the period of time it has been held, and to take
short- or long-term profits when such action is consistent with its objectives
and with sound investment practice. The Fund may at times take prompt advantage
of changes in market environment or purchase securities based primarily upon
short-term market considerations; however, its principal objective is to seek
long-term gains.
During its fiscal years ended June 30, 1995, 1996 and 1997, the Fund's annual
total portfolio turnover was 6%, 15% and 77%, respectively. The annual turnover
rate of the Fund's portfolio is generally expected to be less than 100%,
although it may be in excess of 100% in years when the Fund has taken a
significant defensive position. The turnover rate may vary greatly from year to
year as well as within a year, and may also be affected by cash requirements for
redemptions of Fund shares, and by the necessity of maintaining the Fund as a
regulated investment company under the Internal Revenue Code in order to receive
favorable tax treatment.
Diversification
The Fund is a diversified investment company, which means that it meets the
following requirements: at least 75% of the value of its total assets is
represented by cash and cash items (including receivables), U.S. Government
securities, securities of other investment companies, and other securities for
the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer.
INVESTMENT RESTRICTIONS
The following additional fundamental policies and investment restrictions have
been adopted by the Fund and cannot be changed without approval by the vote of a
majority of the outstanding voting securities of the Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
The Fund may not:
(1) Engage in the underwriting of securities of other issuers.
(2) Invest in "restricted securities" which cannot in the absence of an
exemption be sold without an effective registration statement under the
Securities Act of 1933, as amended.
(3) Engage in the purchase and sale of interests in real estate,
commodities or commodity contracts (although this does not preclude marketable
securities of companies engaged in these activities).
(4) Engage in the making of loans to other persons, except (a) through the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other evidences of indebtedness customarily purchased by institutional investors
or (b) by the loan of its portfolio securities in accordance with the policies
described under "Lending of Portfolio Securities."
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<PAGE>
(5) Borrow money except from banks for temporary or emergency purposes, and
then not in excess of 5% of the value of its total assets.
(6) Mortgage, pledge or hypothecate its assets in any manner, except in
connection with any authorized borrowings and then not in excess of 10% of the
value of its total assets.
(7) Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of its portfolio
transactions.
(8) Effect short sales, or purchase or sell puts, calls, spreads or
straddles.
(9) Buy or sell oil, gas, or other mineral leases, rights or royalty
contracts, or participate on a joint or joint and several basis in any
securities trading account.
(10) Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
(11) Invest more than 25% of the value of its total assets in any one
industry.
(12) Purchase or retain in its portfolio any security if an Officer or
Director of the Fund or its investment manager owns beneficially more than 1/2
of 1% of the outstanding securities of such issuer, and in the aggregate such
persons own beneficially more than 5% of the outstanding securities of such
issuer.
(13) Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security by reason of borrowing money in accordance with
the Fund's borrowing policies or investment techniques, and except for purposes
of this investment restriction, collateral, escrow, or margin or other deposits
with respect to the making of short sales, the purchase or sale of futures
contracts or related options, purchase or sale of forward foreign currency
contracts, and the writing of options on securities are not deemed to be an
issuance of a senior security.
The Fund is also subject to the following restrictions and policies that are not
fundamental and may, therefore, be changed by the Board of Directors without
shareholder approval. The Fund will limit its investments in warrants, valued at
the lower of cost or market, to 5% of its net assets. Included within that
amount, but not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on the New York or American Stock Exchange. The Fund will not engage
in the purchase or sale of real estate or real estate limited partnerships. The
Fund also will not make loans to other persons unless collateral values are
continuously maintained at no less than 100% by "marking to market" daily.
DIRECTORS AND OFFICERS
The Board of Directors of the Company is elected by the shareholders. The Board
has responsibility for the overall management of the Fund, including general
supervision and review of its investment activities. The Directors, in turn,
elect the Officers of the Company who are responsible for administering the
day-to-day operations of the Fund. Current Directors and Officers of the
Company, and their affiliations and principal occupations during the past five
years, are:
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 58.) Director. Realtor, Coldwell Banker Success Realty
(formerly, The Prudential Arizona Realty) for more than the last five
years. Ms. Baldwin is also Vice President, United States Olympic Committee
(November 1996 - Present), and formerly Treasurer, United States Olympic
Committee (November 1992 - November 1996). Ms. Baldwin is also a director
and/or trustee of each of the funds managed by the Investment Manager.
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<PAGE>
John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06130. (Age
65.) Director. Commissioner of Banking, State of Connecticut (January 1995
- Present). Mr. Burke was formerly President of Bristol Savings Bank
(August 1992 - January 1995) and President of Security Savings and Loan
(November 1989 - August 1992). Mr. Burke is also a director and/or trustee
of each of the funds managed by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age
69.) Director. President of Al Burton Productions for more than the last
five years; formerly Vice President, First Run Syndication, Castle Rock
Entertainment (July 1992 - November 1994). Mr. Burton is also a director
and/or trustee of each of the funds managed by the Investment Manager.
Bruce S. Foerster, 4045 Sheridan Avenue, Suite 432, Miami Beach, Florida
33140. (Age 56.) Director. President, South Beach Capital Markets Advisory
Corporation (January 1995 - Present); Governor of the Philadelphia Stock
Exchange (October 1997 - present); Director of Mako Marine International
(since January 1996) and Aurora Capital, Inc. (since February 1995). Mr.
Foerster was formerly Managing Director, Equity Syndicate, Lehman Brothers
(June 1992 - December 1994). Mr. Foerster is also a director and/or trustee
of each of the funds managed by the Investment Manager.
Jock Patton, 40 North Central Avenue, Phoenix, Arizona 85004. (Age 51.)
Director. Private Investor. Director of Artisoft, Inc. Mr. Patton was
formerly President and Co-owner, StockVal, Inc. (April 1993 - June 1997)
and a partner and director of the law firm of Streich, Lang, P.A. (1972 -
1993). Mr. Patton is also a director and/or trustee of each of the funds
managed by the Investment Manager.
*Robert W. Stallings, 40 North Central Avenue, Suite 1200, Phoenix, AZ
85004. (Age 48.) Chairman, Chief Executive Officer, and President.
Chairman, Chief Executive Officer and President of Pilgrim America Group,
Inc. (since December 1994); Chairman, Pilgrim America Investments, Inc.
(since December 1994); Director, Pilgrim America Securities, Inc. (since
December 1994); Chairman, Chief Executive Officer and President of Pilgrim
America Bank and Thrift Fund, Inc., Pilgrim Government Securities Income
Fund, Inc. and Pilgrim America Investment Funds, Inc. (since April 1995).
Chairman and Chief Executive Officer of Pilgrim America Prime Rate Trust
(since April 1995). Chairman and Chief Executive Officer of Pilgrim America
Capital Corporation (formerly, Express America Holdings Corporation)
("Pilgrim America") (since August 1990).
* Interested person of the Fund, as defined in the Investment Company Act of
1940, as amended.
The Fund pays each Director who is not an interested person, the Fund's pro rata
share, as described below, of (i) an annual retainer of $20,000; (ii) $1,500 per
quarterly and special Board meeting; (iii) $500 per committee meeting; (iv) $100
per special telephonic meeting; and (v) out-of-pocket expenses. During the
fiscal year ended June 30, 1997, the Fund paid an aggregate of $20,917 to the
Directors. The pro rata share paid by the Fund is based on the Fund's average
net assets as a percentage of the average net assets of all the funds managed by
the Investment Manager for which the Directors serve in common as directors/
trustees.
Compensation of Directors
The following table sets forth information regarding compensation of Directors
by the Fund and other funds managed by the Investment Manager for the fiscal
year ended June 30, 1997. Officers of the Fund and Directors who are interested
persons of the Fund do not receive any compensation from the Fund or any fund
managed by the Investment Manager. In the column headed "Total Compensation From
Registrant and Fund Complex Paid to Directors," the number in parentheses
indicates the total number of boards in the fund complex on which the Director
serves.
-6-
<PAGE>
Compensation Table
Fiscal Year Ended June 30, 1997
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
- ------------------------------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Mary A Baldwin, Director (1)(4)..... $4,929 N/A N/A $29,946
(5 boards)
John P. Burke, Director(2)(4) ...... $1,201 N/A N/A $7,200
(5 boards)
Al Burton, Director (3)(4).......... $4,929 N/A N/A $29,946
(5 boards)
Bruce S. Foerster, Director (1)(4).. $4,929 N/A N/A $29,946
(5 boards)
Jock Patton (4)(5).................. $4,929 N/A N/A $29,946
(5 boards)
Robert W. Stallings, Director and
Chairman (1)(6)................... $0 N/A N/A $0
(5 boards)
</TABLE>
- ------------
(1) Current Board member, term commencing April 7, 1995.
(2) Commenced service as Trustee on May 5, 1997.
(3) Board member since 1985.
(4) Member of Audit Committee.
(5) Current Board member, term commencing August 28, 1995.
(6) "Interested person", as defined in the Investment Company Act of 1940. As an
interested person of the Fund, Mr. Stallings will not receive any
compensation as a Director.
Officers
James R. Reis, Executive Vice President, Treasurer, Assistant Secretary and
Principal Accounting Officer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 40.)
Director, Vice Chairman (since December 1994), Executive Vice President
(since April 1995), and Treasurer (since September 1996), Pilgrim America
Group, Inc. and PAII; Director (since December 1994), Vice Chairman (since
November 1995) and Assistant Secretary (since January 1995) of PASI;
Executive Vice President, Treasurer, Assistant Secretary and Principal
Accounting Officer of most of the other funds in the Pilgrim America Group
of Funds, Chief Financial Officer (since December 1993), Vice Chairman and
Assistant Secretary (since April 1993) and former President (May 1991 -
December 1993), Pilgrim America (formerly Express America Holdings
Corporation), Vice Chairman (since April 1993) and former President (May
1991 - December 1993), Express America Mortgage Corporation.
Stanley D. Vyner, Executive Vice President
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 47.)
Executive Vice President (since August 1996), Pilgrim America Group, Inc.;
President and Chief Executive Officer (since August 1996), PAII; Executive
Vice President of (since July 1996) of most of the funds in the Pilgrim
America Group of Funds. Formerly Chief Executive Officer (November 1993 -
December 1995) HSBC Asset Management Americas, Inc., and Chief Executive
Officer, and Actuary (May 1986 - October 1993) HSBC Life Assurance Co.
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<PAGE>
James M. Hennessy, Senior Vice President and Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 48.)
Senior Vice President and Secretary (since April 1995), Pilgrim America
(formerly Express America Holdings Corporation), Pilgrim America Group,
Inc., PASI and PAII; Senior Vice President and Secretary of each of the
funds in the Pilgrim America Group of Funds. Formerly Senior Vice
President, Express America Mortgage Corporation (June 1992 - August 1994)
and President, Beverly Hills Securities Corp. (January 1990 - June 1992).
Robert S. Naka, Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 34.) Vice
President, PAII (since April 1997) and Pilgrim America Group, Inc. (since
February 1997). Vice President and Assistant Secretary of each of the funds
in the Pilgrim America Group of Funds. Formerly Assistant Vice President,
Pilgrim America Group, Inc. (August 1995 - February 1997). Formerly,
Operations Manager, Pilgrim Group, Inc. (April 1992 - April 1995).
PRINCIPAL SHAREHOLDERS
As of September 30, 1997, the Directors and Officers of the Fund owned less than
1% of any class of the Fund's outstanding shares. As of September 30, 1997, to
the knowledge of management, no person owned beneficially or of record more than
5% of the outstanding shares of any class of the Fund, except with respect to
the Class A shares of the Fund, Merrill Lynch, Pierce, Fenner & Smith Inc., 4800
Deer Lake Drive, Jacksonville, Florida 32246-6484, owned 14.44% of the shares.
With respect to the Class B shares of the Fund, Merrill Lynch, Pierce, Fenner &
Smith Inc., 4800 Deer Lake Drive, Jacksonville, Florida 32246-6484, owned 12.04%
of the shares.
MANAGEMENT OF THE FUND
Investment management and administrative services are provided to the Fund by
the Investment Manager pursuant to an Investment Management Agreement (the
"Agreement") dated April 7, 1995. Pursuant to the Agreement, the Investment
Manager furnishes the Fund with investment advice and investment management and
administrative services with respect to the Fund's assets, including the making
of specific recommendations as to the purchase and sale of portfolio securities,
furnishes office space and most personnel needed by the Fund, and in general
supervises and manages the Fund's investments subject to the ultimate
supervision and direction of the Company's Board of Directors.
As compensation for the foregoing services, the Investment Manager is paid
monthly a fee equal to 1.00% per annum of the average daily net assets of the
Fund on the first $30 million of net assets. The annual rate is reduced to 0.75%
on net assets from $30 million to $250 million; to 0.625% on net assets from
$250 million to $500 million; and to 0.50% on net assets over $500 million. As
of June 30, 1997, the total net assets of the Fund were approximately $335
million.
The Fund pays its own operating expenses, which are not assumed by the
Investment Manager, such as fees of its custodian, transfer and shareholder
servicing agent; costs of pricing and calculating its daily net asset value and
of maintaining its books of account required by the 1940 Act; expenditures in
connection with meetings of the Fund's shareholders, except those called to
accommodate the Investment Manager; salaries of officers and fees and expenses
of Directors who are not affiliated with or interested persons of the Investment
Manager; insurance premiums on property or personnel of the Fund which inure to
its benefit; salaries of personnel of the Fund who are involved in placing
orders for the execution of the Fund's portfolio transactions, shareholder
servicing and in maintaining registration of its shares under state securities
laws; trade association dues; the cost of preparing and printing reports and
proxy statements of the Fund for distribution to its shareholders; legal and
accounting fees; fees and expenses of registering and maintaining registration
of its shares for sale under Federal and applicable
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<PAGE>
state securities laws; preparing and sending prospectuses to existing
shareholders; and all other expenses in connection with the issuance,
registration and transfer of its shares.
The Investment Manager will reduce its aggregate fees for any fiscal year, or
reimburse the Fund, to the extent required so that the Fund's expenses do not
exceed the expense limitations applicable to the Fund under the securities laws
or regulations of those states or jurisdictions in which the Fund's shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require the Investment Manager to reduce its
respective fees, or to reimburse the Fund, to the extent required so that the
Fund's expenses, as described above, for any fiscal year do not exceed 2.50% of
the first $30 million of the Fund's average daily net assets, 2.00% of the next
$70 million of the Fund's average net assets and 1.50% of the Fund's remaining
average net assets. Expenses for purposes of this expense limitation include the
management fee, but exclude distribution expenses, brokerage commissions and
fees, taxes, interest and extraordinary expenses such as litigation, paid or
incurred by the Fund. In addition, the Fund has been granted a variance that
permits it to exclude certain shareholder servicing expenses from this
limitation. The Fund's expense limitation may change to reflect changes in the
expense limitations of the state having the most restrictive limitation in which
shares of the Fund are registered for sale. For the fiscal years ended June 30,
1997 and June 30, 1996 and the fiscal period April 7, 1995 to June 30, 1995, the
Fund paid management fees to the current Investment Manager of approximately
$2,157,744, $1,805,000 and $376,473. For the fiscal period July 1, 1994 to April
7, 1995 the Fund paid management fees to the former manager of approximately
$1,181,463. During the period of April 7, 1995 to June 30, 1995, the Fund made
no reimbursements to the current Investment Manager for the costs of personnel
involved with recordkeeping and daily net asset value calculations, portfolio
trading, shareholder servicing, and state securities regulation and compliance.
During the period of July 1, 1994 to April 7, 1995 the Fund reimbursed the
former manager approximately $21,397 for the costs of personnel involved with
recordkeeping and daily net asset value calculations, portfolio trading,
shareholder servicing, and state securities regulation and compliance.
The Agreement was approved on April 7, 1995, and will continue in effect from
year to year so long as such continuance is approved at least annually by (1)
the Fund's Board of Directors or a vote of a majority of the outstanding voting
securities of the Fund, and (2) the vote of a majority of the Fund's Directors
who are not parties to the Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Agreement may be terminated at any time, without penalty, by either the Fund
or the Investment Manager, upon sixty (60) days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
Distributor
Shares of the Fund are distributed by Pilgrim America Securities, Inc. (the
"Distributor") pursuant to a Distribution Agreement between the Fund and the
Distributor. The Distribution Agreement requires the Distributor to use its best
efforts on a continuing basis to solicit purchases of shares of the Fund. The
Fund and the Distributor have agreed to indemnify each other against certain
liabilities. At the discretion of the Distributor, all sales charges may at
times be reallowed to an Authorized Dealer. The Distribution Agreement will
remain in effect for two years and from year to year thereafter only if its
continuance is approved annually by a majority of the Board of Directors who are
not parties to such agreement or "interested persons" of any such party and must
be approved either by votes of a majority of the Directors or a majority of the
outstanding voting securities of the Fund. See the Prospectus for information on
how to purchase and sell shares of the Fund, and the charges and expenses
associated with an investment.
PILGRIM AMERICA
The Investment Manager and the Distributor are wholly-owned subsidiaries of
Pilgrim America Group, Inc., a Delaware corporation, which in turn is a
wholly-owned subsidiary of Pilgrim America Capital Corporation ("Pilgrim
America") (formerly Express America Holdings Corporation), a Delaware
corporation the shares of which are traded on the NASDAQ National Market System
(NASDAQ: PACC). Pilgrim America is a holding company that through its
subsidiaries engages in the financial services business, focusing primarily on
the business
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<PAGE>
of providing investment advisory, administrative and distribution services to
mutual funds, closed-end investment companies and private accounts. The
Investment Manager also acts as the investment manager to Pilgrim America
Masters Series, Inc., Pilgrim Government Securities Income Fund, Pilgrim America
High Yield Fund, and Pilgrim America Bank and Thrift Fund, Inc., open-end
investment companies, and to Pilgrim America Prime Rate Trust, a closed-end
investment company. As of September 30, 1997, the Investment Manager had assets
under management of approximately $2.6 billion.
DISTRIBUTION PLAN
The Fund has a distribution plan pursuant to Rule 12b-1 under the 1940 Act
applicable to each class of shares of the Fund ("Rule 12b-1 Plan"). The Fund
intends to operate the Rule 12b-1 Plan in accordance with its terms and the
National Association of Securities Dealers, Inc. ("NASD") Rules concerning sales
charges. Under the Rule 12b-1 Plan, the Distributor may be entitled to payment
each month in connection with the offering, sale, and shareholder servicing of
Class A, Class B, and Class M shares in amounts not to exceed the following:
with respect to Class A shares at an annual rate of up to 0.30% of the average
daily net assets of the Class A shares of the Fund; with respect to Class B
shares at an annual rate of up to 1.00% of the average daily net assets of the
Class B shares of the Fund; and with respect to Class M shares at an annual rate
of up to 1.00% of the average daily net assets of the Class M shares of the
Fund. The Board of Directors has approved under the Rule 12b-1 Plan payments of
the following amounts to the Distributor each month in connection with the
offering, sale, and shareholder servicing of Class A, Class B, and Class M
shares as follows: (i) with respect to Class A shares at an annual rate equal to
0.30% of the average daily net assets of the Class A shares of the Fund; (ii)
with respect to Class B shares at an annual rate equal to 1.00% of the average
daily net assets of the Class B shares of the Fund; and (iii) with respect to
Class M shares at an annual rate equal to 0.75% of the average daily net assets
of the Class M shares of the Fund. Of these amounts, fees equal to an annual
rate of 0.25% of the average daily net assets of the Fund are for shareholder
servicing for each of the classes.
Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for both distribution and shareholder servicing at the annual
rate of 0.25%, 0.25%, and 0.65% of the Fund's average daily net assets 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 in the 1st month following purchase of Class M shares. These
fees may be used to cover the expenses of the Distributor primarily intended to
result in the sale of Class A, Class B, and Class M shares of the Fund,
including payments to Authorized Dealers for selling shares of the Fund and for
servicing shareholders of these classes of the Fund. Activities for which these
fees may be used include: preparation and distribution of advertising materials
and sales literature; expenses of organizing and conducting sales seminars;
overhead of the Distributor; printing of prospectuses and statements of
additional information (and supplements thereto) and reports for other than
existing shareholders; payments to dealers and others that provide shareholder
services; and costs of administering the Rule 12b-1 Plan.
In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of the Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Plan terminates. The Distributor will be
reimbursed for its actual expenses incurred under the Rule 12b-1 Plan, with
respect to Class A shares. With respect to Class B shares and Class M shares,
the Distributor will receive payment without regard to actual distribution
expenses it incurs.
In addition to providing for the expenses discussed above, the Rule 12b-1 Plan
also recognizes that the Investment Manager and/or the Distributor may use their
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares and other funds
managed by the Investment Manager. In some instances, additional compensation or
promotional incentives may be offered to 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 to dealers in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales
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<PAGE>
personnel, payment for travel expenses (including meals and lodging) incurred by
sales personnel and members of their families, or other invited guests, to
various locations for such seminars or training programs, seminars for the
public, advertising and sales campaigns regarding the Fund or other funds
managed by the Investment Manager and/or other events sponsored by dealers.
The Rule 12b-1 Plan has been approved by the Board of Directors, including all
of the Directors who are not interested persons of the Fund as defined in the
1940 Act, and by the Fund's shareholders. Each Rule 12b-1 Plan must be renewed
annually by the Board of Directors, including a majority of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such Directors be committed to the Directors who are not
interested persons. The Rule 12b-1 Plan and any distribution or service
agreement may be terminated as to a Fund at any time, without any penalty, by
such Directors or by a vote of a majority of the Fund's outstanding shares on 60
days' written notice. The Distributor or any Authorized Dealer may also
terminate its respective distribution or service agreement at any time upon
written notice.
In approving each Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
the Fund is necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including those
Directors who are not interested persons of the Fund, concluded that, in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Rule 12b-1 Plan, as tailored
to each class of the Fund, will benefit the Fund and the shareholders.
Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
a Fund without approval by a majority of the Fund's outstanding shares, and all
material amendments to a Plan or any distribution or service agreement shall be
approved by the Directors who are not interested persons of the Fund, cast in
person at a meeting called for the purpose of voting on any such amendment.
The Distributor is required to report in writing to the Board of Directors at
least quarterly on the monies reimbursed to it under each Rule 12b-1 Plan, as
well as to furnish the Board with such other information as may be reasonably
requested in connection with the payments made under the Rule 12b-1 Plan in
order to enable the Board to make an informed determination of whether the Rule
12b-1 Plan should be continued.
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of the Fund's Class A shares for the fiscal year
ended June 30, 1997 were $1,662,526, including expenses for: advertising -
$29,493; salaries and commissions - $1,208,033; printing, postage, and handling
- - $79,739; brokers' servicing fees - $297,392; and miscellaneous and other
promotional activities - $47,869. Total distribution expenses incurred by the
Distributor for the costs of promotion and distribution of the Fund's Class B
shares for the fiscal year ended June 30, 1997 were $214,328, including expenses
for: advertising -- $3,802; salaries and commissions -- $155,736; printing,
postage, and handling -- $10,280; brokers' servicing fees -- $38,339; and
miscellaneous and other promotional activities -- $6,171. Total distribution
expenses incurred by the Distributor for the costs of promotion and distribution
of the Fund's Class M shares for the fiscal year ended June 30, 1997 were
$38,498, including expenses for: advertising -- $683; salaries and commissions
- -- $27,974; printing, postage, and handling -- $1,846; brokers' servicing fees
- -- $6,887; and miscellaneous and other promotional activities -- $1,108. Of the
total amount incurred by the Distributor during the last year, $848,559 was for
the costs of personnel of the Distributor and its affiliates involved in the
promotion and distribution of the Fund's shares.
Under the Glass-Steagall Act and other applicable laws, certain banking
institutions are prohibited from distributing investment company shares.
Accordingly, such banks may only provide certain agency or administrative
services to their customers for which they may receive a fee from the
Distributor under a Rule 12b-1 Plan. If a bank were prohibited from providing
such services, shareholders would be permitted to remain as Fund shareholders
and alternate means for continuing the servicing of such shareholders would be
sought. In such event, changes in services provided might occur and such
shareholders might no longer be able to avail themselves
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of any automatic investment or other service then being provided by the bank. It
is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the portfolio of the Fund, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Management Agreement, the Investment Manager
determines, subject to the instructions of and review by the Board of Directors
of the Company, which securities are to be purchased and sold by the Fund and
which brokers are to be eligible to execute portfolio transactions of the Fund.
Purchases and sales of securities in the over-the-counter market will generally
be executed directly with a "market-maker," unless in the opinion of the
Investment Manager, a better price and execution can otherwise be obtained by
using a broker for the transaction.
In placing portfolio transactions, the Investment Manager will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors. The Investment Manager seeks to obtain
the best commission rate available from brokers which are believed to be capable
of providing efficient execution and handling of the orders. In those instances
where it is reasonably determined that more than one broker can offer the
brokerage services needed to obtain the most favorable price and execution
available, consideration may be given to those brokers that supply research and
statistical information to the Fund and/or the Investment Manager, and provide
other services in addition to execution services. The Investment Manager
considers such information, which is in addition to and not in lieu of the
services required to be performed by the Investment Manager under its Agreement
with the Fund, to be useful in varying degrees, but of indeterminable value. The
placement of portfolio brokerage with broker-dealers who have sold shares of the
Fund is subject to rules adopted by the NASD. Provided the Fund's officers are
satisfied that the Fund is receiving the most favorable price and execution
available, the Fund may also consider the sale of the Fund's shares as a factor
in the selection of broker-dealers to execute its portfolio transactions.
While it will continue to be the Fund's general policy to seek first to obtain
the most favorable price and execution available, in selecting a broker to
execute portfolio transactions for the Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund
or the Investment Manager, even if the specific services were not imputed just
to the Fund and were useful to the Investment Manager in advising other clients.
In negotiating commissions with a broker, the Fund may therefore pay a higher
commission than would be the case if no weight were given to the furnishing of
these supplemental services, provided that the amount of such commission has
been determined in good faith by the Investment Manager to be reasonable in
relation to the value of the brokerage and research services provided by such
broker, which services either produce a direct benefit to the Fund or assist the
Investment Manager in carrying out its responsibilities to the Fund.
During the Fund's last three fiscal years ended June 30, 1995, 1996 and 1997,
total brokerage commissions paid by the Fund amounted to approximately $96,732,
$113,000 and $600,000, respectively. The Fund does not intend to effect any
brokerage transaction in its portfolio securities with any broker-dealer
affiliated directly or indirectly with the Investment Manager, except for any
sales of portfolio securities that may legally be made pursuant to a tender
offer, in which event the Investment Manager will offset against the management
fee a part of any tender fees that legally may be received by such affiliated
broker-dealer.
Investment decisions for the Fund are made independently from those of the other
Pilgrim America Funds, although it is possible that at times identical
securities will be acceptable for more than one of such funds. Simultaneous
transactions may be effected when the same security is considered suitable for
the investment objectives of more than one of these funds. However, the position
of each fund in the same issuer may vary and the length of time that each fund
may choose to hold its investment in the same issuer may likewise vary. Due to
the cash position of a fund at any given time, an acceptable security for
investment by such fund may not in fact be
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<PAGE>
purchased by that fund at the same time or at all. To the extent any of the
funds seeks to acquire the same security at the same time, one or more of the
funds may not be able to acquire as large a portion of such security as it
desires, or it may have to pay a higher price for such security. Similarly, a
fund may not be able to obtain as high a price for, or as large an execution of,
an order to sell a particular security if one or more of the other funds desires
to sell the same security at the same time. If more than one of such funds
simultaneously purchases or sells the same security, each day's transactions in
such security will be averaged as to price and allocated between such funds in
accordance with the total amount of such security being purchased or sold by
each of such funds. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as the Fund is
concerned.
A broker or dealer utilized by the Investment Manager may furnish statistical,
research and other information or services that are deemed by the Investment
Manager to be beneficial to a Fund's investment programs. Research services
received from brokers supplement the Investment Manager's own research, and may
include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to the Investment Manager and to the Fund's
Board Members with respect to the performance, investment activities and fees
and expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
providing equipment used to communicate research information, arranging meetings
with management of companies and providing access to consultants who supply
research information.
The outside research assistance is useful to the Investment Manager since the
brokers utilized by the Investment Manager as a group tend to follow a broader
universe of securities and other matters than the Investment Manager's staff can
follow. In addition, this research provides the Investment Manager with a
diverse perspective on financial markets. Research services which are provided
to the Investment Manager by brokers are available for the benefit of all
accounts managed or advised by the Investment Manager. In some cases, the
research services are available only from the broker providing such services. In
other cases, the research services may be obtainable from alternative sources in
return for cash payments. The Investment Manager is of the opinion that because
the broker research supplements, rather than replaces, its research, the receipt
of such research does not tend to decrease its expenses, but tends to improve
the quality of its investment advice. However, to the extent that the Investment
Manager would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Investment
Manager could be considered to have been reduced accordingly. Certain research
services furnished by brokers or dealers may be useful to the Investment Manager
with respect to clients other than a specific Fund. The Investment Manager is of
the opinion that this material is beneficial in supplementing the Investment
Manager's research and analysis, and, therefore, it may benefit a Fund by
improving the quality of the investment advice. The advisory fees paid by a Fund
are not reduced because the Investment Manager receives such services.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by the Fund's
transfer agent, Investors Fiduciary Trust Company ("Transfer Agent"), plus, for
Class A and Class M shares, a varying sales charge depending upon the class of
shares purchased and the amount of money invested, as set forth in the
Prospectus. The Distributor may, from time to time, at its discretion, allow the
selling dealer to retain 100% of such sales charge, and such dealer may
therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended. The Distributor, at its expense, may also provide additional
promotional incentives to dealers in connection with sales of shares of the Fund
and other funds managed by the Investment Manager. In some instances, such
incentives may be made available only to dealers whose representatives have sold
or are expected to sell significant amounts of such shares. The incentives may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and members of their
families to locations within or outside of the United States,
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<PAGE>
merchandise or other items. Dealers may not use sales of the Fund's shares to
qualify for the incentives to the extent such may be prohibited by the laws of
any state.
Certain investors may purchase shares of the Fund with liquid assets with a
value which is readily ascertainable by reference to a domestic exchange price
and which would be eligible for purchase by the Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Investment Manager intends to retain the security in the Fund as an
investment. Assets so purchased by the Fund will be valued in generally the same
manner as they would be valued for purposes of pricing the Fund's shares, if
such assets were included in the Fund's assets at the time of purchase. The Fund
reserves the right to amend or terminate this practice at any time.
Special Purchases at Net Asset Value
Class A or Class M shares of the Fund may be purchased at net asset value,
without a sales charge, by persons who have redeemed their Class A or Class M
shares of the Fund (or shares of other funds managed by the Investment Manager,
in accordance with the terms of such privileges established for such funds)
within the previous 90 days. The amount that may be so reinvested in the Fund is
limited to an amount up to, but not exceeding, the redemption proceeds (or to
the nearest full share if fractional shares are not purchased). In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Fund's Transfer Agent, or be postmarked, within 90 days after
the date of redemption. This privilege may only be used once per calendar year.
Payment must accompany the request and the purchase will be made at the then
current net asset value of the Fund. Such purchases may also be handled by a
securities dealer who may charge a shareholder for this service. If the
shareholder has realized a gain on the redemption, the transaction is taxable
and any reinvestment will not alter any applicable Federal capital gains tax. If
there has been a loss on the redemption and a subsequent reinvestment pursuant
to this privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested, although such disallowance is added to the
tax basis of the shares acquired upon the reinvestment.
Class A or M shares may also be purchased at net asset value by 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 Contingent
deferred Sales Charge.
Class A or Class M shares of the Fund may also be purchased at net asset value
by any charitable organization or any state, county, or city, or any
instrumentality, department, authority or agency thereof that has determined
that the Fund is a legally permissible investment and that is prohibited by
applicable investment law from paying a sales charge or commission in connection
with the purchase of shares of any registered management investment company (an
"eligible authority"). If an investment by an eligible authority at net asset
value is made though a dealer who has executed a selling group agreement with
respect to the Fund (or the other Pilgrim America Funds), the Distributor may
pay the selling firm 0.25% of the amount invested.
Shareholders of Pilgrim America General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
or Class M shares of the Fund or other open-end Pilgrim America Funds may
reinvest such amount plus any shares acquired through dividend reinvestment in
Class A or Class M shares of the Fund at its current net asset value, without a
sales charge.
Officers, directors and bona fide full-time employees of the Fund and officers,
directors and full-time employees of the Investment Manager, the Distributor,
the Fund's service providers or affiliated corporations thereof or any trust,
pension, profit-sharing or other benefit plan for such persons, broker-dealers,
for their own accounts or for members of their families (defined as current
spouse, children, parents, grandparents, uncles, aunts, siblings, nephews,
nieces, step-relations, relations at-law, and cousins) employees of such
broker-dealers (including their immediate families) and discretionary advisory
accounts of the Investment Manager, may purchase Class A or Class M shares of
the Fund at net asset value without a sales charge. Such purchaser may be
required to sign a letter stating that the purchase is for his own investment
purposes only and that the securities will not be resold
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<PAGE>
except to the Fund. The Fund may, under certain circumstances, allow registered
investment advisers to make investments on behalf of their clients at net asset
value without any commission or concession.
Class A or M shares may also be purchased at net asset value by certain fee
based registered investment advisers, trust companies and bank trust departments
under certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another Participating Fund or from Pilgrim America Prime Rate
Trust.
Letters of Intent and Rights of Accumulation
An investor may immediately qualify for a reduced sales charge on a purchase of
Class A or Class M shares of the Fund or any open-end Pilgrim America Fund which
offers Class A shares, Class M shares or shares with front-end sales charges, by
completing the Letter of Intent section of the Shareholder Application in the
Prospectus (the "Letter of Intent" or "Letter"). By completing the Letter, the
investor expresses an intention to invest during the next 13 months a specified
amount which if made at one time would qualify for the reduced sales charge. At
any time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment made will be entitled to the
sales charge applicable to the level of investment indicated on the Letter of
Intent as described above. Sales charge reductions based upon purchases in more
than one Pilgrim America Fund will be effective only after notification to the
Distributor that the investment qualifies for a discount. The shareholder's
holdings in the Investment Manager's Funds (excluding Pilgrim America General
Money Market Shares) acquired within 90 days before the Letter of Intent is
filed will be counted towards completion of the Letter of Intent but will not be
entitled to a retroactive downward adjustment of sales charge until the Letter
of Intent is fulfilled. Any redemptions made by the shareholder during the
13-month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the Letter of Intent have been completed. If
the Letter of Intent is not completed within the 13-month period, there will be
an upward adjustment of the sales charge as specified below, depending upon the
amount actually purchased (less redemption) during the period.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application in the Prospectus. A
minimum initial investment equal to 25% of the intended total investment is
required. An amount equal to 5.75% of the total intended purchase will be held
in escrow at Pilgrim America Funds, in the form of shares, in the investor's
name to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The shares in escrow will be included in the
total shares owned as reflected on the monthly statement; income and capital
gain distributions on the escrow shares will be paid directly to the investor.
The escrow shares will not be available for redemption by the investor until the
Letter of Intent has been completed, or the higher sales charge paid. If the
total purchases, less redemptions, equal the amount specified under the Letter,
the shares in escrow will be released. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by the Distributor and the dealer with whom purchases were made pursuant to
the Letter of Intent (to reflect such further quantity discount) on purchases
made within 90 days before, and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the applicable offering price. If the total purchases, less
redemptions, are less than the amount specified under the Letter, the investor
will remit to the Distributor an amount equal to the difference in dollar amount
of sales charge actually paid and the amount of sales charge which would have
applied to the aggregate purchases if the total of such purchases had been made
at a single account in the name of the investor or to the investor's order. If
within 10 days after written request such difference in sales charge is not
paid, the redemption of an appropriate number of shares in escrow to realize
such difference will be made. If the proceeds from a total redemption are
inadequate, the investor will be liable to the Distributor for the difference.
In the event of a total redemption of the account prior to fulfillment of the
Letter of Intent, the additional sales charge due will be deducted from the
proceeds of the redemption and the balance will be forwarded to the investor. By
completing the Letter of Intent section of the Shareholder Application, an
investor grants to the Distributor a security interest in the shares in escrow
and agrees to irrevocably appoint the Distributor as his attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due
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<PAGE>
and authorizes the Transfer Agent or Sub-Transfer Agent to receive and redeem
shares and pay the proceeds as directed by the Distributor. The investor or the
securities dealer must inform the Transfer Agent or the Distributor that this
Letter is in effect each time a purchase is made.
If at any time prior to or after completion of the Letter of Intent the investor
wishes to cancel the Letter of Intent, the investor must notify the Distributor
in writing. If, prior to the completion of the Letter of Intent, the investor
requests the Distributor to liquidate all shares held by the investor, the
Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at NAV to remit to the
Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other funds distributed by
the Distributor (excluding Pilgrim America General Money Market Shares) can be
combined with a current purchase to determine the reduced sales charge and
applicable offering price of the current purchase. The reduced sales charge
applies 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 accounts 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/or other employee benefit plans qualified under Section 401
of the Code), by trust companies, registered investment advisers, banks and bank
trust departments for accounts over which they exercise exclusive investment
discretionary authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity.
The reduced sales charge also applies on a non-cumulative basis, to purchases
made at one time by the customers of a single dealer, in excess of $1 million.
The Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other open-end Pilgrim America Funds (excluding Pilgrim
America General Money Market Shares) purchased and owned of record or
beneficially by a corporation, including employees of a single employer (or
affiliates thereof) including shares held by its employees, under one or more
retirement plans, can be combined with a current purchase to determine the
reduced sales charge and applicable offering price of the current purchase,
provided such transactions are not prohibited by one or more provisions of the
Employee Retirement Income Security Act or the Internal Revenue Code.
Individuals and employees should consult with their tax advisors concerning the
tax rules applicable to retirement plans before investing.
Redemptions
Payment to shareholders for shares redeemed will be made within three days after
receipt by the Fund's Transfer Agent of the written request in proper form,
except that the Fund may suspend the right of redemption or postpone the date of
payment as to the Fund during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission
(the "SEC" or the "Commission") or such Exchange is closed for other than
weekends and holidays; (b) an emergency exists as determined by the Commission
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable; or (c) for such other period as the Commission may
permit for the protection of the Fund's shareholders. At various times, the Fund
may be requested to redeem shares for which it has not yet received good
payment. Accordingly, the Fund may delay the mailing of a redemption check until
such time as it has assured itself that good payment has been collected for the
purchase of such shares, which may take up to 15 days or longer.
The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise the Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, an investor may incur brokerage costs in converting such
securities to cash. However, the Fund has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contain a formula for
determining the minimum amount of cash to be paid as part of any redemption. In
the event the Fund
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must liquidate portfolio securities to meet redemptions, it reserves the right
to reduce the redemption price by an amount equivalent to the pro-rated cost of
such liquidation not to exceed one percent of the net asset value of such
shares.
Due to the relatively high cost of handling small investments, the Fund reserves
the right, upon 30 days' written notice, to redeem, at net asset value (less any
applicable deferred sales charge), the shares of any shareholder whose account
has a value of less than $1,000 in the Fund, other than as a result of a decline
in the net asset value per share. Before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares in the account is less than the minimum amount and will allow the
shareholder 30 days to make an additional investment in an amount that will
increase the value of the account to at least $1,000 before the redemption is
processed. This policy will not be implemented where the Fund has previously
waived the minimum investment requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Conversion of Class B Shares
A shareholder's Class B shares will automatically convert to Class A shares in
the Fund on the first business day of the month in which the eighth anniversary
of the issuance of the Class B shares occurs, together with a pro rata portion
of all Class B shares representing dividends and other distributions paid in
additional Class B shares. The conversion of Class B shares into Class A shares
is subject to the continuing availability of an opinion of counsel or an
Internal Revenue Service ("IRS") ruling to the effect that (1) such conversion
will not constitute taxable events for federal tax purposes; and (2) the payment
of different dividends on Class A and Class B shares does not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. The conversion
will be effected at the relative net asset values per share of the two Classes.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of the Fund's
shares will be determined once daily as of the close of trading on the New York
Stock Exchange (4:00 p.m. New York time) during each day on which that Exchange
is open for trading. As of the date of this Statement of Additional Information,
the New York Stock Exchange is closed on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the last reported bid price on the
valuation day. In cases in which securities are traded on more than one
exchange, the securities are valued on the exchange designated by or under the
authority of the Board of Directors as the primary market. Securities for which
quotations are not readily available and all other assets will be valued at
their respective fair values as determined in good faith by or under the
direction of the Board of Directors of the Company. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are translated into
U.S. dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation.
The value of the foreign securities traded on exchanges outside the United
States is based upon the price on the exchange as of the close of business of
the exchange preceding the time of valuation (or, if earlier, at the time of the
Fund's valuation). Quotations of foreign securities in foreign currency are
converted to U.S. dollar equivalents using the foreign exchange quotation in
effect at the time net asset value is computed. The calculation of net asset
value of the Fund may not take place contemporaneously with the determination of
the prices of certain portfolio securities of foreign issuers used in such
calculation. Further, the prices of foreign securities are determined using
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<PAGE>
information derived from pricing services and other sources. Information that
becomes known to the Fund or its agents after the time that net asset value is
calculated on any business day may be assessed in determining net asset value
per share after the time of receipt of the information, but will not be used to
retroactively adjust the price of the security so determined earlier or on a
prior day. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the time when the Fund's net
asset value is determined may not be reflected in the calculation of net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities may be valued at fair value as determined by
the management and approved in good faith by the Board of Directors.
In computing the Fund's net asset value, all liabilities incurred or accrued are
deducted from the Fund's total assets. The resulting net assets are divided by
the number of shares of the Fund outstanding at the time of the valuation and
the result (adjusted to the nearest cent) is the net asset value per share.
The per share net asset value of Class A shares generally will be higher than
the per share net asset value of shares of the other classes, reflecting daily
expense accruals of the higher distribution fees applicable to Class B and Class
M shares. It is expected, however, that the per share net asset value of the
classes will tend to converge immediately after the payment of dividends or
distributions that will differ by approximately the amount of the expense
accrual differentials between the classes.
Orders received by dealers prior to the close of trading on the New York Stock
Exchange will be confirmed at the offering price computed as of the close of
trading on that Exchange provided the order is received by the Distributor prior
to its close of business that same day (normally 4:00 P.M. Pacific time). It is
the responsibility of the dealer to insure that all orders are transmitted
timely to the Fund. Orders received by dealers after the close of trading on the
New York Stock Exchange will be confirmed at the next computed offering price as
described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Fund provides a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of the Fund
on a regular basis. Such a Program may be started with an initial investment
($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no
obligation to continue. The Program may be terminated without penalty at any
time by the investor or the Fund. The minimum investment requirements may be
waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.
For investors purchasing shares of the Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of the Fund on
a periodic basis, the Fund may, in lieu of furnishing confirmations following
each purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and the rules thereunder. Such quarterly statements, which would be sent to the
investor or to the person designated by the group for distribution to its
members, will be made within five business days after the end of each quarterly
period and shall reflect all transactions in the investor's account during the
preceding quarter.
All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. SHAREHOLDERS MAY RELY ON THESE STATEMENTS IN LIEU
OF CERTIFICATES. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT BE ISSUED
UNLESS THE SHAREHOLDER REQUESTS THEM IN WRITING.
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Self-Employed and Corporate Retirement Plans
For self-employed individuals and corporate investors that wish to purchase
shares of the Fund, there is available through the Fund a Prototype Plan and
Custody Agreement. The Custody Agreement provides that Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as Custodian under the Plan, and will
furnish custodial services for an annual maintenance fee of $12.00 for each
participant, with no other charges. (This fee is in addition to the normal
Custodian charges paid by the Fund.) The annual contract maintenance charge may
be waived from time to time. For further details, including the right to appoint
a successor Custodian, see the Plan and Custody Agreements as provided by the
Fund. Employers who wish to use shares of the Fund under a custodianship with
another bank or trust company must make individual arrangements with such
institution.
Individual Retirement Accounts
Investors having earned income are eligible to purchase shares of the Fund under
an Individual Retirement Account ("IRA") pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Copies of a model Custodial Account Agreement are available
from the Distributor. Investors Fiduciary Trust Company, Kansas City, Missouri,
will act as the Custodian under this model Agreement, for which it will charge
the investor an annual fee of $12.00 for maintaining the Account (such fee is in
addition to the normal custodial charges paid by the Fund). Full details on the
IRA are contained in an IRS required disclosure statement, and the Custodian
will not open an IRA until seven (7) days after the investor has received such
statement from the Fund. An IRA using shares of the Fund may also be used by
employers who have adopted a Simplified Employee Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. Section 403(b) plans are arrangements by a public school organization
or a charitable, educational, or scientific organization that is described in
Section 501(c)(3) of the Internal Revenue Code under which employees are
permitted to take advantage of the federal income tax deferral benefits provided
for in Section 403(b) of the Code.
It is advisable for an investor considering the funding of any retirement plan
to consult with an attorney or to obtain advice from a competent retirement plan
consultant.
Telephone Redemption and Exchange Privileges
As discussed in the Prospectus, the telephone redemption and exchange privileges
are available for all shareholder accounts; however, retirement accounts may not
utilize the telephone redemption privilege. The telephone privileges may be
modified or terminated at any time. The privileges are subject to the conditions
and provisions set forth below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in good order
before the pricing of a Fund on any day on which the New York Stock
Exchange is open for business (a "Business Day"), but not later than 4:00
p.m. eastern time, will be processed at that day's closing net asset value.
For each exchange, the shareholder's account may be charged an exchange
fee. There is no fee for telephone redemption; however, redemptions of
Class A and Class B shares may be subject to a contingent deferred sales
charge (See "Redemption of Shares" in the Prospectus).
2. Telephone redemption and/or exchange instructions should be made by
dialing 1-800-992-0180 and selecting option 3.
3. Pilgrim America Funds will not permit exchanges in violation of any of
the terms and conditions set forth in the Funds' Prospectus or herein.
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<PAGE>
4. Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim America Funds:
(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address on
the registration. This address cannot reflect any change within
the previous sixty (60) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being mailed to
the address of record) can be processed with in a 30 day period.
(d) The maximum amount which can be liquidated and sent to the address
of record at any one time is $50,000.
(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.
5. If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment
requirement of the Pilgrim America Fund being acquired.
6. Any new account established through the exchange privilege will have the
same account information and options except as stated in the Prospectus.
7. Certificated shares cannot be redeemed or exchanged by telephone but
must be forwarded to Pilgrim America and deposited into your account before
any transaction may be processed.
8. If a portion of the shares to be exchanged are held in escrow in
connection with a Letter of Intent, the smallest number of full shares of
the Pilgrim America Fund to be purchased on the exchange having the same
aggregate net asset value as the shares being exchanged shall be
substituted in the escrow account. Shares held in escrow may not be
redeemed until the Letter of Intent has expired and/or the appropriate
adjustments have been made to the account.
9. Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Funds' then-current
prospectus.
10. Proceeds of a redemption may be delayed up to 15 days or longer until
the check used to purchase the shares being redeemed has been paid by the
bank upon which it was drawn.
DISTRIBUTIONS
As noted in the Prospectus, the Fund's shareholders have the privilege of
reinvesting both income dividends and capital gains distributions, if any, in
additional shares of the same class at the then current net asset value, with no
sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains distributions in cash. In the absence of such an
election, each purchase of shares of the Fund is made upon the condition and
understanding that the Fund's Transfer Agent is automatically the shareholder's
agent to receive his dividends and distributions upon all shares registered in
his name and to reinvest them in full and fractional shares of the Fund at the
applicable net asset value in effect at the close of business on the
reinvestment date. A shareholder may still at any time after a purchase of Fund
shares request that dividends and/or capital gains distributions be paid to him
in cash.
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<PAGE>
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
incident to an investment in the Fund.
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund must,
among other things: (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loaned, gains from the sale or
other disposition of stock or securities and gains from the sale or other
disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) for
taxable years beginning prior to August 6, 1997, derive less than 30% of its
gross income from the sale or other disposition of the following assets held for
less than three months: (i) stock and securities, (ii) options, futures and
forward contracts (other than options, futures and forward contracts on foreign
currencies), and (iii) foreign currencies (and options, futures and forward
contracts on foreign currencies) which are not directly related to the Fund's
principal business of investing in stocks and securities (or options and futures
with respect to stock or securities); (c) diversify its holdings so that, at the
end of each quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, with such other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of the Fund's total assets in invested in the securities (other than U.S.
Government securities or securities of other regulated investment companies) of
any one issuer or of any two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related businesses;
and (d) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) each taxable year.
The U.S. Treasury Department is authorized to issue regulations providing that
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) will be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no such regulations have been issued.
The status of the Fund as a regulated investment company does not involve
government supervision of management or of their investment practices, or
policies. As a regulated investment company, the Fund generally will be relieved
of liability for U.S. federal income tax on that portion of its investment
company taxable income and net realized capital gains which it distributes as
dividends to its shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirement.
Distributions
Dividends of investment company taxable income (including net short-term capital
gains) are taxable to shareholders as ordinary income. Distributions of
investment company taxable income may be eligible for the corporate
dividends-received deduction to the extent attributable to the Fund's dividend
income from U.S. corporations and if other applicable requirements are met.
However, the alternative minimum tax applicable to corporations may reduce the
benefit of the dividends-received deduction. The Fund expects that distributions
of net capital gains (the excess of net long-term capital gains over net
short-term capital losses) designated by the Fund as capital gain dividends
should be taxable to shareholders as long-term capital gains, regardless of the
length of time the Fund's shares have been hold by a shareholder, and are not
eligible for the dividends-received deduction. Generally, dividends and
distributions are taxable to shareholders, whether received in cash or
reinvested in shares of the Fund. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or in some cases, as capital gain.
Shareholders will be notified annually as to the federal tax status of dividends
and distributions they receive and any tax withheld thereon.
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<PAGE>
Dividends, including capital gain 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 paid by the 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.
Distributions by the Fund reduce the net asset value of the Fund shares. Should
a distribution reduce the net asset value below a shareholder's cost basis, the
distribution nevertheless may be taxable to the shareholder as ordinary income
or capital gain an described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying shares just prior to a
distribution by the Fund. The price of shares purchased at that time includes
the amount of the forthcoming distribution, but the distribution will generally
be taxable to them.
Passive Foreign Investment Companies
The Fund may invest in stocks of foreign companies that are classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
company is classified as a PFIC if at least one-half of its assets constitute
investment-type assets or 75% or more of its gross income in investment-type
income. Under the PFIC rules, an "excess distribution" received with respect to
PFIC stock is treated as having been realized ratably over the period during
which the Fund held the PFIC stock. The Fund itself will be subject to tax on
the portion, if any, of the excess distribution that is allocated to the Fund's
holding period in prior taxable years (and an interest factor will be added to
the tax, as if the tax had actually been payable in such prior taxable years)
even though the Fund distributes the corresponding income to shareholders.
Excess distributions include any gain from the sale of PFIC stock as well an
certain distributions from a PFIC. All excess distributions are taxable as
ordinary income.
The Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, the Fund generally
would be required to include in its gross income its share of the earnings of a
PFIC on a current basis, regardless of whether any distributions are received
from the PFIC. If this election is made, the special rules, discussed above,
relating to the taxation of excess distributions, would not apply. In addition,
another election is available that involves marking to market the Fund's PFIC
stock at the end of each taxable year, with the result that unrealized gains are
treated as though they were realized, and are reported as ordinary income; and
any mark-to-market losses, as well as losses from an actual disposition of PFIC
stock, would be reported as ordinary loss to the extent of any net
mark-to-market gains included in income in prior years.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries may be subject
to withholding and other income or similar taxes imposed by such countries.
Sale of Shares
Upon the sale or exchange of his shares, a shareholder will realize a taxable
gain or loss depending upon his basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, and which generally may be eligible for reduced federal tax
rates, depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent that the shares
disposed of are replaced (including replacement through the reinvesting of
dividends and capital gain distributions in the Fund) within a-period of 61 days
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of the Fund's
shares held by the shareholder for six months or less will be treated for
federal income tax purposes as a long-term capital loss to the extent of any
distributions or capital gain dividends received by the shareholder with respect
to such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
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<PAGE>
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Backup Withholding
The Fund generally will be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions, and
redemption proceeds to shareholders if (1) the shareholder fails to furnish the
Fund with the shareholder's correct taxpayer identification number or social
security number and to make such certifications as the Fund may require, (2) the
IRS notifies the shareholder or the Fund that the shareholder has failed to
report properly certain interest and dividend income to the IRS and to respond
to notices to that effect, or (3) when required to do so, the shareholder fails
to certify that he in not subject to backup withholding. Any amounts withheld
may be credited against the shareholder's federal income tax liability.
Other Taxes
Distributions also may be subject to state, local and foreign taxes. U.S. tax
rules applicable to foreign investors may differ significantly from those
outlined above. This discussion does not purport to deal with all of the tax
consequences applicable to shareholders. Shareholders are advised to consult
their own tax advisers for details with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
The Fund may, from time to time, include "total return" in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over periods of 1, 5 and 10
years (up to the life of the Fund), calculated pursuant to the following formula
which is prescribed by the SEC:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These 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).
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<PAGE>
Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
a-b 6
2[(----- + 1) - 1]
cd
where:
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
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.
Total returns are based on past results and are not necessarily a prediction of
future performance.
Performance Comparisons
In reports or other communications to shareholders or in advertising material,
the Fund may compare the performance of its Class A, Class B, and Class M shares
with that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc., Morningstar, Inc., CDA Technologies, Inc., Value
Line, Inc. or similar independent services that monitor the performance of
mutual funds or with other appropriate indexes of investment securities. In
addition, certain indexes may be used to illustrate historic performance of
select asset classes. The performance information may also include evaluations
of the Fund published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Money and The Wall Street Journal. If the Fund
compares its performance to other funds or to relevant indexes, the Fund's
performance will be stated in the same terms in which such comparative data and
indexes are stated, which is normally total return rather than yield. For these
purposes the performance of the Fund, as well as the performance of such
investment companies or indexes, may not reflect sales charges, which, if
reflected, would reduce performance results.
The average annual total return for Class A shares of the Fund for the one-,
five-, and ten-year periods ended June 30, 1997 was 23.28%, 16.33%, and 12.08%,
respectively. The average annual total return for the Class B shares for the
year ended June 30, 1997 and for the period from July 17, 1995 (commencement of
operations) through June 30, 1997, was 24.90% and 24.83%, respectively. The
average annual total return for the Class M shares for the year ended June 30,
1997 and for the period from July 17, 1995 (commencement of operations) through
June 30, 1997, was 25.72% and 22.93%, respectively.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including but not limited to age characteristics, of various countries and
regions in which the Fund may invest, as compiled by various organizations, and
projections of such information; (ii) the performance of worldwide equity and
debt markets; (iii) the capitalization of U.S. and foreign
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<PAGE>
stock markets prepared or published by the International Finance Corporation,
Morgan Stanley Capital International or a similar financial organization; (iv)
the geographic distribution of the Fund's portfolio; (v) the major industries
located in various jurisdictions; (vi) the number of shareholders in the Fund or
other Pilgrim America Funds and the dollar amount of the assets under
management; (vii) descriptions of investing methods such as dollar-cost
averaging, best day/worst day scenarios, etc.; (viii) comparisons of the average
price to earnings ratio, price to book ratio, price to cash flow and relative
currency valuations of the Fund and individual stocks in the Fund's portfolio,
appropriate indices and descriptions of such comparisons; (ix) quotes from the
portfolio manager of the Fund or other industry specialists; (x) lists or
statistics of certain of the Fund's holdings including, but not limited to,
portfolio composition, sector weightings, portfolio turnover rate, number of
holdings, average market capitalization, and modern portfolio theory statistics;
and (xi) NASDAQ symbols for each class of shares of the Fund.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, Pilgrim America, Pilgrim America Group, Inc.
or affiliates of the Fund, the Investment Manager, Pilgrim America or Pilgrim
America Group, Inc. including (i) performance rankings of other funds managed by
the Investment Manager, or the individuals employed by the Investment Manager
who exercise responsibility for the day-to-day management of the Fund, including
rankings of mutual funds published by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., or other rating services, companies,
publications or other persons who rank mutual funds or other investment products
on overall performance or other criteria; (ii) lists of clients, the number of
clients, or assets under management; (iii) information regarding the acquisition
of the Pilgrim America Funds by Pilgrim America, (iv) the past performance of
Pilgrim America and Pilgrim America Group, Inc.; (v) the past performance of
other funds managed by the Investment Manager; and (vi) information regarding
rights offerings conducted by closed-end funds managed by the Investment
Manager.
GENERAL INFORMATION
The Underwriting Agreement between the Fund and the Distributor was approved on
April 7, 1995, and will continue from year to year if approved at least annually
(i) by the Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the Fund and (ii) by a majority of the
Directors of the Company who are not parties to the Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The Agreement may be terminated without penalty by
either party on 60 days' written notice and shall automatically terminate in the
event of its assignment as defined in the 1940 Act. The Distributor is a
wholly-owned subsidiary of Pilgrim America Group, Inc.
The sales charge retained by the Distributor and the commissions reallowed to
selling dealers are not an expense of the Fund and have no effect on the net
asset value of the Fund. For the fiscal years ended June 30, 1995, 1996 and
1997, total commissions allowed to other dealers were approximately $96,732,
$954,329 and $1,545,304 respectively. For the fiscal years ended June 30, 1997
and June 30, 1996 and the fiscal period April 7, 1995 to June 30, 1995, the
current Distributor retained approximately $93,294, $23,160 and $11,049 or
approximately 6.04%, 2.37% and 4.06% of the total commissions assessed on shares
of the Fund. For the period July 1, 1994 to April 7, 1995 the former distributor
retained approximately $4,952, or approximately 1.82%, of the total commissions
assessed on purchases of the Fund.
Shares of the Fund are acquired at net asset value by Investors Fiduciary Trust
Company, Kansas City, Missouri, as Custodian for Pilgrim Investment Plans, a
unit investment trust for the accumulation of shares of the Fund. As of June 30,
1997, less than 2% of the Fund's then total outstanding shares were held by said
Custodian for the account of such plan holders.
Capitalization -- The Company's authorized capital stock consists of 500,000,000
shares of $.10 par value each, of which 200,000,000 shares are classified as
shares of the Fund, 200,000,000 shares are classified as shares of Pilgrim
America High Yield Fund, and 100,000,000 are not classified. All shares when
issued are fully paid, non-assessable, and redeemable. Shares have no preemptive
rights. All shares have equal voting, dividend and liquidation rights. The Board
of Directors may classify or reclassify any unissued shares into shares of any
series by setting or changing in any one or more respects, from time to time,
prior to the issuance of such shares, the
-25-
<PAGE>
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such shares. Any such
classification or reclassification will comply with the provisions of the 1940
Act.
Non-Cumulative Voting -- The shares of the Company have non-cumulative voting
rights which means that holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if they choose to do so,
and in such event, the holders of the remaining less than 50% of the shares
voting for the election of the Directors will not be able to elect any person or
persons to the Board of Directors.
Custodian -- The cash and securities owned by the Fund are held by Investors
Fiduciary Trust Company, 127 W. 10th Street, Kansas City, Missouri 64105, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of the Fund's portfolio securities.
Legal Counsel -- Legal matters for the Fund are passed upon by 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, acts as independent auditors for the Fund.
Other Information -- The Company is registered with the SEC as a management
investment company. Such registration does not involve supervision of the
management or policies of the Fund by any governmental agency. The Prospectus
and this Statement of Additional Information omit certain of the information
contained in the Registration Statement filed with the Commission and copies of
such information may be obtained from the Commission upon payment of the
prescribed fee or examined at the Commission in Washington, D.C. without charge.
Investors of the Fund will be kept informed of its progress through semi-annual
reports showing diversification of portfolio, statistical data and any other
significant data, including financial statements audited by independent
certified public accountants.
FINANCIAL STATEMENTS
The financial statements of the Fund for the fiscal year ended June 30, 1997 are
incorporated herein by reference from the Fund's 1997 Annual Report to
Shareholders dated June 30, 1997. Copies of the Fund's Annual Report may be
obtained without charge by contacting the Fund at Suite 1200, 40 North Central
Avenue, Phoenix, Arizona 85004, (800) 331-1080.
-26-
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Contained in Part A:
Financial Highlights
Contained in Part B:
Financial Statements for the Registrant's Pilgrim America MagnaCap Fund
series are incorporated by reference from that Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1997 (audited).
Financial Statements for the Registrant's Pilgrim America High Yield
Fund series are incorporated by reference from that Fund's Annual
Report to Shareholders for the fiscal year ended June 30, 1997
(audited).
(b) Exhibits
(1) Form of Articles of Restatement of Articles of Incorporation
(2) Form of Amended and Restated Bylaws
(3) Not Applicable
(4) Not Applicable
(5)(A) Form of Investment Management Agreement - High Yield Fund
(5)(B) Form of Investment Mamagement Agreement - MagnaCap Fund
(6)(A) Form of Underwriting Agreement
(6)(B) Form of Selling Group Agreement
(7) Not Applicable
(8)(A) Form of Custody Agreement
(8)(B) Form of Recordkeeping Agreement
(9) Form of Shareholder Servicing Agreement
C-1
<PAGE>
(10) Opinion and Consent of Counsel (filed with 24f-2 notice)
(11) Consent of Independent Auditors
(12) Not Applicable
(13) Form of Investment Letter*
(14) Not Applicable
(15)(A) Form of Service and Distribution Plan for Class A Shares
(15)(B) Form of Service and Distribution Plan for Class B Shares
(15)(C) Form of Service and Distribution Plan for Class M Shares
(16) Not Applicable
(17) Not Applicable
(18) Form of Multiple Class Plan Adopted Pursuant to Rule 18f-3
(27) Financial Data Schedules
- ------------
* Previously filed as an exhibit on Registrant's Registration Statement on
Form N-1A
ITEM 25. Persons Controlled by or under Common Control with Registrant
None.
ITEM 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of September 30, 1997
-------------- ------------------------
Pilgrim America MagnaCap Fund
Class A 23,899
Class B 3,588
Class M 970
C-2
<PAGE>
Pilgrim America High Yield Fund
Class A 2,986
Class B 2,769
Class M 646
ITEM 27. Indemnification
Reference is made to Article VII, Section 8 of the Registrant's By-Laws
filed as Exhibit 2.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against policy as expressed in the Act and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Director, officer or controlling person of the Registrant in the
successful defense of any action, a suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. Business and Other Connections of the Investment Advisers
Information as to the directors and officers of the Investment Manager,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by the directors and officers of
the Investment Manager in the last two years, is included in its application for
registration as an investment adviser on Form ADV (File No. 801-48282) filed
under the Investment Advisers Act of 1940 and is incorporated herein by
reference thereto.
ITEM 29. Principal Underwriters
(a) Pilgrim America Securities, Inc. is the principal underwriter for the
Registrant.
(b) Information as to the directors and officers of Pilgrim America
Securities, Inc., together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by the
directors and officers of the Distributor in the last two years, is included in
its application for registration as a broker-dealer on Form BD (File No.
8-48020) filed under the Securities Exchange Act of 1934 and is incorporated
herein by reference thereto.
(c) Not applicable.
C-3
<PAGE>
ITEM 30. Location of Accounts and Records
The accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 will be kept by the Registrant or
its Shareholder Servicing Agent. (See Parts A and B).
ITEM 31. Management Services
None.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix and State of
Arizona on the 24th day of October, 1997.
PILGRIM AMERICA INVESTMENT FUNDS, INC.
By: /s/ Robert W. Stallings
Robert W. Stallings
Chairman
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert W. Stallings Director and President October 24, 1997
Robert W. Stallings (Principal Executive Officer)
Mary A. Baldwin * Director October 24, 1997
John P. Burke * Director October 24, 1997
Al Burton * Director October 24, 1997
<PAGE>
Bruce S. Foerster * Director October 24, 1997
Jock Patton * Director October 24, 1997
James R. Reis * Treasurer and October 24, 1997
Principal Accounting Officer
* By: /s/ Robert W. Stallings
Robert W. Stallings
Attorney-in-Fact**
** Powers of Attorney are contained herein.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Investment Funds, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each of them,
his true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him in his name, place and stead, in any and all
capacities, to sign the Fund's registration statement and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 4, 1997
/s/ Al Burton
Al Burton
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Investment Funds, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each of them,
his true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him in his name, place and stead, in any and all
capacities, to sign the Fund's registration statement and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 4, 1997
/s/ Bruce S. Foerster
Bruce S. Foerster
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Investment Funds, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each of them,
her true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for her in her name, place and stead, in any and all
capacities, to sign the Fund's registration statement and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as she might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 4, 1997
/s/ Mary A. Baldwin
Mary A. Baldwin
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Investment Funds, Inc. (the "Fund"),
constitutes and appoints James R. Reis, James M. Hennessy, Jeffrey S. Puretz,
Jeffrey L. Steele, and Karen L. Anderberg and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him in his name, place and stead, in any and all capacities, to sign the
Fund's registration statement and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and conforming
all that said attorneys-in-fact and agents, or any of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 4, 1997
/s/ Robert W. Stallings
Robert W. Stallings
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Investment Funds, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each of them,
his true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him in his name, place and stead, in any and all
capacities, to sign the Fund's registration statement and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 4, 1997
/s/ John P. Burke
John P. Burke
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Investment Funds, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each of them,
his true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him in his name, place and stead, in any and all
capacities, to sign the Fund's registration statement and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 4, 1997
/s/ Jock Patton
Jock Patton
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the duly
elected Treasurer and Principal Accounting Officer of Pilgrim America Investment
Funds, Inc. (the "Fund"), constitutes and appoints Robert W. Stallings, James M.
Hennessy, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him in his name, place and stead, in any and
all capacities, to sign the Fund's registration statement and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and conforming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: August 4, 1997
/s/ James R. Reis
James R. Reis
<PAGE>
EXHIBIT LIST
Exhibit
Number Name of Exhibit
------- ---------------
(1) Form of Articles of Restatement of Articles of Incorporation
(2) Form of Amended and Restated Bylaws
(5)(A) Form of Investment Management Agreement - High Yield Fund
(5)(B) Form of Investment Management Agreement - MagnaCap Fund
(6)(A) Form of Underwriting Agreement
(6)(B) Form of Selling Group Agreement
(8)(A) Form of Custody Agreement
(8)(B) Form of Recordkeeping Agreement
(9) Form of Shareholder Servicing Agreement
(11) Consent of Independent Auditors
(15)(A) Form of Service and Distribution Plan for Class A Shares
(15)(B) Form of Service and Distribution Plan for Class B Shares
(15)(C) Form of Service and Distribution Plan for Class M Shares
(18) Form of Multiple Class Plan Adopted Pursuant to Rule 18f-3
(27) Financial Data Schedules
<PAGE>
PILGRIM AMERICA INVESTMENT FUNDS, INC.
ARTICLES OF RESTATEMENT
THIS IS TO CERTIFY THAT:
FIRST: Pilgrim America Investment Funds, Inc., a Maryland corporation
(the "Corporation"), desires to restate its charter as currently in effect.
SECOND: The following provisions are all the provisions of the charter
as currently in effect:
FIRST: I, THE UNDERSIGNED, Murray L. Simpson, whose post office address
is One North LaSalle Street, Chicago, Illinois 60602, being of full legal age,
do, under and by virtue of the General Laws of the State of Maryland authorizing
the formation of corporations, hereby act as an incorporator with the intention
of forming a corporation.
SECOND: The name of the corporation is:
Pilgrim America Investment Funds, Inc.
THIRD: The purposes for which the corporation is formed are:
To engage generally in the business of an incorporated investment
company of the management type, investing and reinvesting as more specifically
set forth herein, subject to the provisions of these Articles of Incorporation
and the By-Laws of the corporation, its assets in all forms of securities and
other personal and real property, of every kind and description; to consolidate
or merge with, to acquire and take over the assets of, and to assume the
liabilities of any other corporation or trust with similar powers, to make
contracts, and, generally, to do any or all acts and things necessary or
desirable in furtherance of any of the corporate purposes or designed to
protect, preserve, or enhance the value of the corporate assets, or to the
extent permitted to business corporations authorized under the State of Maryland
as now or may in the future be enforced; and to do any or all of the things in
furtherance of the above purposes as natural persons might do.
To purchase and otherwise acquire, own, hold, sell, exchange, transfer,
mortgage, pledge, hypothecate and otherwise dispose of and generally deal in
personal property of all kinds, character and description, including but not by
way of limitation, notes, stock, treasury stock, bonds, debentures, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral trust certificate, pre-organization certificate or
subscription, transferable share, voting trust certificate, certificate of
deposit for a security, fractional undivided interest in oil, gas or other
mineral rights, or, in general, any interest or instrument, secured or
<PAGE>
unsecured, negotiable or non-negotiable, commonly known as a "security" or any
certificate of interest or participation, temporary or interim certificate for,
receipt for, guarantee of or warrant or right to subscribe to purchase any
security, subject to such restrictions as may be set forth from time to time in
the By-Laws of the corporation.
To conduct researches, investigations, enterprises, and otherwise
transact all kinds of business relating to the gathering, publishing and
distribution of financial and investment information and statistics or such
business as may be carried on in connection therewith throughout the world.
To enter into, make and perform contracts of every lawful kind, without
limitation as to amount, except as expressly provided to the contrary in the
By-Laws, with any person, firm, association, partnership, corporation or entity
including but not by way of limitation agreements for the disposition or
acquisition of the corporate stock of the corporation, agreements for the
management, supervision and overseeing of its assets or activities, and the
rendering of services with reference thereto, agreements for the holding or
custody of its assets, the acquisition and disposition of its securities,
agreements for the conduct of administrative, accounting or other activities,
agreements relating to borrowing or repayment of money.
The foregoing statements of objects and purposes except as otherwise
expressly provided shall not be held to limit or restrict in any manner the
powers of the corporation, and are in furtherance of, and in addition to, and
not in limitation of, the general powers conferred upon the corporation by the
laws of the State of Maryland or otherwise.
FOURTH: The post office address of the principal office of the
corporation in this State is c/o The Corporation Trust Incorporated, 32 South
Street, 2nd Floor, Baltimore, MD 21202. The name of the resident agent of the
corporation in this State is The Corporation Trust Incorporated, and the address
of the resident agent is 32 South Street, 2nd Floor, Baltimore, MD 21202.
FIFTH: 1. The total number of shares of stock which the corporation has
authority to issue is five hundred million (500,000,000) shares of Common Stock,
$0.10 par value per share with an aggregate par value of $50 million, which are
classified as follows: eighty million (80,000,000) shares of Pilgrim America
MagnaCap Fund series Class A Common Stock, eighty million (80,000,000) shares of
Pilgrim America MagnaCap Fund series Class B Common Stock, forty million
(40,000,000) shares of Pilgrim America MagnaCap Fund series Class M Common
Stock, eighty million (80,000,000) shares of Pilgrim America High Yield Fund
series Class A Common Stock, eighty million (80,000,000) shares of Pilgrim
America High Yield Fund series Class B Common Stock, forty million (40,000,000)
shares of Pilgrim America High Yield Fund series Class M Common Stock, and one
hundred million (100,000,000) shares of Common Stock without further
classification or designation.
2. The Board of Directors of the corporation is authorized,
from time to time, to further classify or to reclassify, as the case may be, any
unissued shares of stock of the corporation by setting or changing the
preferences, conversion or other rights, voting power,
2
<PAGE>
restrictions, limitations as to dividends, qualifications and terms or
conditions or redemptions of the stock.
3. Subject to the power of the Board of Directors to
reclassify unissued shares, the shares of each class of stock of the corporation
shall have the following preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption:
(a) (i) All consideration received by the corporation for the
issuance or sale of shares of a class together with all income,
earnings, profits and proceeds thereof, shall irrevocably belong to
each such class for all purposes, subject only to the rights of
creditors, and are herein referred to as "assets belonging to" each
such class.
(ii) The assets belonging to each such class shall be
charged with the liabilities of the corporation in respect of such
class and with such class' share of the general liabilities of the
corporation, in the latter case in the proportion that the net asset
value of such class bears to the net asset value of all classes. The
determination of the Board of Directors shall be conclusive as to the
allocation of liabilities, including accrued expenses and reserves, to
a class.
(iii) Dividends or distributions on shares of each
class, whether payable in stock or cash, shall be paid only out of
earnings, surplus or other assets belonging to such class.
(iv) In the event of the liquidation or dissolution
of the corporation, stockholders of each class shall be entitled to
receive, as a class, out of the assets of the corporation available for
distribution to stockholders, the assets belonging to each such class
and the assets so distributable to the stockholders of such class shall
be distributed among such stockholders in proportion to the number of
shares of such class held by them.
(b) A class may be invested with one or more other classes in
a common investment portfolio. Notwithstanding the provisions of
paragraph 3(a) of this Article Fifth, if two or more classes are
invested in a common investment portfolio, the shares of each such
class of stock of the corporation shall be subject to the following
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption, and, if there are other classes of stock invested in a
different investment portfolio, shall also be subject to the provisions
of paragraph 3(a) of this Article Fifth at the portfolio level as if
the classes invested in the common investment portfolio were one class:
3
<PAGE>
i. The income and expenses of the investment
portfolio shall be allocated among the classes invested in the
investment portfolio in accordance with the net asset value of shares
outstanding of each such class or as otherwise determined by the Board
of Directors.
ii. As more fully set forth in this paragraph (3)(b)
of Article Fifth, the liabilities and expenses of the classes invested
in the same investment portfolio shall be determined separately from
those of each other and, accordingly, the net asset value, the
dividends and distributions payable to holders, and the amounts
distributable in the event of liquidation of the corporation to holders
of shares of the corporation's stock may vary from class to class
invested in the same investment portfolio. Except for these differences
and certain other differences set forth in this paragraph (3) of
Article Fifth, the classes invested in the same investment portfolio
shall have the same preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption.
iii. The dividends and distributions of investment
income and capital gains with respect to the classes invested in the
same investment portfolio shall be in such amounts as may be declared
from time to time by the Board of Directors, and such dividends may
vary among the classes invested in the same investment portfolio to
reflect differing allocations of the expenses of the corporation among
the classes and any resultant differences between the net asset value
per share of the classes, to such extent and for such purposes as the
Board of Directors may deem appropriate. The allocation of investment
income and capital gains, expenses and liabilities of the corporation
among the classes shall be determined by the Board of Directors in a
manner that is consistent with an order, if any, obtained from the SEC
or any future amendment to such order or any rule or interpretation
under the Investment Company Act of 1940, as amended.
(c) Except as hereinafter provided, on each matter submitted
to a vote of the stockholders, each holder of a share of stock shall be
entitled to one vote for each share outstanding in his name on the
books of the corporation. All holders of shares of stock shall vote as
a single class except as may otherwise be required by law pursuant to
any applicable order, rule or interpretation issued by the SEC, or
otherwise, or except with respect to any matter which affects only one
or more classes of stock, in which case only the holders of shares of
the class or classes affected shall be entitled to vote.
4
<PAGE>
(d) Notwithstanding any other provision of these Articles of
Incorporation, including the last sentence of Article Ninth hereof, the
proceeds of the redemption of a share of stock of any class shall be
reduced by the amount of any contingent deferred sales charge payable
on such redemption pursuant to the terms of issuance of such share.
(e) At such times as may be determined by the Board of
Directors (or with the authorization of the Board of Directors, the
officers of the Corporation) in accordance with the Investment Company
Act of 1940, as amended, and applicable rules and regulations of the
National Association of Securities Dealers, Inc. and reflected in the
registration statement of the respective series, current as of the time
such shares are issued, shares of Class B or Class M Common Stock of
such series may be automatically converted into shares of another class
of capital stock of the respective series based on the relative net
asset value of such classes at the time of conversion, subject,
however, to any condition of conversion that may be imposed by the
Board of Directors (or with authorization of the Board of Directors,
the officers of the Corporation) and reflected in such current
registration statement relating to the respective series as aforesaid.
SIXTH: The number of directors of the corporation shall be six (6),
which number may be increased or decreased as may be provided by the By-Laws,
and in no event shall there be less than three (3) directors. The names of the
directors who shall act until the next annual meeting or until their successors
are duly chosen and qualified are:
Mary Baldwin
John P. Burke
Al Burton
Bruce S. Foerster
Jock Patton
Robert W. Stallings
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the By-Laws of the corporation except as
therein provided.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserves in the manner in which it was created. Such reserve or reserves may be
invested and reinvested by the Board of Directors in the same way and subject to
the same restrictions as are provided for the investment and reinvestment of the
capital of the corporation. When and only when the Board of Directors shall
decide that it is advisable or necessary to pay dividends out of the reserve,
shall such funds be subject to the payment of dividends.
5
<PAGE>
To specify by the By-Laws the number of directors constituting the
whole Board of Directors which number shall not be less than three (3) and which
may be increased or decreased as provided in the By-Laws; and if there be a
vacancy on the Board of Directors by reason of death, resignation or otherwise
to fill such vacancy for the unexpired term by a majority vote of the remaining
directors; and to fill a vacancy created by an increase in the number of
directors by a majority vote of the entire Board of Directors. A director
elected by the Board of Directors to fill a vacancy shall be elected to hold
office until the next annual meeting of stockholders or until his successor is
elected and qualifies. Notwithstanding the foregoing, any such election by the
Board of Directors is subject to the restrictions relating thereto set forth in
the By-Laws.
To designate one or more committees, each committee to consist of two
or more of the directors of the corporation, which to the extent provided in the
Resolution or Resolutions of the Board of Directors or in the By-Laws of the
corporation, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation, except the power
to declare dividends, to issue stock or to recommend to stockholders may action
requiring stockholders' approval, and have the power to authorize the seal of
the corporation to be affixed to all papers which may require it.
Subject to all applicable provisions of the By-Laws, and of the Federal
Investment Company Act of 1940 and/or the Rules and Regulations thereto, to
enter into a written agreement with any person, firm or corporation to act as
manager, investment adviser, underwriter, distributor, fiscal agent, depository
and/or custodian of the corporation.
From time to time to offer for subscription or otherwise issue or sell,
for such consideration as the Board of Directors may determine and which may be
permitted by law at the time of such subscription, issue or sell, any or all of
the authorized stock of the corporation not then issued or which may have been
issued and reacquired by the corporation and any or all of any increased stock
that may hereafter be authorized.
When and as authorized by the affirmative vote of the holders of
two-thirds of the stock issued and outstanding given at a stockholders' meeting
duly called for that purpose or when authorized by the written consent of the
holders of two-thirds of the stock issued and outstanding, to sell, lease or
exchange all of the property and assets of the corporation including its good
will and its corporate franchise upon such terms and conditions and for such
consideration which may be in whole or in part shares of stock in and/or other
securities of any other corporation or corporations, as the Board of Directors
shall deem expedient and for the best interest of the corporation.
EIGHTH: The holders of the capital stock of this corporation shall have
no preemptive or preferential rights to subscribe for, purchase or receive any
part of any new or additional issues of any stock or any bonds or other
obligations of this corporation convertible into stock whether now or hereafter
authorized. The Board of Directors of the corporation may in its discretion from
time to time grant rights to stockholders to subscribe to or purchase additional
shares or bonds of the corporation. Stockholders shall have no right to
cumulative voting.
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NINTH: All shares of the corporation's capital stock will be subject to
redemption at the option of the holders thereof at the redemption price
determined in accordance with the provisions set forth in the By-Laws of the
corporation. The method prescribed in the By-Laws for determining the redemption
price shall be based on the net value of the corporation's assets determined in
accordance with applicable public law and regulatory authority. Notwithstanding
the foregoing, the Board of Directors may temporarily suspend the redemption of
shares in accordance with the provisions of applicable public law and regulatory
authority. The Board of Directors shall have authority to fix from time to time
a charge for the privilege of redemption not in excess of one percent (1%) of
the net asset value of the shares to be redeemed, as set forth in the By-Laws.
TENTH: The corporation is to have perpetual existence.
ELEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation and the
corporation may authorize or take any corporate action (including, without
limitation, any amendment to its Articles of Incorporation) upon the affirmative
vote of the holders of a majority of the outstanding shares of stock entitled to
vote thereon, notwithstanding any provision of the Maryland General Corporation
Law which would otherwise require more than a majority of the outstanding shares
of stock to authorize or take such action.
TWELFTH: At the option of the corporation, to be exercised at the
discretion of the Board of Directors, the corporation may automatically redeem
the shares owned by a stockholder if any time the shares of such stockholder do
not have a total value of at least $1,000. The Board of Directors shall cause
written notice to be mailed to any stockholder at the address of such
stockholder as then reflected on the books of the corporation of the intention
of redemption, and, unless such stockholder within 30 days following the mailing
of such notice purchases such additional number of shares so that the value of
all such shares then owned by such stockholder is at least $1,000, the
corporation shall on the date specified in such written notice redeem all shares
owned by such stockholder at the aggregate per share redemption price next
determined as provided in the By-laws of the corporation.
THIRD: The foregoing restatement of the charter has been approved by a
majority of the entire board of directors.
FOURTH: The charter is not amended by the Articles of Restatement.
FIFTH: The current address of the principal office of the Corporation
is set forth in Article Fourth of the foregoing restatement of the charter.
SIXTH: The name and address of the Corporation's current resident agent
is set forth in Article Fourth of the foregoing restatement of the charter.
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SEVENTH: The number of directors of the Corporation are set forth in
Article Sixth of the foregoing restatement of the charter.
EIGHTH: The undersigned President acknowledges these Articles of
Restatement to be the corporate act of the Corporation and as to all matters or
facts required to be verified by oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
signed in its name and on its behalf by its President and attested to by its
Secretary on this ___ day of ______________, 1997.
ATTEST: PILGRIM AMERICA INVESTMENT
FUNDS, INC.
________________________ By:_______________________(seal)
Secretary President
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BY-LAWS
OF
PILGRIM AMERICA INVESTMENT FUNDS, INC.
(Amended and Restated as of October 23, 1995)
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of
Baltimore, State of Maryland.
Section 2. The Corporation may also have offices at such other
places both within and without the State of Maryland as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of stockholders shall be held at the
office of the Corporation in Los Angeles, State of California, or at such other
place within the United States, as the Board of Directors may from time to time
determine.
Section 2. An annual meeting of stockholders is not required
to be held in any year in which the election of directors is not required to be
acted upon under the Investment Company Act of 1940, as amended. A meeting
called to elect directors pursuant to the Investment Company Act of 1940, as
amended, as aforesaid, shall be designated as the annual meeting
<PAGE>
of stockholders for that year.
Section 3. At any time in the interval between annual
meetings, special meetings of the stockholders may be called by the Board of
Directors, or by the President, a Vice President, the Secretary or an Assistant
Secretary.
Section 4. Special meetings of stockholders shall be called by
the Secretary upon the written request of the holder of shares entitled to not
less than twenty-five percent of the votes entitled to be cast at such meeting
or with respect to meetings having the purpose of removing a director or
directors ten percent of all votes entitled to be cast at such meeting. Such
request all state the purpose or purposes of such meeting and the matters
proposed to be acted on thereat. The Secretary shall inform such stockholders of
the reasonably estimated cost of preparing and mailing such notice of the
meeting, and upon payment to the Corporation of such costs the Secretary shall
give notice stating the purpose or purposes of the meeting to all stockholders
entitled to vote at such meeting. No special meeting need be called upon the
request of the holders of shares entitled to cast less than a majority of all
votes entitled to cast at such meeting, to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding twelve months.
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Section 5. Not less than ten nor more than ninety days before
the date of every stockholder's meeting, the Secretary shall give to each
stockholder entitled to vote at such meeting, and to each stockholder not
entitled to vote who is entitled by statute to notice, written or printed notice
stating the time and place of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, either by mail or by
presenting it to him or her personally or by leaving it at his or her residence
or usual place of business. If mailed, such notice shall be deemed to be given
when deposited in the United States mail addressed to the stockholder at his or
her post office address as it appears on the records of the Corporation, with
postage thereon prepaid.
Section 6. Business transacted at any special meeting of
stockholder shall be limited to the purposes stated in the notice.
Section 7. At any meeting of stockholders the presence in
person or by proxy of stockholders entitled to cast a majority of the votes
thereat shall constitute a quorum, but this shall not affect any requirement
under the law or under the charter for the vote necessary for the adoption of
any measure. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, by majority vote of the
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shares so present, without notice otherthan announcement at the meeting to a
date not more than 120 days after the original record date, until a quorum shall
be present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. A meeting of stockholders
convened on the date for which it was called at which a quorum is present may
also be adjourned from time to time without further notice other than
announcement at the meeting to a date not more than 120 days after the original
record date and any business may be transacted at any such adjourned meeting
that could have been transacted at the meeting as originally called.
Section 8. A plurality of all the votes cast at a meeting duly
called and at which a quorum is present shall be sufficient to elect a director.
Each share of stock may be voted for as many individuals as there are directors
to be elected and for whose election the share is entitled to be voted. A
majority of the votes cast at a meeting of stockholders, duly called and at
which a quorum is present, shall be sufficient to take or authorize action upon
any matter which may properly come before the meeting, unless more than a
majority of the vote cast is required by the law or by the charter.
Section 9. Except as otherwise provided in the charter, each
outstanding share of stock having voting power shall be entitled to one vote on
each matter submitted to a vote
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at a meeting of stockholders. A stockholder may vote the shares owned of record
by him or her either in person or by proxy. The proxy shall be in writing and
shall be signed by the stockholder or by the stockholder's duly authorized
attorney-in-fact or be in such other form as may be permitted by the Maryland
General Corporation Law, including documents conveyed by electronic
transmission. A copy, facsimile transmission or other reproduction of the
writing or transmission may be substituted for the original writing or
transmission for any purpose for which the original transmission could be used.
No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of stockholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of voters
and the validity of proxies and the acceptance or rejection of votes shall be
decided by the chairman of the meeting.
Section 10. Any action required or permitted to be taken at
any meeting of stockholders may be taken without a meeting, if a consent in
writing, setting forth such action, is signed by all the stockholders entitled
to vote on the subject matter thereof and any other stockholders entitled to
notice of a meeting of stockholders (but not to vote thereat) have waived in
writing any rights which they may have to dissent from such action, and such
consent and waiver are filed with the records of the Corporation.
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ARTICLE III
DIRECTORS
Section 1. The number of directors of the Corporation shall be
four. By vote of a majority of the entire Board of Directors, the number of
directors fixed by the charter or by these By-Laws may be increased or decreased
from time to time to not exceeding eleven nor less than three, but the tenure of
office of a director shall not be affected by any decrease in the number of
directors so made by the Board. At each annual meeting of stockholders, subject
to the provisions of Article II, Section 2 hereof, the stockholders shall elect
directors to hold office until the next annual meeting or until their successors
are elected and qualify. Directors need not be stockholders in the Corporation.
Section 2. Any vacancy occurring in the Board of Directors for
any cause other than by reason of an increase in the number of directors may be
filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum. Any vacancy occurring by reason of
an increase in the number of directors may be filled by action of a majority of
the entire Board of Directors as constituted prior to the increase. A director
elected by the Board of Directors to fill a vacancy shall be elected to hold
office until the next annual meeting of stockholders or until his or her
successor is elected and qualifies. Notwithstanding the
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foregoing, no vacancies occurring in the Board of Directors may be filled by
vote of the remaining members of the Board if immediately after filling any such
vacancy less than two-thirds of the directors then holding office shall have
been elected to such office by the holders of the outstanding voting securities
of the Corporation at an annual or special meeting. In the event that at any
time less than a majority of the directors of the Corporation holding office at
that time were so elected by the holders of the outstanding voting securities,
the Board of Directors of the Corporation shall forthwith cause to be held as
promptly as possible, and in any event within 60 days, a meeting of such holders
for the purpose of electing directors to fill any existing vacancies in the
Board of Directors, unless such period is extended by order of the Securities
and Exchange Commission.
Section 3. The business affairs of the Corporation shall be
managed under the direction of its Board of Directors, which may exercise all of
the powers of the Corporation, except such as are by law or by the charter or by
these By-Laws conferred upon or reserved to the stockholders.
Section 4. At any meeting of stockholders, duly called and at
which a quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
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MEETINGS OF THE BOARD OF DIRECTORS
Section 5. Meetings of the Board of Directors, regular or
special, may be held at any place in or out of the State of Maryland as the
Board may from time to time determine.
Section 6. The first meeting of each newly elected Board of
Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, subject to the provisions of Article II, Section 2
hereof, and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a quorum shall be
present. In the event such meeting is not held at such time and place, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a written waiver signed by all of the directors.
Section 7. Regular meetings of the Board of Directors may be
held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 8. Special meetings of the Board of Directors may be
called at any time by the Board of Directors or the executive committee, if one
be constituted, by vote at a meeting, or by the President or by a majority of
the directors or a majority of the members of the executive committee in writing
with or without a meeting. Special meetings may be held at such place or places
within or without Maryland as may be designated
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from time to time by the Board of Directors; in the absence of such designation
such meetings shall be held at such places as may be designated in the call.
Section 9. Notice of the place and time of every special
meeting of the Board of Directors shall be served on each director or sent to
him or her by facsimile transmission, by telegraph or by mail, or by leaving the
same at his or her residence or usual place of business at least two days before
the date of the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail addressed to the director at his or her post
office address as it appears on the records of the Corporation, with postage
thereon prepaid.
Section 10. At all meetings of the Board, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the action of a majority of the directors present at any meeting at
which a quorum is present shall be the action of the Board of Directors unless
the concurrence of a greater proportion is required for such action by statute,
the charter or these By-Laws. If a quorum shall not be present at any meeting of
directors, the directors present thereat may by a majority vote adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 11. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any
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committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board of Directors or of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
Section 12. Subject to the provisions of the Investment
Company Act of 1940, as amended, members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time. Participation by such means shall constitute presence in
person at the meeting.
COMMITTEES OF DIRECTORS
Section 13. The Board of Directors may appoint from among its
members an executive committee and other committees composed of two or more
directors, and may delegate to such committees, in the intervals between
meetings of the Board of Directors, any or all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
except those powers specifically denied by law. In the absence of any member of
any such committee the members thereof present at any meeting, whether or not
they constitute a quorum, may appoint a member the Board of Directors to act in
the place of such absent member.
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Section 14. The committees shall keep minutes of their
proceedings and shall report the same to the Board of Directors at the meeting
next succeeding, and any action by the committees
shall be subject to revision and alteration by the Board of Directors, provide
that no rights of third persons shall be affected by any such revision or
alteration.
COMPENSATION OF DIRECTORS
Section 15. Directors, as such, shall not receive any stated
salary for their services, but by resolution of the Board of Directors, a fixed
sum, and expenses of attendance if any, may be allowed to directors for
attendance at each regular or special meeting of the Board of Directors, or of
any committee thereof, but nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the Corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. In the case of
stockholders' meetings the notice may be left at the stockholders' residence or
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usual place of business. Notice to directors may also be given by facsimile
transmission or by telegram.
Section 2. Whenever any notice of the time, place or
purpose of any meeting of stockholders, directors or committee is
required to be given by law or under the provisions of the charter or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the meeting of stockholders
in person or by proxy, or at the meeting of directors or committee in person,
shall deemed equivalent to the giving of such notice to such persons.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, Vice President, a Secretary and
a Treasurer. The Board of Directors may also choose additional Vice Presidents,
and one or more Assistant Secretaries and Assistant Treasurers. Two or more
offices, except those of President and Vice President, may be held by the same
person but no officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law, the charter or
these By-Laws to be
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executed, acknowledged or verified by two or more officers.
Section 2. The Board of Directors at its first meeting after
each annual meeting of stockholders, subject to the provisions of Article II,
Section 2 hereof, shall choose a President, and shall choose one or more Vice
Presidents, a Secretary and a Treasurer, none of whom need be a member of
the Board.
Section 3. The Board of Directors may appoint such other
officers, employees and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4. The salaries of all officers, employees and agents
of the Corporation shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall serve for one
year and until their successors are chosen and qualify. Any officer or agent may
be removed by the Board of Directors whenever, in its judgment, the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the person so removed.
If the office of any officer becomes vacant for any reason, the vacancy shall be
filled by the Board of Directors.
THE PRESIDENT
Section 6. The President shall be the chief executive
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officer of the Corporation; he or she shall preside at all meetings of the
stockholders, shall have general and active management of the business of the
Corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 7. He or she shall execute in the corporate name all
authorize deeds, mortgages, bonds, contracts or other instruments requiring a
seal, under the seal of the Corporation, except in cases in which the signing or
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
VICE PRESIDENTS
Section 8. The Vice President, or if there shall be more than
one, the Vice Presidents in the order determined by the Board of Directors,
shall, in the absence of disability of the President, perform the duties and
exercise the powers of the President, and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe. The Board of Directors may designate a Vice President as Executive
Vice President, who shall have all the powers of the President as set forth in
Section 7 of this Article, and in the absence of the President, the powers set
forth in Section 6 of this Article.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The Secretary shall attend all meetings of
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the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He or she shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he or she shall be. He or she
shall keep in safe custody the seal of the Corporation and, when authorized by
the Board of Directors, affix the same to any instrument requiring it and, when
so affixed, it shall be attested by his or her signature or by the signature of
an Assistant Secretary.
Section 10. The Assistant Secretary, or if there be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the
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Corporation in any such depositories as may be designated by the Board of
Directors.
Section 12. He or she shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires
an account of all his or her transactions as Treasurer and of the financial
condition of the Corporation.
Section 13. If required by the Board of Directors, he or she
shall give the Corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board for the faithful performance of the duties
of his or her office and for the restoration to the Corporation, in case of his
or her death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his or her
possession or under his control belonging to the Corporation.
Section 14. The Assistant Treasurer, or if there shall be more
than one, the Assistant Treasurers, in the order determined by the Board of
Directors, shall, in the absence of disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
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ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Each stockholder shall be entitled, upon written
request, to a certificate or certificates which shall represent and certify the
number and kind and class of shares owned by him in the Corporation. Each
certificate shall be signed by the President or a Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer and shall be sealed with the corporate seal.
Section 2. The signatures may be manual, or facsimile if the
certificate is manually signed by a transfer agent or transfer clerk, and the
seal may be either facsimile or any other form of seal. In case any officer who
has signed any certificate ceases to be an officer of the Corporation before the
certificate is issued, the certificate may nevertheless be issued by the
Corporation with the same effect as if the officer had not ceased to be such
officer as of the date of its issue. All certificates representing stock which
is restricted or limited as to its transferability or voting powers or which is
preferred or limited as to its dividends, or as to its share of the assets upon
liquidation, or is redeemable, shall have a statement of such restriction,
limitation, preference or redemption provision, or a summary thereof, plainly
stated on the certificate. A summary of
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such information included in a registration statement permitted to become
effective under the Federal Securities Act of 1933, as now or hereafter
amended, shall be acceptable summary for the purposes thereof. No certificate
shall be issued for any share of stock until such share is fully paid.
Section 3. The Corporation may issue fractions of a share of
stock. Fractional shares of stock shall have proportionately to the respective
fractions represented thereby all the rights of whole shares, including the
right to vote, the right to receive dividends and distributions and the right to
participate upon liquidation of the Corporation, excluding, however, the right
to receive upon written request a stock certificate representing such fractional
shares.
LOST CERTIFICATES
Section 4. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been stolen, lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be stolen, lost or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such stolen, lost or destroyed certificate or certificates, or his or
her legal representative, to advertise the same in such manner as
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it shall require and to give the Corporation a bond, with sufficient surety, to
the Corporation to indemnify it against any loss or claim which may arise by
reason of the issuance of a new certificate.
TRANSFERS OF STOCK
Section 5. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The Board of Directors may fix, in advance, a date
as the record date for the purpose of determining stockholders entitled to
notice of, or to vote at, any meeting of stockholders, or stockholders entitled
to receive payment of any dividend or the allotment of any rights, or in order
to make a determination of stockholders for any other proper purpose. Such date,
in any case shall be not more than ninety days, subject to extension in the
event of adjournments pursuant to Article II, Section 7, and in case of a
meeting of stockholders not less than ten days, prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
In
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lieu of fixing a record date, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, twenty days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately
preceding such meeting.
REGISTERED STOCKHOLDERS
Section 7. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Maryland.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
Corporation, subject to the provisions of the charter, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash,
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in property, or in its own shares, subject to the provisions of the Maryland
General Corporation Law and of the charter.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interests of the
Corporation, and the directors may modify, or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The President or a Vice President or the Treasurer
shall prepare or cause to be prepared annually a full and correct statement of
the affairs of the Corporation, including a balance sheet and a financial
statement of operations for the preceding fiscal year, which shall be submitted
or filed in accordance with Maryland law.
CHECKS
Section 4. All checks, drafts, and orders for the payment of
money, notes and other evidences of indebtedness, issued in the name of the
Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
21
<PAGE>
FISCAL YEAR
Section 5. The fiscal year of the Corporation shall begin on
the first day of July in each year and end on the last day of June in each year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
STOCK LEDGER
Section 7. The Corporation shall maintain at the office of its
transfer agent an original stock ledger containing the names and addresses of
all stockholders and the number of shares of each class held by each
stockholder.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 8. (a) The Corporation shall indemnify its directors
to the fullest extent that indemnification of directors is permitted by the law.
The Corporation shall indemnify its officers to the same extent as its directors
and to such further extent as is consistent with law. The Corporation shall
indemnify its directors and officers who while serving as directors or officers
also serve at the request of the Corporation as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership, joint
22
<PAGE>
venture, trust, other enterprise or employee benefit plan to the fullest extent
permitted by law. The indemnification and other rights provided by this Section
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. This Section shall not protect any such person against any liability to
the Corporation or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office
("disabling conduct").
(b) Any current or former director or officer of the Corporation
seeking indemnification within the scope of this Section shall be entitled to
advances from the Corporation for payment of the reasonable expenses incurred
by him or her in connection with the matter as to which he or she is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Corporation a written affirmation of his or her good faith
belief that the standard of conduct necessary for indemnification by the
Corporation has been met and a written undertaking to repay any such advance
if it should ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions shall be
met: (1) the
23
<PAGE>
person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his or her undertaking; (2) the Corporation is
insured against losses arising by reason of the advance; or (3) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
(c) At the request of any person claiming indemnification under
this Section, the Board of Directors shall determine, or cause to be determined,
in a manner consistent with the Maryland General Corporation Law, whether the
standards required by this Section have been met. Indemnification shall be made
only following: (1) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (2) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (i) the mote of
a majority of a quorum of disinterested non-party
24
<PAGE>
directors or (ii) an independent legal counsel in a written opinion.
(d) Employees and agents who are not officers or directors of the
Corporation may be indemnified, and reasonable expenses may be advanced to such
employees or agents, as may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the Investment Company Act of
1940, as amended.
(e) The Board of Directors may make further provision consistent with
law for indemnification and advance of expenses to directors, officers,
employees and agents by resolution, agreement or otherwise. The indemnification
provided by this Section shall not be deemed exclusive of any other right, with
respect to indemnification or otherwise, to which those seeking indemnification
may be entitled under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise. The rights provided to any
person by this Section shall be enforceable against the Corporation by such
person who shall be presumed to have relied upon it in serving or continuing to
serve as a director, officer, employee, or agent as provided above.
(f) References in this Section are to the Maryland General Corporation
Law and to the Investment Company Act of 1940 as from time to time amended. No
amendment of these By-Laws shall effect any right of any person under this
Section based on any event,
25
<PAGE>
omission or proceeding prior to the amendment.
(g) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
Corporation or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity, or arising out of such person's position; provided, that
no insurance may be purchased which would indemnify any director or officer of
the Corporation against any liability to the Corporation or to its security
holders to which he would otherwise be subject by reason of disabling conduct.
ARTICLE VIII
SPECIAL PROVISIONS
ISSUANCE AND SALE OF CAPITAL STOCK
Section 1. The net asset value of a share of a class of the
capital stock of the Corporation shall be the quotient (adjusted to the nearest
cent) resulting from dividing the net assets of the Corporation belonging to
such class pursuant to the charter as of the valuation time by the number of the
then
26
<PAGE>
outstanding shares of such class. The net assets belonging to a class of
the Corporation's stock shall be calculated in the following manner:
(a) The gross assets shall be valued as follows:
(1) Portfolio securities (except for restricted
securities) listed or traded on a national securities exchange shall be
valued at the last sale price on such exchange on the valuation day, or
if there has been no sale that day, at the last reported bid price on
that day. Securities traded in the over-the-counter market shall be
valued at the last reported bid price on the valuation day. All other
assets, including restricted securities and securities for which quoted
prices are not readily available, shall be valued at their respective
fair values as determined in good faith by the Board of Directors of
the Corporation. The Board of Directors shall establish procedures for
the appropriate officers to follow when valuing such securities and
shall review periodically the valuations of the Corporation's
securities.
(2) All other assets of the Corporation belonging to
the class including cash, prepaid and accrued items, dividend and other
receivables, shall be appraised in such manner as will reflect their
fair value.
27
<PAGE>
(b) From the gross assets belonging to the class shall be
deducted the liabilities of the Corporation charged against the class
pursuant to the charter, including the accrued items and other payables
and proper reserves, if any, as may be determined by the Board of
Directors.
REDEMPTION OF CAPITAL STOCK
Section 2. So long as it has assets regularly available to do
so and such right is not suspended under the provisions of the Investment
Company Act of 1940, as amended, subject to the provisions of the Maryland
General Corporation Law, the Corporation shall redeem any shares of its capital
stock tendered to it at the redemption price next determined after such shares
are tendered for redemption. In addition, the Principal Underwriter for the
Corporation, as Agent for the Corporation, may repurchase shares of the
Corporation's capital stock from brokers or dealers at the redemption price next
determined after receipt of such order.
Section 3. The redemption price of a share of the capital
stock of the Corporation shall be determined and become effective each time the
net asset value of the share is determined and becomes effective. Such
redemption price shall be the net asset value thereof determined as set forth in
Section 1 of this Article VIII, but the Board of Directors may, in its
discretion, deduct therefrom the proportionate share of broker's
28
<PAGE>
commission, transfer taxes and other costs involved in the disposition of
portfolio securities, provided however that such deduction shall in no event
exceed one percent of the then net asset value of such share, and may be made
only when it is necessary to sell portfolio securities to provide cash for
redemptions; provided further, however, that nothing herein shall preclude
deduction from the proceeds of redemption of a share of any contingent deferred
sales charge payable pursuant to the terms of issuance of the shares being
redeemed.
ACCOUNTANTS
Section 4. The Corporation shall employ an independent public
accountant pursuant to the provisions of the Investment Company Act of 1940 and
the rules and regulations thereunder.
Section 5. Reports as to the operations of the Corporation
shall be submitted to stockholders semi-annually based at least annually upon an
audit by such independent public accountants.
ARTICLE IX
AMENDMENTS
Section 1. These By-Laws may be amended, altered, repealed or
added to at any regular or special meeting of the Board of Directors by the
affirmative vote of a majority of the whole authorized number of directors.
29
<PAGE>
RESTATED
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the 7th day of April, 1995, and
restated on the 7th day of April, 1997, by and between PILGRIM AMERICA
INVESTMENT FUNDS, INC., (formerly Pilgrim Investment Funds, Inc.) a corporation
organized and existing under the laws of the State of Maryland (hereinafter
called the "Company") on behalf of its PILGRIM AMERICA HIGH YIELD FUND series
(formerly Pilgrim High Yield Fund) (the "Fund"), and PILGRIM AMERICA
INVESTMENTS, INC., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is a series of the Company, an open-end management
investment company, registered as such under the Investment Company Act of 1940;
and
WHEREAS, the Company's name was changed to Pilgrim America Investment
Funds, Inc. on July 13, 1995; and the Fund's name was changed to Pilgrim America
High Yield Fund on July 13, 1995; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice, investment management and administrative services, as an
independent contractor; and
WHEREAS, the Company on behalf of the Fund desires to retain the
Manager to render advice and services to the Fund pursuant to the terms and
provisions of this Agreement, and the Manager is interested in furnishing said
advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. The Company on behalf of the Fund hereby employs the
Manager and the Manager hereby accepts such employment, to render
investment advice and investment services with respect to the assets of
the Fund, subject to the supervision and direction of the Board of
Directors of the Company. The Manager shall, except as otherwise
provided for herein, render or make available all administrative
services needed for the management and operation of the Fund, and
shall, as part of its duties hereunder, (i) furnish the Fund with
advice and recommendations with respect to the investment of the Fund's
assets and the purchase and sale of its portfolio securities, including
the taking of such other steps a may be necessary to implement such
advice and recommendations, (ii) furnish the Fund with reports,
statements and other data on securities, economic conditions and other
pertinent subjects which the Board of Directors may request, (iii)
furnish such office space and personnel as is needed by the Fund, and
(iv) in general superintend and manage the investments of the Fund,
subject to the ultimate supervision and direction of the Board of
Directors.
2. The Manager shall use its best judgment and efforts in
rendering the advice and services to the Fund as contemplated by this
Agreement.
3. The Manager shall, for all purposes herein, be deemed to be
an independent contractor, and shall, unless otherwise expressly
provided and authorized, have no authority to act for or represent the
Fund in any way, or in any way be deemed an agent for the Fund. It is
expressly understood and agreed
<PAGE>
that the services to be rendered by the Manager to the Fund under the
provisions of this Agreement are not to be deemed exclusive, and the
Manager shall be free to render similar or different services to others
so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
4. The Manager agrees to use its best efforts in the
furnishing of such advice and recommendations to the Fund, in the
preparation of reports and information, and in the management of the
Fund's assets, all pursuant to this Agreement, and for this purpose the
Manager shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall
from time to time determine to be necessary to the performance of its
obligations under this Agreement. Without limiting the generality of
the foregoing, the staff and personnel of the Manager shall be deemed
to include persons employed or retained by the Manager to furnish
statistical, research, and other factual information, advice regarding
economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and
assistance as the Manager may desire and request.
5. The Fund will from time to time furnish to the Manager
detailed statements of the investments and assets of the Fund and
information as to its investment objectives and needs, and will make
available to the Manager such financial reports, proxy statements,
legal and other information relating to its investments as may be in
the possession of the Fund or available to it and such other
information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation", the
Manager shall designate an affiliate as the "tendering dealer" so long
as it is legally permitted to act in such capacity under the Federal
securities laws and rules thereunder and the rules of any securities
exchange or association of which such affiliate may be a member. Such
affiliated dealer shall not be obligated to make any additional
commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to
maintain its corporate existence and membership in the National
Association of Securities Dealers, Inc.) as of the date of this
Agreement. This Agreement shall not obligate the Manager or such
affiliate (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability
might be imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender,
unless the Fund shall enter into an agreement with such affiliate to
reimburse it for all expenses connected with attempting to collect such
fees, including legal fees and expenses and that portion of the
compensation due to their employees which is attributable to the time
involved in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the
services to be performed by it under this Agreement. The Fund shall
bear and pay for all other expenses of its operation, including, but
not limited to, expenses incurred in connection with the issuance,
registration and transfer of its shares; fees of its custodian,
transfer and shareholder servicing agent; costs and expenses of pricing
and calculating its daily net asset value and of maintaining its books
of account required by the Investment Company Act of 1940; expenditures
in connection with meetings of the shareholders and directors, except
those called solely to accommodate the Manager; salaries of officers
and fees and expenses of directors or members of any advisory board or
committee who are not members of, affiliated with or interested persons
of the Manager; salaries of personnel involved in placing orders for
the execution of the Fund's portfolio transactions or in maintaining
registration of its shares under state securities laws; insurance
premiums on property or personnel of the Fund which inure to its
benefit; the cost of preparing and printing reports, proxy statements
and prospectuses of the Fund or other communications for distribution
to its shareholders; legal, auditing and accounting fees; trade
association dues; fees and expenses of registering and maintaining
registration of its shares for sale under Federal and applicable state
securities laws; and all other charges and costs of its operation plus
any extraordinary and non-recurring expenses, except as herein
otherwise prescribed. To the extent the Manager incurs any costs or
performs any services which
2
<PAGE>
are an obligation of the Fund, as set forth herein, the Fund shall
promptly reimburse the Manager for such costs and expenses. To the
extent the services for which the Fund is obligated to pay are
performed by the Manager, the Manager shall be entitled to recover from
the Fund only to the extent of its costs for such services.
8. (a) The Fund agrees to pay to the Manager, and the Manager
agrees to accept, as full compensation for all administrative and
investment management services furnished or provided to the Fund and as
full reimbursement for all expenses assumed by the Manager, a
management fee computed at the following annual percentage of the
average daily net assets of the Fund:
.75% on the first $25 million of net assets; plus
.625% on the net assets from $25 million to $100 million; plus
.50% on net assets from $100 million to $500 million; plus
.40% on net assets in excess of $500 million
(b) The management fees shall be accrued daily by the Fund and
paid to the Manager at the end of each calendar month.
(c) To the extent that the gross operating costs and expenses
of the Fund (excluding any interest taxes, brokerage commissions, and,
with the prior written approval of any state securities commission
requiring same, any extraordinary expenses, such as litigation) exceed
the allowable expense limitations of the state in which shares of the
Fund are registered for sale having the most stringent expense
reimbursement provisions, the Manager shall reimburse the Fund for the
amount of such excess.
(d) The management fee payable by the Fund hereunder shall be
reduced to the extent that an affiliate of the Manager has actually
received cash payments of tender offer solicitation fees less certain
costs and expenses incurred in connection therewith, as referred to in
Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers
or employees shall take any short position in the capital stock of the
Fund. This prohibition shall not prevent the purchase of such shares by
any of the officers and directors or bona fide employees of the Manager
or any trust, pension, profit-sharing or other benefit plan for such
persons or affiliates thereof, at a price not less than the net asset
value thereof at the time of purchase, as allowed pursuant to rules
promulgated under the Investment Company Act of 1940, as amended
10. Nothing herein contained shall be deemed to require the
Fund to take any action contrary to the Articles of Incorporation or
By-Laws of the Company, or any applicable statute or regulation, or to
relieve or deprive the Board of Directors of the Company of its
responsibility for and control of the conduct of the affairs of the
Fund.
11.(a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on
the part of the Manager, the Manager shall not be subject to liability
to the Fund, or to any shareholder of the Fund, for any act or omission
in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale
of any security by the Fund.
(b) Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and counsel and
Directors' fees reasonably incurred by the Company in the preparation,
printing and distribution of proxy statements, amendments to its
Registration Statement, the holding of meetings of its shareholders or
Directors, the conduct of factual investigations, any legal or
administrative proceedings (including any applications for exemptions
or determinations by the Securities and Exchange Commission) which the
Fund incurs as a result of action or inaction of the Manager or any of
its shareholders where the action or inaction necessitating such
expenditures (i) is directly or indirectly related to any transactions
or proposed transaction in the shares or control of the Manager or its
affiliates
3
<PAGE>
(or litigation related to any pending or proposed future transaction in
such shares or control) which shall have been undertaken without the
prior, express approval of the Company's Board of Directors; or (ii) is
within the sole control of the Manager or any of its affiliates or any
of their officers, directors, employees or shareholders. The Manager
shall not be obligated pursuant to the provisions of this Subparagraph
11(b), to reimburse the Fund for any expenditures related to the
institution of an administrative proceeding or civil litigation by the
Fund or by a Fund shareholder seeking to recover all or a portion of
the proceeds derived by any shareholder of the Manager or any of its
affiliates from the sale of his shares of the Manager, or similar
matters. So long as this Agreement is in effect, the Manager shall pay
to the Fund the amount due for expenses subject to this Subparagraph
11(b) within thirty (30) days after a bill or statement has been
received by the Fund therefor. This provision shall not be deemed to be
a waiver of any claim the Fund may have or may assert against the
Manager or others or costs, expenses, or damages heretofore incurred by
the Fund for costs, expenses, or damages the Fund may hereafter incur
which are not reimbursable to it hereunder.
(c) No provision of this Agreement shall be construed to
protect any director or officer of the Fund, or of the Manager, from
liability in violation of Section 17(h) and (i) of the Investment
Company Act of 1940, as amended.
12. This Agreement shall remain in effect until April 7, 1998,
unless sooner terminated as hereinafter provided, and shall continue in
effect from year to year thereafter so long as such continuation is
approved at least annually by (i) the Board of Directors of the Company
or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) the vote of a majority of the directors of the
Company who are not parties to this Agreement or interested persons
thereof, cast in person at a meeting called for the purpose of voting
on such approval.
13. This Agreement may be terminated at any time, without
payment of any penalty, by the Board of Directors of the Company or by
vote of a majority of the outstanding voting securities of the Company,
upon sixty (60) days written notice to the Manager, and by the Manager
upon sixty (60) days written notice to the Fund.
14. This Agreement shall terminate automatically in the event
of any transfer or assignment thereof, as defined in the Investment
Company Act of 1940, as amended.
15. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged without the affirmative vote or
written consent of the holders of a majority of the outstanding voting
securities of the Fund.
16. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder
of this Agreement shall not be affected thereby.
17. The term "majority of the outstanding voting securities"
of the Fund shall have the meaning as set forth in the Investment
Company Act of 1940, as amended.
18. In consideration of the execution of this Agreement, the
Manager hereby grants to the Company and the Fund the right to use the
name "Pilgrim" as part of their corporate names. The Company and Fund
agree that in the event this Agreement is terminated, the Company and
the Fund shall immediately take such steps as are necessary to amend
their corporate names to remove the reference to "Pilgrim".
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, on the day and
year first above written.
PILGRIM AMERICA INVESTMENT FUNDS, INC.
(on behalf of its Pilgrim America High Yield
Fund series)
Attest: _____________________ By:____________________________________
Title: ______________________ Title: __________________________________
PILGRIM AMERICA INVESTMENTS, INC.
Attest: _____________________ By:____________________________________
Title: ______________________ Title: __________________________________
5
<PAGE>
RESTATED
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the 7th day of April, 1995, and
restated on the 7th day of April, 1997, by and between PILGRIM AMERICA
INVESTMENT FUNDS, INC., (formerly Pilgrim Investment Funds, Inc.) a corporation
organized and existing under the laws of the State of Maryland (hereinafter
called the "Company") on behalf of its PILGRIM AMERICA MAGNACAP FUND series
(formerly Pilgrim MagnaCap Fund) (the "Fund"), and PILGRIM AMERICA INVESTMENTS,
INC., a corporation organized and existing under the laws of the State of
Delaware (hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is a series of the Company, an open-end management
investment company, registered as such under the Investment Company Act of 1940;
and
WHEREAS, the Company's name was changed to Pilgrim America Investment
Funds, Inc. on July 13, 1995; and the Fund's name was changed to Pilgrim America
MagnaCap Fund on July 13, 1995; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice, investment management and administrative services, as an
independent contractor; and
WHEREAS, the Company on behalf of the Fund desires to retain the
Manager to render advice and services to the Fund pursuant to the terms and
provisions of this Agreement, and the Manager is interested in furnishing said
advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. The Company on behalf of the Fund hereby employs the
Manager and the Manager hereby accepts such employment, to render
investment advice and investment services with respect to the assets of
the Fund, subject to the supervision and direction of the Board of
Directors of the Company. The Manager shall, except as otherwise
provided for herein, render or make available all administrative
services needed for the management and operation of the Fund, and
shall, as part of its duties hereunder, (i) furnish the Fund with
advice and recommendations with respect to the investment of the Fund's
assets and the purchase and sale of its portfolio securities, including
the taking of such other steps a may be necessary to implement such
advice and recommendations, (ii) furnish the Fund with reports,
statements and other data on securities, economic conditions and other
pertinent subjects which the Board of Directors may request, (iii)
furnish such office space and personnel as is needed by the Fund, and
(iv) in general superintend and manage the investments of the Fund,
subject to the ultimate supervision and direction of the Board of
Directors.
2. The Manager shall use its best judgment and efforts in
rendering the advice and services to the Fund as contemplated by this
Agreement.
3. The Manager shall, for all purposes herein, be deemed to be
an independent contractor, and shall, unless otherwise expressly
provided and authorized, have no authority to act for or represent the
Fund in any way, or in any way be deemed an agent for the Fund. It is
expressly understood and agreed
<PAGE>
that the services to be rendered by the Manager to the Fund under the
provisions of this Agreement are not to be deemed exclusive, and the
Manager shall be free to render similar or different services to others
so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
4. The Manager agrees to use its best efforts in the
furnishing of such advice and recommendations to the Fund, in the
preparation of reports and information, and in the management of the
Fund's assets, all pursuant to this Agreement, and for this purpose the
Manager shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall
from time to time determine to be necessary to the performance of its
obligations under this Agreement. Without limiting the generality of
the foregoing, the staff and personnel of the Manager shall be deemed
to include persons employed or retained by the Manager to furnish
statistical, research, and other factual information, advice regarding
economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and
assistance as the Manager may desire and request.
5. The Fund will from time to time furnish to the Manager
detailed statements of the investments and assets of the Fund and
information as to its investment objectives and needs, and will make
available to the Manager such financial reports, proxy statements,
legal and other information relating to its investments as may be in
the possession of the Fund or available to it and such other
information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation", the
Manager shall designate an affiliate as the "tendering dealer" so long
as it is legally permitted to act in such capacity under the Federal
securities laws and rules thereunder and the rules of any securities
exchange or association of which such affiliate may be a member. Such
affiliated dealer shall not be obligated to make any additional
commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to
maintain its corporate existence and membership in the National
Association of Securities Dealers, Inc.) as of the date of this
Agreement. This Agreement shall not obligate the Manager or such
affiliate (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability
might be imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender,
unless the Fund shall enter into an agreement with such affiliate to
reimburse it for all expenses connected with attempting to collect such
fees, including legal fees and expenses and that portion of the
compensation due to their employees which is attributable to the time
involved in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the
services to be performed by it under this Agreement. The Fund shall
bear and pay for all other expenses of its operation, including, but
not limited to, expenses incurred in connection with the issuance,
registration and transfer of its shares; fees of its custodian,
transfer and shareholder servicing agent; costs and expenses of pricing
and calculating its daily net asset value and of maintaining its books
of account required by the Investment Company Act of 1940; expenditures
in connection with meetings of the shareholders and directors, except
those called solely to accommodate the Manager; salaries of officers
and fees and expenses of directors or members of any advisory board or
committee who are not members of, affiliated with or interested persons
of the Manager; salaries of personnel involved in placing orders for
the execution of the Fund's portfolio transactions or in maintaining
registration of its shares under state securities laws; insurance
premiums on property or personnel of the Fund which inure to its
benefit; the cost of preparing and printing reports, proxy statements
and prospectuses of the Fund or other communications for distribution
to its shareholders; legal, auditing and accounting fees; trade
association dues; fees and expenses of registering and maintaining
registration of its shares for sale under Federal and applicable state
securities laws; and all other charges and costs of its operation plus
any extraordinary and non-recurring expenses, except as herein
otherwise prescribed. To the extent the Manager incurs any costs or
performs any services which are an obligation of the Fund, as set forth
herein, the Fund shall promptly reimburse the Manager for such costs
and expenses. To the extent the services for which the Fund is
obligated to pay are performed by the
2
<PAGE>
Manager, the Manager shall be entitled to recover from the Fund only to
the extent of its costs for such services.
8. (a) The Fund agrees to pay to the Manager, and the Manager
agrees to accept, as full compensation for all administrative and
investment management services furnished or provided to the Fund and as
full reimbursement for all expenses assumed by the Manager, a
management fee computed at the following annual percentage of the
average daily net assets of the Fund:
1.00% on the first $30 million of net assets; plus
.75% on the net assets from $30 million to $250 million; plus
.625% on net assets from $250 million to $500 million; plus
.50% on net assets in excess of $500 million
(b) The management fees shall be accrued daily by the Fund and
paid to the Manager at the end of each calendar month.
(c) To the extent that the gross operating costs and expenses
of the Fund (excluding any interest taxes, brokerage commissions, and,
with the prior written approval of any state securities commission
requiring same, any extraordinary expenses, such as litigation) exceed
the allowable expense limitations of the state in which shares of the
Fund are registered for sale having the most stringent expense
reimbursement provisions, the Manager shall reimburse the Fund for the
amount of such excess.
(d) The management fee payable by the Fund hereunder shall be
reduced to the extent that an affiliate of the Manager has actually
received cash payments of tender offer solicitation fees less certain
costs and expenses incurred in connection therewith, as referred to in
Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers
or employees shall take any short position in the capital stock of the
Fund. This prohibition shall not prevent the purchase of such shares by
any of the officers and directors or bona fide employees of the Manager
or any trust, pension, profit-sharing or other benefit plan for such
persons or affiliates thereof, at a price not less than the net asset
value thereof at the time of purchase, as allowed pursuant to rules
promulgated under the Investment Company Act of 1940, as amended
10. Nothing herein contained shall be deemed to require the
Fund to take any action contrary to the Articles of Incorporation or
By-Laws of the Company, or any applicable statute or regulation, or to
relieve or deprive the Board of Directors of the Company of its
responsibility for and control of the conduct of the affairs of the
Fund.
11.(a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on
the part of the Manager, the Manager shall not be subject to liability
to the Fund, or to any shareholder of the Fund, for any act or omission
in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale
of any security by the Fund.
(b) Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and counsel and
Directors' fees reasonably incurred by the Company in the preparation,
printing and distribution of proxy statements, amendments to its
Registration Statement, the holding of meetings of its shareholders or
Directors, the conduct of factual investigations, any legal or
administrative proceedings (including any applications for exemptions
or determinations by the Securities and Exchange Commission) which the
Fund incurs as a result of action or inaction of the Manager or any of
its shareholders where the action or inaction necessitating such
expenditures (i) is directly or indirectly related to any transactions
or proposed transaction in the shares or control of the Manager or its
affiliates (or litigation related to any pending or proposed future
transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Company's Board of
Directors; or (ii) is
3
<PAGE>
within the sole control of the Manager or any of its affiliates or any
of their officers, directors, employees or shareholders. The Manager
shall not be obligated pursuant to the provisions of this Subparagraph
11(b), to reimburse the Fund for any expenditures related to the
institution of an administrative proceeding or civil litigation by the
Fund or by a Fund shareholder seeking to recover all or a portion of
the proceeds derived by any shareholder of the Manager or any of its
affiliates from the sale of his shares of the Manager, or similar
matters. So long as this Agreement is in effect, the Manager shall pay
to the Fund the amount due for expenses subject to this Subparagraph
11(b) within thirty (30) days after a bill or statement has been
received by the Fund therefor. This provision shall not be deemed to be
a waiver of any claim the Fund may have or may assert against the
Manager or others or costs, expenses, or damages heretofore incurred by
the Fund for costs, expenses, or damages the Fund may hereafter incur
which are not reimbursable to it hereunder.
(c) No provision of this Agreement shall be construed to
protect any director or officer of the Fund, or of the Manager, from
liability in violation of Section 17(h) and (i) of the Investment
Company Act of 1940, as amended.
12. This Agreement shall remain in effect until April 7, 1998,
unless sooner terminated as hereinafter provided, and shall continue in
effect from year to year thereafter so long as such continuation is
approved at least annually by (i) the Board of Directors of the Company
or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) the vote of a majority of the directors of the
Company who are not parties to this Agreement or interested persons
thereof, cast in person at a meeting called for the purpose of voting
on such approval.
13. This Agreement may be terminated at any time, without
payment of any penalty, by the Board of Directors of the Company or by
vote of a majority of the outstanding voting securities of the Company,
upon sixty (60) days written notice to the Manager, and by the Manager
upon sixty (60) days written notice to the Fund.
14. This Agreement shall terminate automatically in the event
of any transfer or assignment thereof, as defined in the Investment
Company Act of 1940, as amended.
15. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged without the affirmative vote or
written consent of the holders of a majority of the outstanding voting
securities of the Fund.
16. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder
of this Agreement shall not be affected thereby.
17. The term "majority of the outstanding voting securities"
of the Fund shall have the meaning as set forth in the Investment
Company Act of 1940, as amended.
18. In consideration of the execution of this Agreement, the
Manager hereby grants to the Company and the Fund the right to use the
name "Pilgrim" as part of their corporate names. The Company and Fund
agree that in the event this Agreement is terminated, the Company and
the Fund shall immediately take such steps as are necessary to amend
their corporate names to remove the reference to "Pilgrim".
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, on the day and
year first above written.
PILGRIM AMERICA INVESTMENT FUNDS, INC.
(on behalf of its Pilgrim America
MagnaCap Fund series)
Attest:___________________________ By:____________________________________
Title: ___________________________ Title: ________________________________
PILGRIM AMERICA INVESTMENTS, INC.
Attest: __________________________ By:____________________________________
Title: ___________________________ Title: ________________________________
5
<PAGE>
PILGRIM AMERICA INVESTMENT FUNDS, INC.
(formerly Pilgrim Investment Funds, Inc.)
on behalf of its
Pilgrim America MagnaCap Fund series
(formerly Pilgrim MagnaCap Fund)
and
Pilgrim America High Yield Fund series
(formerly Pilgrim High Yield Fund)
40 N. Central Avenue, Suite 1200
Phoenix, Arizona 85004
April 7, 1997
Pilgrim America Securities, Inc.
40 N. Central Avenue, Suite 1200
Phoenix, Arizona 85004
Re: Restated Underwriting Agreement to Reflect Name
Changes to the Above Company and Series.
Gentlemen:
Pilgrim America Investment Funds, Inc. is a Maryland corporation
operating as an open-end management investment company (hereinafter referred to
as the "Company"). The Company is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"), and its shares are registered
under the Securities Act of 1933, as amended (the "1933 Act"). The Company
consists of two separate series: Pilgrim America MagnaCap Fund and Pilgrim
America High Yield Fund (the "Funds"). The Company on behalf of the Funds
desires to offer and sell the authorized but unissued shares of the Funds to the
public in accordance with applicable federal and state securities laws.
You have informed us that your company, Pilgrim America Securities,
Inc. ("PAS"), is registered as a broker-dealer under the provisions of the
Securities Exchange Act of 1934 and that PAS is a member in good standing of the
National Association of Securities Dealers, Inc. You have indicated your desire
to act as the exclusive selling agent and principal underwriter for the shares
of the Funds. We have been authorized by the Company to execute and deliver this
Agreement to you by a
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<PAGE>
resolution of our Board of Directors (the "Directors") adopted at a meeting of
the Directors, at which a majority of Directors, including a majority of our
Directors who are not otherwise interested persons of our investment manager or
its related organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part herein expressed
and upon the terms and conditions set forth herein, we hereby appoint you as the
exclusive sales agent for distribution of the shares (other than sales made
directly by the Company without sales charge) and agree that we will deliver to
you such shares as you may sell. You agree to use your best efforts to promote
the sale of the shares, but you are not obligated to sell any specific number of
the shares.
2. Independent Contractor. You will undertake and discharge
your obligations hereunder as an independent contractor and shall have no
authority or power to obligate or bind the Company or the Funds by your actions,
conduct or contracts, except that you are authorized to accept orders for the
purchase or repurchase of the shares as our agent. You may appoint sub-agents or
distribute the shares through dealers (or otherwise) as you may determine
necessary or desirable from time to time. This Agreement shall not, however, be
construed as authorizing any dealer or other person to accept orders for sale or
repurchase on our behalf or to otherwise act as our agent for any purpose.
3. Offering Price. Shares of the Funds shall be offered at a
price equivalent to their net asset value plus, as appropriate, a variable
percentage of the public offering price as a sales load, as set forth in the
Funds' Prospectus. On each business day on which the New York Stock Exchange is
open for business, we will furnish you with the net asset value of the shares,
which shall be determined and become effective as of the close of business of
the New York Stock Exchange on that day. The net asset value so determined shall
apply to all orders for the purchase of the shares received by dealers prior to
such determination, and you are authorized in your capacity as our agent to
accept orders and confirm sales at such net asset value; provided that, such
dealers notify you of the time when they received the particular order and that
the order is placed with you prior to your close of business on the day on which
the applicable net asset value is determined. To the extent that our Shareholder
Servicing and Transfer Agent (collectively, "Agent") and the Custodian(s) for
any pension, profit-sharing, employer or self-employed plan receive payments on
behalf of the investors, such Agent and Custodian(s) shall be required to record
the time of such receipt with respect to each payment, and the applicable net
asset value shall be that which is next determined and effective after the time
of receipt by them. In all events, you shall forthwith notify all of the dealers
comprising your selling group and the Agent and Custodian(s) of the effective
net asset value as received from us. Should we at any time calculate our net
asset value more frequently than once each business day, you and we will follow
procedures with respect to such additional price or prices comparable to those
set forth above in this Section 3.
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<PAGE>
4. Sales Commission. (a) You shall be entitled to receive a
sales commission on the sale of shares of the Funds in the amounts and according
to the procedures set forth in the Funds' Prospectus then in effect under the
1933 Act (including any supplements or amendments thereto).
(b) In addition to the payments of the sales commissions to
you provided for in paragraph 4(a), you may also receive reimbursement for
expenses or a maintenance or trail fee as may be required by and described in
the distribution plans adopted by the Fund pursuant to Rule 12b-1 under the 1940
Act (the "Distribution Plan").
(c) You may allow appointed sub-agents or dealers such
commissions or discounts (not exceeding the total sales commission) as you shall
deem advisable, so long as any such commissions or discounts are set forth in
the Fund's then current Prospectus, to the extent required by the applicable
federal and state securities laws.
5. Payment of Shares. At or prior to the time of delivery of
any of our shares you will pay or cause to be paid to the Custodian, for our
account, an amount in cash equal to the net asset value of such shares. In the
event that you pay for shares sold by you prior to your receipt of payment from
purchasers, you are authorized to reimburse yourself for the net asset value of
such shares from the offering price of such shares when received by you.
6. Registration of Shares. No shares shall be registered on
our books until (i) receipt by us of your written request therefor; (ii) receipt
by the Custodian and Agent of a certificate signed by an officer of the Company
stating the amount to be received therefor; and (iii) receipt of payment of that
amount by the Custodian. We will provide for the recording of all shares
purchased in unissued form in "book accounts", unless a request in writing for
certificates is received by the Agent, in which case certificates for shares in
such names and amounts as is specified in such writing will be delivered by the
Agent, as soon as practicable after registration thereof on the books.
7. Purchases for Your Own Account. You shall not purchase
shares for your own account for purposes of resale to the public, but you may
purchase shares for your own investment account upon your written assurance that
the purchase is for investment purposes only and that the shares will not be
resold except through redemption by us.
8. Sale of Shares to Affiliates. You may sell the Class A and
Class M shares at net asset value, without a sales charge as appropriate,
pursuant to a uniform offer described in the Fund's current Prospectus (i) to
our Directors and officers, our investment manager or your company or affiliated
companies thereof, (ii) to the bona fide, full time employees or sales
representatives of any of the foregoing who have acted as such for at least
ninety (90) days, (iii) to any trust, pension, profit-sharing, or other benefit
plan for such persons, or (iv) to any other person set forth in the Funds' then
current Prospectus; provided that such sales are made in accordance with the
rules and regulations under the 1940 Act and that such sales are made upon the
written assurance of the purchaser that the purchases are made for investment
purposes only, not for the purpose of resale to the public and that the shares
will not be resold except through redemption by us.
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<PAGE>
9. Allocation of Expenses.
(a) We will pay the following expenses in connection with the
sales and distribution of shares of the Funds:
(i) expenses pertaining to the preparation of our
audited and certified financial statements to be included in
any amendments ("Amendments") to our Registration Statement
under the 1933 Act, including the Prospectuses and Statements
of Additional Information included therein;
(ii) expenses pertaining to the preparation
(including legal fees) and printing of all Amendments or
supplements filed with the Securities and Exchange Commission,
including the copies of the Prospectuses and Statements of
Additional Information included in such Amendments and the
first ten (10) copies of the definitive Prospectuses and
Statements of Additional Information or supplements thereto,
other than those necessitated by or related to your (including
your "Parents") activities where such amendments or
supplements result in expenses which we would not otherwise
have incurred;
(iii) expenses pertaining to the preparation,
printing, and distribution of any reports or communications,
including Prospectuses and Statements of Additional
Information, which are sent to our existing shareholders;
(iv) filing and other fees to federal and state
securities regulatory authorities necessary to register and
maintain registration of the shares; and
(v) expenses of the Agent, including all costs and
expenses in connection with the issuance, transfer and
registration of the shares, including but not limited to any
taxes and other governmental charges in connection therewith.
(b) Except to the extent that you are entitled to
reimbursement under the provisions of any of the Distribution
Plans for the Funds, you will pay the following expenses:
(i) expenses of printing additional copies of the
Prospectus and Statement of Additional Information and any
amendments or supplements thereto which are necessary to
continue to offer our shares to the public;
(ii) expenses pertaining to the preparation
(excluding legal fees) and printing of all amendments and
supplements to our Registration Statement if the Amendment or
supplement arises from or is necessitated by or related to
your (including your "Parent") activities where those expenses
would not otherwise have been incurred by us; and
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<PAGE>
(iii) expenses pertaining to the printing of
additional copies, for use by you as sales literature, of
reports or other communications which have been prepared for
distribution to our existing shareholders or incurred by you
in advertising, promoting and selling our shares to the
public.
10. Furnishing of Information. We will furnish to you such
information with respect to our company and its shares, in such form and signed
by such of our officers as you may reasonably request, and we warrant that the
statements therein contained when so signed will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our shares for sale to the public under
the Blue Sky Laws or in jurisdictions in which you may wish to offer them. We
will furnish you at least annually with audited financial statements of our
books and accounts certified by independent public accountants, and with such
additional information regarding our financial condition, as you may reasonably
request from time to time.
11. Conduct of Business. Other than the currently effective
Prospectus and Statement of Additional Information, you will not issue any sales
material or statements except literature or advertising which conforms to the
requirements of federal and state securities laws and regulations and which have
been filed, where necessary, with the appropriate regulatory authorities. You
will furnish us with copies of all such material prior to their use and no such
material shall be published if we shall reasonably and promptly object.
You shall comply with the applicable federal and state laws
and regulations where our shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase within Seven Days. If shares are
tendered to us for redemption or are repurchased by us within seven (7) business
days after your acceptance of the original purchase order for such shares, you
will immediately refund to us the full amount of any sales commission (net of
allowances to dealers or brokers) allowed to you on the original sale, and will
promptly, upon receipt thereof, pay to us any refunds from dealers or brokers of
the balance of sales commissions reallowed by you. We shall notify you of such
tender for redemption within ten (10) days of the day on which notice of such
tender for redemption is received by us.
13. Other Activities. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services and act
as an underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall remain in effect
until April 7, 1998, and shall continue annually thereafter for successive one
(1) year periods if approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Funds or by a vote of the Directors of
the Company, and (ii) by a vote of a majority of the Directors of the Company
who are not
-5-
<PAGE>
interested persons or parties to this Agreement (other than as Directors of the
Company), cast in person at a meeting called for the purpose of voting on this
Agreement.
15. Termination. This Agreement: (i) may be terminated at any
time without the payment of any penalty, either by vote of the Directors of the
Company or by a vote of a majority of the outstanding voting securities of each
Fund, on sixty (60) days' written notice to you; (ii) shall terminate
immediately in the event of its assignment; and (iii) may be terminated by you
on sixty (60) days' written notice to us.
16. Suspension of Sales. We reserve the right at all times to
suspend or limit the public offering of the shares upon written notice to you,
and to reject any order in whole or in part.
17. Miscellaneous. This Agreement shall be subject to the laws
of the State of Maryland and shall be interpreted and construed to further and
promote the operation of the Company as an open-end investment company. As used
herein, the terms "Net Asset Value," "Offering Price," "Investment Company,"
"Open-End Investment Company," "Assignment," "Principal Underwriter,"
"Interested Person," "Parents," and "Majority of the Outstanding Voting
Securities," shall have the meanings set forth in the 1933 Act and the 1940 Act,
as applicable, and the rules and regulations promulgated thereunder.
18. Liability. Nothing contained herein shall be deemed to
protect you against any liability to us or to our shareholders to which you
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by reason of your
reckless disregard of your obligations and duties hereunder.
If the foregoing meets with your approval, please acknowledge
your acceptance by signing each of the enclosed counterparts hereof and
returning such counterparts to us, whereupon this shall constitute a binding
agreement as of the date first above written.
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<PAGE>
Very truly yours,
PILGRIM AMERICA INVESTMENT FUNDS, INC.
(on behalf of its Pilgrim America MagnaCap Fund series
and Pilgrim America High Yield Fund series)
By: ___________________________________
Title: ___________________________________
Agreed to and Accepted:
PILGRIM AMERICA SECURITIES, INC.
By: ______________________________
Title: ______________________________
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<PAGE>
Pilgrim America Securities, Inc. Return to:
Restatement: July 17, 1996 Two Renaissance Square
40 N. Central Ave., Ste 1200
Phoenix, AZ 85004-4424
(602) 417-8100 or (800) 334-3444
Selling Group Agreement
Selling Agents Copy
- --------------------------------------------------------------------------------
Broker/Dealer:
As Principal Underwriter and exclusive Selling Agent for each of the investment
companies in the Pilgrim America Securities, Inc. group of funds, listed on
Appendix "A" hereto and referred to collectively as the "Funds" or individually
as the "Fund", we understand that you are a member of the National Association
of Securities Dealers, Inc., and, on the basis of such understanding, invite you
to become a member of the Selling Group to distribute the shares of the Funds on
the following terms.
1. N.A.S.D. Rules: Reference is hereby specifically made to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.(the "N.A.S.D.
Rules"), which incorporated herein as if set forth in full. It is agreed that
all of the requirements of said rules and all other rules or regulations that
are now or may become applicable to transactions hereunder, including state
"blue sky" laws, will be fully met.
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2. Orders: An order for shares of any Fund received from you will be confirmed
only at the appropriate offering price applicable to that order, as described in
such Fund's then current Prospectus. The procedure relating to orders and the
handling thereof will be subject to instructions released by us from time to
time. Orders should be transmitted to our office or other offices authorized by
us for this purpose. The dealer or his/her customer may, however, mail a
completed application with a check payable to the Fund directly to the Fund's
shareholder servicing agent for transmission to the Fund's office in Phoenix,
Arizona. All orders are subject to acceptance in Phoenix, Arizona, and we as
agent for the Funds reserve the right in our sole discretion to reject any
order. The minimum initial investment for each Fund is set forth in its then
current Prospectus.
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3. Concessions:
(a) Any sales charges and dealers' concessions will be as set forth in the
current Prospectus of each Fund.
<PAGE>
(b) Where payment is due hereunder, we agree to send payment for dealers'
concessions and Plan payments to your address as it appears on our records. You
must notify us of address changes and promptly negotiate such payments. Any such
payments that remain outstanding for 12 months shall be void and the obligation
represented thereby shall be extinguished.
(c) With respect to Funds which impose a Contingent Deferred Sales Charge
("CDSC"), we agree to compensate selling firms at a specified rate as disclosed
in each Fund's current prospectus on purchase payments only for those shares
which are subject to the CDSC at the time of investment.
(d) We reserve the right to reclaim any commission payment from a broker/dealer
if we later determine the CDSC waiver applied at the time of investment.
(e) We reserve the right to modify the CDSC waiver at any time. We will promptly
notify each member of the Selling Group of any modification thereto.
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4. Remittance: Remittance by dealers should be made by check or wire, payable to
the appropriate Fund (not to us) and sent to the Fund's servicing agent. Stock
certificates, if the Fund has a policy of issuing them and where specifically
requested, will be delivered only after checks have cleared. Payments must be
received promptly pursuant to Article III, Section 26 (m) of the N.A.S.D. Rules,
otherwise the right is reserved, without notice, to cancel the sale, in which
event you will be held responsible for any loss to the Fund, or to us, including
loss of profit resulting from your failure to make payment.
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5. Selling Group Activities: In addition to purchasing shares of any Fund
through us as Selling Agent, you shall purchase such shares only from your
customers, in which case you shall pay the applicable net asset value determined
in accordance with the Fund's then current Prospectus and Statement of
Additional Information, less any applicable CDSC, if the Fund imposes a CDSC.
(a) Shares of any Fund may be liquidated by sale thereof to such Fund or to us
as Agent for such Fund at the applicable net asset value, less any applicable
CDSC, determined in the manner described in its then current Prospectus and
Statement of Additional Information. All certificates for shares repurchased
must be delivered to us as Agent for the Fund upon settlement. If delivery is
not made within ten (10) days from the date of the transaction, the right is
reserved, without notice, to cancel the transaction, in which event you will be
held responsible for any loss to the Fund, or to us, including loss of profit
resulting from your failure to make payment.
(b) In no event shall you withhold placing orders so as to profit from such
<PAGE>
withholding by a change in the net asset value from that used in determining the
price to your customer, or otherwise. You shall make no purchases except for the
purpose of covering orders received by you and then such purchases must be made
only at the applicable offering price (less your concession), or at the net
asset value price of a Fund which imposes a CDSC, provided, however, that the
foregoing does not prevent the purchase of shares by you for your own bonafide
investment. All sales to your customers shall be at the applicable offering
prices determined in accordance with the Fund's then current Prospectus.
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6. Refund of Sales Charge: If the shares of any Fund confirmed to you hereunder
are repurchased by such Fund, or by us as Agent for such Fund, or are tendered
for liquidation to such Fund, within seven (7) business days after such
confirmation of your original order, then you shall forthwith repay to such Fund
the full concession allowed to you on such sale and we shall forthwith repay to
such Fund our share of the sales charge thereon. We shall notify you of such
repurchase or redemption within ten (10) days from the day on which the
certificate or redemption order is delivered to us or to such Fund.
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7. Representations: No person is authorized to make any representation relating
to the shares of any Fund, except those contained in its then current Prospectus
and Statement of Additional Information which you agree to deliver to investors
in accordance with applicable regulations and in such information as we may
issue as Supplemental Information to such Prospectus and Statement of Additional
Information. In ordering shares of any Fund you shall rely solely and
conclusively on the representations contained in its then current Prospectus,
Statement of Additional Information, and Supplemental Information, if any,
additional copies of which are and will be available on request. In no
transaction shall you have any authority whatever to act as agent for any Fund,
or for us, or for any other distributor, and nothing in this Agreement shall
constitute either of us the agent of the other, or shall constitute you or any
Fund the agent of the other.
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8. Modification and Termination: We reserve the right, in our discretion and
without notice to you or to any distributor, to suspend sales, to withdraw any
offering, to change the offering prices or to modify or cancel this Agreement
(including the provision for Plan payments described in Section 3) which shall
be construed in accordance with the laws of the State of Arizona. This agreement
may be canceled at any time by you upon thirty (30) days written notice.
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9. Investors Account Instructions: If an investor's account is established
<PAGE>
without the investor signing the application form, the dealer represents that
the instructions relating to the registration (including the investor's tax
identification number) and selected options furnished to the Fund (whether on
the application form, in some other document, or orally) are in accordance with
the investor's instructions, and the dealer agrees to indemnify the Fund, its
transfer agent, shareholder servicing agent, and us for any loss or liability
resulting from acting upon such instructions. We agree to hold harmless and
indemnify you for any loss or liability arising out of our negligence in
processing such instructions.
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10. Acceptance of Terms: If the foregoing completely expresses the terms of the
Agreement between us, please so signify by executing, in the space provided, the
annexed duplicate of this Agreement and return it to us, retaining the original
copy for your own files. This Agreement shall become effective upon the earlier
of our receipt of a signed copy hereof or the first order placed by you for any
of the Fund's shares, which order shall constitute acceptance of this Agreement.
This Agreement shall supersede all prior Selling Group Agreements relating to
the shares of any of the Funds. All amendments to this Agreement, including any
changes made pursuant to Appendix "A" shall take effect as of the date or the
first order placed by you for any of the Funds shares after the date set forth
in the notice of amendment sent to you by the undersigned.
- --------------------------------------------------------------------------------
Dealer's Acceptance
_______________________________________ Pilgrim America Securities, Inc.
Firm Name
_______________________________________
Address
_______________________________________
_______________________________________
Phone Number
By_____________________________
By_______________________________________________
Authorized Officer Signature
By_______________________________________________
Authorized Officer Name & Title--Please Print
Date___________________19____
<PAGE>
Pilgrim America Securities, Inc. Return to:
Two Renaissance Square
40 N. Central Ave., Ste. 1200
Phoenix, AZ 85004-4424
(602) 417-8100 or (800) 334-3444
Service Agreement
- --------------------------------------------------------------------------------
Broker/Dealer:
This Service Agreement is entered into with respect to the Pilgrim America Group
of Funds (each a "Fund" and, collectively, the "Funds"), as identified on
Schedule "A" attached hereto.
1. To the extent you provide services and assistance to your customers who own
Fund shares, including, but not limited to, answering routine inquires regarding
the Fund, assisting in changing dividend options, account designations and
addresses, we shall pay you a service fee prorated and paid quarterly after the
required period of investment based, as reflected on Schedule A, on the average
net asset value of shares of the Fund which are attributable to customers of
your firm.
- --------------------------------------------------------------------------------
2. In no event may the aggregate annual service fee paid to you exceed .25% of
the average daily net asset value of the net assets of the Fund held in your
customers' accounts which are eligible for payment pursuant to this Agreement.
- --------------------------------------------------------------------------------
3. You shall furnish us and the Fund with information as shall reasonably be
requested by the Fund's Board of Directors with respect to the service fees paid
to you pursuant to the Schedule.
- --------------------------------------------------------------------------------
4. This Agreement will terminate automatically by any act that terminates the
Funds' Service and Distribution Plans, and will terminate automatically in the
event of the assignment of this Agreement.
- --------------------------------------------------------------------------------
<PAGE>
5. The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Funds' Service and Distribution Plans, are incorporated
herein by reference.
- --------------------------------------------------------------------------------
This Agreement shall take effect on the _______ day of ________________, 19___,
and the terms and provisions thereof are hereby accepted and agreed to by us and
evidenced by our executions hereof.
Dealer's Acceptance Pilgrim America Securities, Inc.
_________________________________________ By ____________________________
Firm Name
By_______________________________________
Authorized Officer Signature
By_______________________________________
Authorized Officer Name & Title-Please Print
<PAGE>
APPENDIX "A"
TO SELLING GROUP AGREEMENT
PILGRIM AMERICA GROUP OF FUNDS
FUND CUSIP # NASDAQ
- ------ ------- ------
SYMBOL
PILGRIM AMERICA MAGNACAP FUND
CLASS A 720901 10 7 PMCFX
CLASS B 720901 20 6 PMGBX
CLASS M 720901 30 5 PMCMX
PILGRIM AMERICA HIGH YIELD FUND
CLASS A 720901 40 4 PIHYX
CLASS B 720901 50 3 PIHBX
CLASS M 720901 60 2 PIHMX
PILGRIM GOVERNMENT SECURITIES INCOME FUND
CLASS A 720902 10 5 PGMAX
CLASS B 720902 20 4 *
CLASS M 720902 30 3 *
PILGRIM AMERICA MASTERS ASIA PACIFIC EQUITY FUND
CLASS A 721429 10 8 PMAAX
CLASS B 721429 20 7 PMBBX
CLASS M 721429 30 6 PMAMX
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
CLASS A 721429 40 5 PMVAX
CLASS B 721429 50 4 PMVBX
CLASS M 721429 60 3 PMVMX
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
CLASS A 721429 70 2 PLVAX
CLASS B 721429 80 1 PLVBX
CLASS M 721429 88 4 PLVMX
<PAGE>
PILGRIM AMERICA BANK & THRIFT FUND
CLASS A 720904101 PBTAX
CLASS B 720904200 PBTBX
PILGRIM AMERICA GENERAL MONEY MARKET SHARES
220714 50 5 *
* TO BE ANNOUNCED
<PAGE>
CUSTODY AGREEMENT
THIS AGREEMENT dated as of the _____ day of _____________, 1997 is made
by and between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered
under the laws of the state of Missouri, having its trust office located at 127
West 10th Street, Kansas City, Missouri 64105 ("Custodian"), and PILGRIM AMERICA
INVESTMENT FUNDS, INC., (the "Fund") a Maryland corporation, on behalf of
Pilgrim America MagnaCap Fund and Pilgrim America High Yield Fund, both a series
of the Fund (the "Portfolios") having its principal office and place of business
at Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the securities and monies of the investment portfolio of each
series of Fund (each a "Portfolio"); and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints
Custodian as custodian of the securities and monies at any time owned
by the Fund, including all existing and future Portfolios.
2. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets. Except as permitted by the Investment
Company Act of 1940, Fund will deliver or cause to be
delivered to Custodian all portfolio securities acquired by it
and monies owned by it during the time this Agreement shall
continue in effect. Custodian shall have no responsibility or
liability whatsoever for or on account of securities or monies
not so delivered. All securities so delivered to Custodian
(other than bearer securities) shall be registered in the name
of Fund or its nominee, or of a nominee of Custodian, or shall
be properly endorsed and in form for transfer satisfactory to
Custodian.
B. Delivery of Accounts and Records. Fund shall turn over to
Custodian all of the Fund's relevant accounts and records
previously maintained by it. Custodian shall be entitled to
rely conclusively on the completeness and correctness of the
accounts and records turned over to it by Fund, and Fund shall
indemnify and hold Custodian harmless of and from any and all
expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or in the failure of
Fund to provide any portion of such or to provide in a timely
manner any other information needed by the Custodian
knowledgeably to perform its function hereunder.
<PAGE>
C. Delivery of Assets to Third Parties. Custodian will receive
delivery of and keep safely the assets of each Portfolio
delivered to it from time to time segregated in a separate
account. Custodian will not deliver, assign, pledge or
hypothecate any such assets to any person except as permitted
by the provisions of this Agreement or any agreement executed
by it according to the terms of Section 2.S. of this
Agreement. Upon delivery of any such assets to a subcustodian
pursuant to Section 2.S. of this Agreement, Custodian will
create and maintain records identifying those assets which
have been delivered to the subcustodian as belonging to the
applicable Portfolio. The Custodian is responsible for the
securities and monies of Fund only until they have been
transmitted to and received by other persons as permitted
under the terms of this Agreement, except for securities and
monies transmitted to subcustodians appointed under Section
2.S. of this Agreement, for which Custodian remains
responsible to the extent provided in Section 2.S. of this
Agreement. Custodian may participate directly or indirectly
through a subcustodian in the Depository Trust Company,
Treasury/Federal Reserve Book Entry System or Participant
Trust Company (PTC) or other depository approved by the Fund
(as such entities are defined at 17 CFR Section 270.17f-4(b))
(each a "Depository" and collectively the "Depositories").
D. Registration of Securities. The Custodian shall at all times
hold registered securities of the Fund in the name of the
Custodian, the Fund, or a nominee of either of them, unless
specifically directed by instructions to hold such registered
securities in so-called "street name," provided that, in any
event, all such securities and other assets shall be held in
an account of the Custodian containing only assets of the
Fund, or only assets held by the Custodian as a fiduciary or
custodian for customers, and provided further, that the
records of the Custodian at all times shall indicate the Fund
or other customer for which such securities and other assets
are held in such account and the respective interests therein.
If, however, the Fund directs the Custodian to maintain
securities in "street name", notwithstanding anything
contained herein to the contrary, the Custodian shall be
obligated only to utilize its best efforts to timely collect
income due the Fund on such securities and to notify the Fund
of relevant corporate actions including, without limitation,
pendency of calls, maturities, tender or exchange offers. All
securities, and the ownership thereof by Fund, which are held
by Custodian hereunder, however, shall at all times be
identifiable on the records of the Custodian. The Fund agrees
to hold Custodian and its nominee harmless for any liability
as a record holder of securities held in custody.
E. Exchange of Securities. Upon receipt of instructions as
defined herein in Section 3.A, Custodian will exchange, or
cause to be exchanged, portfolio securities held by it for the
account of Fund for other securities or cash issued or paid in
connection with any reorganization, recapitalization, merger,
consolidation, split- up of shares, change of par value,
conversion or otherwise, and will deposit any such securities
in accordance with the terms of any reorganization or
protective plan. Without instructions, Custodian is authorized
to exchange securities held by it in temporary form for
securities in definitive form, to effect an exchange of
2
<PAGE>
shares when the par value of the stock is changed, and upon
receiving payment therefor, to surrender bonds or other
securities held by it at maturity or when advised of earlier
call for redemption, except that Custodian shall receive
instructions prior to surrendering any convertible security.
F. Purchases of Investments of the Fund. Fund will, on each
business day on which a purchase of securities shall be made
by it, deliver to Custodian instructions which shall specify
with respect to each such purchase:
1. The name of the Portfolio of the Fund making such
purchase;
2. The name of the issuer and description of the
security;
3. The number of shares or the principal amount
purchased, and accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage
commission, taxes and other expenses payable in
connection with the purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or
dealer through whom the purchase was made.
In accordance with such instructions, Custodian will pay for
out of monies held for the account of Fund, but only insofar
as monies are available therein for such purpose, and receive
the portfolio securities so purchased by or for the account of
Fund except that Custodian may in its sole discretion advance
funds to the Fund which may result in an overdraft because the
monies held by the Custodian on behalf of the Fund are
insufficient to pay the total amount payable upon such
purchase. Except as otherwise instructed by Fund, such payment
shall be made by the Custodian only upon receipt of
securities: (a) by the Custodian; (b) by a clearing
corporation of a national exchange of which the Custodian is a
member; or (c) by a Depository. Notwithstanding the foregoing,
(i) in the case of a repurchase agreement, the Custodian may
release funds to a Depository prior to the receipt of advice
from the Depository that the securities underlying such
repurchase agreement have been transferred by book-entry into
the account maintained with such Depository by the Custodian,
on behalf of its customers, provided that the Custodian's
instructions to the Depository require that the Depository
make payment of such funds only upon transfer by book-entry of
the securities underlying the repurchase agreement in such
account; (ii) in the case of time deposits, call account
deposits, currency deposits and other deposits, foreign
3
<PAGE>
exchange transactions, futures contracts or options, the
Custodian may make payment therefor before receipt of an
advice or confirmation evidencing said deposit or entry into
such transaction; and (iii) in the case of the purchase of
securities, the settlement of which occurs outside of the
United States of America, the Custodian may make, or cause a
subcustodian appointed pursuant to Section 2.S.2. of this
Agreement to make, payment therefor in accordance with
generally accepted local custom and market practice.
G. Sales and Deliveries of Investments of the Fund - Other than
Options and Futures. Fund will, on each business day on which
a sale of investment securities of Fund has been made, deliver
to Custodian instructions specifying with respect to each such
sale:
1. The name of the Portfolio of the Fund making such
sale;
2. The name of the issuer and description of the
securities;
3. The number of shares or principal amount sold, and
accrued interest, if any;
4. The date on which the securities sold were purchased
or other information identifying the securities sold
and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission,
taxes or other expenses payable in connection with
such sale;
8. The total amount to be received by Fund upon such
sale; and
9. The name and address of the broker or dealer through
whom or person to whom the sale was made.
In accordance with such instructions, Custodian will deliver
or cause to be delivered the securities thus designated as
sold for the account of Fund to the broker or other person
specified in the instructions relating to such sale. Except as
otherwise instructed by Fund, such delivery shall be made upon
receipt of payment therefor: (a) in such form as is
satisfactory to the Custodian; (b) credit to the account of
the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c)
credit to the account of the Custodian, on behalf of its
customers, with a Depository. Notwithstanding the
foregoing: (i) in the case of securities held in physical
form, such securities shall be delivered in accordance with
"street delivery custom" to a broker or its clearing agent; or
(ii) in the case of the sale of securities, the settlement of
which occurs outside of the United States of America, the
Custodian may make, or cause a
4
<PAGE>
subcustodian appointed pursuant to Section 2.S.2. of this
Agreement to make, payment therefor in accordance with
generally accepted local custom and market practice.
H. Purchases or Sales of Security Options, Options on Indices and
Security Index Futures Contracts. Fund will, on each business
day on which a purchase or sale of the following options
and/or futures shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such
purchase or sale:
1. The name of the Portfolio of the Fund making such
purchase or sale;
2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or
call;
h. Whether the option is written or purchased;
i. Market on which option traded;
j. Name and address of the broker or dealer
through whom the sale or purchase was made.
3. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening,
exercising, expiring or closing transaction;
h. Whether the transaction involves a put or
call;
i. Whether the option is written or purchased;
j. The name and address of the broker or dealer
through whom the sale or purchase was made,
or other applicable settlement instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the
contract and, when available, the closing
level, thereof;
b. The index level on the date the contract is
entered into;
5
<PAGE>
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in
addition to instructions, and if not already
in the possession of Custodian, Fund shall
deliver a substantially complete and
executed custodial safekeeping account and
procedural agreement which shall be
incorporated by reference into this Custody
Agreement); and
f. The name and address of the futures
commission merchant through whom the sale or
purchase was made, or other applicable
settlement instructions.
5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or
call;
h. Whether the option is written or purchased;
and
i. The market on which the option is traded.
I. Securities Pledged or Loaned. If specifically allowed for
in the prospectus of Fund:
1. Upon receipt of instructions, Custodian will release
or cause to be released securities held in custody to
the pledgee designated in such instructions by way of
pledge or hypothecation to secure any loan incurred
by Fund; provided, however, that the securities shall
be released only upon payment to Custodian of the
monies borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made, further securities may be
released or caused to be released for that purpose
upon receipt of instructions. Upon receipt of
instructions, Custodian will pay, but only from funds
available for such purpose, any such loan upon
redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note
or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated
in such instructions; provided, however,
that the securities will be released only upon
deposit with Custodian of full cash collateral as
specified in such instructions, and that Fund will
retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt
of instructions and the loaned securities, Custodian
will release the cash collateral to the borrower.
6
<PAGE>
J. Routine Matters. Custodian will, in general, attend to all
routine and mechanical matters in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings
with securities or other property of Fund except as may be
otherwise provided in this Agreement or directed from time to
time by the Fund in writing.
K. Deposit Account. Custodian will open and maintain one or more
special purpose deposit accounts in the name of Custodian
("Accounts"), subject only to draft or order by Custodian upon
receipt of instructions. All monies received by Custodian from
or for the account of a Portfolio shall be deposited in said
Account of the applicable Portfolio. Barring events not in the
control of the Custodian such as strikes, lockouts or labor
disputes, riots, war or equipment or transmission failure or
damage, fire, flood, earthquake or other natural disaster,
action or inaction of governmental authority or other causes
beyond its control, at 9:00 a.m., Kansas City time, on the
second business day after deposit of any check into Fund's
Account, Custodian agrees to make Fed Funds available to the
Fund in the amount of the check. Deposits made by Federal
Reserve wire will be available to the Fund immediately and ACH
wires will be available to the Fund on the next business day.
Income earned on the portfolio securities will be credited to
the applicable Portfolio of the Fund based on the schedule
attached as Exhibit A. The Custodian will be entitled to
reverse any credited amounts where credits have been made and
monies are not finally collected. If monies are collected
after such reversal, the Custodian will credit the applicable
Portfolio in that amount. Custodian may open and maintain
Accounts in such banks or trust companies as may be designated
by it or by properly authorized resolution of the governing
Board of the Fund, such Account, however, to be in the name of
Custodian and subject only to its draft or order.
L. Income and other Payments to Fund. Custodian will:
1. Collect, claim and receive and deposit for the
account of Fund all income and other payments which
become due and payable on or after the effective date
of this Agreement with respect to the securities
deposited under this Agreement, and credit the
account of Fund in accordance with the schedule
attached hereto as Exhibit A. If for any reason, the
Fund is credited with income that is not subsequently
collected, Custodian may reverse that credited
amount;
2. Execute ownership and other certificates and
affidavits for all federal, state and local tax
purposes in connection with the collection of bond
and note coupons; and
3. Take such other action as may be necessary or proper
in connection with:
a. the collection, receipt and deposit of such
income and other
7
<PAGE>
payments, including but not limited to the
presentation for payment of:
1. all coupons and other income items requiring
presentation;
and
2. all other securities which may mature or be
called, redeemed, retired or otherwise
become payable and regarding which the
Custodian has actual knowledge, or should
reasonably be expected to have knowledge;
and
b. the endorsement for collection, in the name
of Fund, of all checks, drafts or other
negotiable instruments.
Custodian, however, will not be required to institute suit or
take other extraordinary action to enforce collection except
upon receipt of instructions and upon being indemnified to its
satisfaction against the costs and expenses of such suit or
other actions. Custodian will receive, claim and collect all
stock dividends, rights and other similar items and will deal
with the same pursuant to instructions.
M. Payment of Dividends and other Distributions. On the
declaration of any dividend or other distribution on the
shares of the Fund ("Fund Shares") by the governing Board of
the Fund, Fund shall deliver to Custodian instructions with
respect thereto. On the date specified in such instructions
for the payment of such dividend or other distribution,
Custodian will pay out of the monies held for the account of
Fund, insofar as the same shall be available for such
purposes, and credit to the account of the Dividend Disbursing
Agent for Fund, such amount as may be specified in such
instructions.
N. Shares of Fund Purchased by Fund. Whenever any Fund Shares are
repurchased or redeemed by Fund, Fund or its agent shall
advise Custodian of the aggregate dollar amount to be paid for
such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate
dollar amount to the account of Fund and either deposit the
same in the account maintained for the purpose of paying for
the repurchase or redemption of Fund Shares or deliver the
same in accordance with such advice. Custodian shall not have
any duty or responsibility to determine that Fund Shares have
been removed from the proper shareholder account or accounts
or that the proper number of such shares have been cancelled
and removed from the shareholder records.
O. Shares of Fund Purchased from Fund. Whenever Fund Shares are
purchased from Fund, Fund will deposit or cause to be
deposited with Custodian the amount received for such shares.
Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added
to the proper shareholder account or accounts or that the
proper number of such shares have been added to the
shareholder records.
8
<PAGE>
P. Proxies and Notices. Custodian will promptly deliver or mail
or have delivered or mailed to Fund all proxies properly
signed, all notices of meetings, all proxy statements and
other notices, requests or announcements affecting or relating
to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its
nominee to execute and deliver or mail or have delivered or
mailed such proxies or other authorizations as may be
required. Except as provided by this Agreement or pursuant to
instructions hereafter received by Custodian, neither it nor
its nominee will exercise any power inherent in any such
securities, including any power to vote the same, or execute
any proxy, power of attorney, or other similar instrument
voting any of such securities, or give any consent, approval
or waiver with respect thereto, or take any other similar
action.
Q. Disbursements. Custodian will pay or cause to be paid insofar
as funds are available for the purpose, bills, statements and
other obligations of Fund (including but not limited to
obligations in connection with the conversion, exchange or
surrender of securities owned by Fund, interest charges,
dividend disbursements, taxes, management fees, custodian
fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and other
operating expenses of Fund) pursuant to instructions of Fund
setting forth the name of the person to whom payment is to be
made, the amount of the payment, and the purpose of the
payment.
R. Daily Statement of Accounts. Custodian will, within a
reasonable time, render to Fund as of the close of business on
each day, a detailed statement of the amounts received or paid
and of securities received or delivered for the account of
Fund during said day. Custodian will, from time to time, upon
request by Fund, render a detailed statement of the securities
and monies held for Fund under this Agreement, and Custodian
will maintain such books and records as are necessary to
enable it to do so and will permit such persons as are
authorized by Fund, including Fund's independent public
accountants, access to such records or confirmation of the
contents of such records; and if demanded, will permit federal
and state regulatory agencies to examine the securities, books
and records. Upon the written instructions of Fund or as
demanded by federal or state regulatory agencies, Custodian
will instruct any subcustodian to give such persons as are
authorized by Fund, including Fund's independent public
accountants, access to such records or confirmation of the
contents of such records; and if demanded, to permit federal
and state regulatory agencies to examine the books, records
and securities held by subcustodian which relate to Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this
Agreement, all or any of the monies or securities of
Fund may be held in Custodian's own custody or in the
custody of one or more other banks or trust companies
selected by
9
<PAGE>
Custodian. Any such subcustodian must have the
qualifications required for custodian under the
Investment Company Act of 1940, as amended. Any such
subcustodians may participate directly or indirectly
in any Depository. Custodian shall be responsible to
the Fund for any loss, damage or expense suffered or
incurred by the Fund resulting from the actions or
omissions of any subcustodian selected and appointed
by Custodian (except subcustodians appointed at the
request of Fund and as provided in Subsection 2
below) to the same extent Custodian would be
responsible to the Fund under Section 4 of this
Agreement if it committed the act or omission itself.
Custodian is not responsible for Depositories except
to the extent such entities are responsible to
Custodian. Upon request of the Fund, Custodian shall
be willing to contract with other subcustodians
reasonably acceptable to the Custodian for purposes
of (i) effecting third-party repurchase transactions
with banks, brokers, dealers, or other entities
through the use of a common custodian or
subcustodian, or (ii) providing depository and
clearing agency services with respect to certain
variable rate demand note securities, or (iii) for
other reasonable purposes specified by Fund;
provided, however, that the Custodian shall be
responsible to the Fund for any loss, damage or
expense suffered or incurred by the Fund resulting
from the actions or omissions of any such
subcustodian only to the same extent such
subcustodian is responsible to the Custodian. The
Fund shall be entitled to review the Custodian's
contracts with any such subcustodians appointed at
the request of Fund.
2. Notwithstanding any other provisions of this
Agreement, Fund's foreign securities (as defined in
Rule 17f-5(c)(1) under the Investment Company Act of
1940) and Fund's cash or cash equivalents, in amounts
deemed by the Fund to be reasonably necessary to
effect Fund's foreign securities transactions, may be
held in the custody of one or more banks or trust
companies acting as subcustodians, according to
Section 2.S.1; and thereafter, pursuant to a written
contract or contracts as approved by Fund's governing
Board, may be transferred to an account maintained by
such subcustodian with an eligible foreign custodian,
as defined in Rule 17f- 5(c)(2), provided that any
such arrangement involving a foreign custodian shall
be in accordance with the provisions of Rule 17f-5
under the Investment Company Act of 1940 as that Rule
may be amended from time to time. The Custodian shall
be responsible for the monies and securities of Fund
held by eligible foreign subcustodians to the extent
the eligible foreign subcustodians are liable to the
domestic subcustodian with which the Custodian
contracts for foreign subcustody purposes.
T. Adoption of Procedures. Custodian and Fund hereby adopt the
Funds Transfer Operating guidelines attached hereto as Exhibit
B. Custodian and Fund may from time to time adopt procedures
as they agree upon, and Custodian may conclusively assume that
no procedure approved by Fund, or directed by Fund, conflicts
with or violates any requirements of its prospectus, articles
of incorporation, bylaws, or
10
<PAGE>
any rule or regulation of any regulatory body or governmental
agency. Fund will be responsible to notify Custodian of any
changes in statutes, regulations, rules or policies which
might necessitate changes in Custodian's responsibilities or
procedures.
U. Overdrafts. In the event Custodian or any subcustodian shall,
in its sole discretion, advance cash or securities for any
purpose (including but not limited to securities settlements,
purchase or sale of foreign exchange or foreign exchange
contracts and assumed settlement) for the benefit of any
Portfolio, the advance shall be payable by the Fund on demand.
Any such cash advance shall be subject to an overdraft charge
at the rate set forth in the then-current fee schedule from
the date advanced until the date repaid. As security for each
such advance, Fund hereby grants Custodian and such
subcustodian a lien on and security interest in all property
at any time held for the account of the applicable Portfolio,
including without limitation all assets acquired with the
amount advanced. Should the Fund fail to repay the advance
within a reasonable time after written notice from Custodian,
the Custodian and such subcustodian shall be entitled to
utilize available cash and to dispose of such Portfolio's
assets pursuant to applicable law to the extent necessary to
obtain reimbursement of the amount advanced and any related
overdraft charges.
V. Exercise of Rights; Tender Offers. Upon receipt of
instructions, the Custodian shall: (a) deliver warrants, puts,
calls, rights or similar securities to the issuer or trustee
thereof, or to the agent of such issuer or trustee, for the
purpose of exercise or sale, provided that the new securities,
cash or other assets, if any, are to be delivered to the
Custodian; and (b) deposit securities upon invitations for
tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian or the
tendered securities are to be returned to the Custodian.
3. INSTRUCTIONS.
A. The term "instructions", as used herein, means written
(including telecopied) or oral instructions to Custodian which
Custodian reasonably believes were given by a designated
representative of Fund. Fund shall provide Custodian, as often
as necessary, written instructions naming one or more
designated representatives to give instructions in the name
and on behalf of Fund, which instructions may be received and
accepted from time to time by Custodian as conclusive evidence
of the authority of any designated representative to act for
Fund and may be considered to be in full force and effect (and
Custodian will be fully protected in acting in reliance
thereon) until receipt by Custodian of notice to the contrary.
Unless such written instructions delegating authority to any
person to give instructions specifically limit such authority
or require that the approval of anyone else will first have
been obtained, Custodian will be under no obligation to
inquire into the right of the person giving such instructions
to do so. Notwithstanding any of the foregoing provisions of
this Section 3 no authorizations or instructions
11
<PAGE>
received by Custodian from Fund, will be deemed to authorize
or permit any director, trustee, officer, employee, or agent
of Fund to withdraw any of the securities or similar
investments of Fund upon the mere receipt of such
authorization or instructions from such director, trustee,
officer, employee or agent. Notwithstanding any other
provision of this Agreement, Custodian, upon receipt (and
acknowledgment if required at the discretion of Custodian) of
the instructions of a designated representative of Fund will
undertake to deliver for Fund's account monies, (provided such
monies are on hand or available) in connection with Fund's
transactions and to wire transfer such monies to such broker,
dealer, subcustodian, bank or other agent specified in such
instructions by a designated representative of Fund.
B. No later than the next business day immediately following each
oral instruction, Fund will send Custodian written
confirmation of such oral instruction. At Custodian's sole
discretion, Custodian may record on tape, or otherwise, any
oral instruction whether given in person or via telephone,
each such recording identifying the date and the time of the
beginning and ending of such oral instruction.
C. If Custodian shall provide Fund direct access to any
computerized recordkeeping and reporting system used hereunder
or if Custodian and Fund shall agree to utilize any electronic
system of communication, Fund shall be fully responsible for
any and all consequences of the use or misuse of the terminal
device, passwords, access instructions and other means of
access to such system(s) which are utilized by, assigned to or
otherwise made available to the Fund. Fund agrees to implement
and enforce appropriate security policies and procedures to
prevent unauthorized or improper access to or use of such
system(s). Custodian shall be fully protected in acting
hereunder upon any instructions, communications, data or other
information received by Custodian by such means as fully and
to the same effect as if delivered to Custodian by written
instrument signed by the requisite authorized
representative(s) of Fund. Fund shall indemnify and hold
Custodian harmless from and against any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which may be suffered or incurred by Custodian as a
result of the use or misuse, whether authorized or
unauthorized, of any such system(s) by Fund or by any person
who acquires access to such system(s) through the terminal
device, passwords, access instructions or other means of
access to such system(s) which are utilized by, assigned to or
otherwise made available to the Fund, except to the extent
attributable to any negligence or willful misconduct by
Custodian.
4. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall at all times use reasonable care and due
diligence and act in good faith in performing its duties under
this Agreement. Custodian shall hold harmless and indemnify
Fund from and against any loss or liability arising out of
Custodian's negligence, willful misconduct, or bad faith.
Custodian shall not be responsible
12
<PAGE>
for, and the Fund shall indemnify and hold Custodian harmless
from and against, any loss or liability arising out of actions
taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian
has acted in good faith and with due diligence and reasonable
care. Neither party shall be liable to the other for
consequential, special or punitive damages. Custodian may
request and obtain the advice and opinion of counsel for Fund,
or of its own counsel with respect to questions or matters of
law, and it shall be without liability to Fund for any action
taken or omitted by it in good faith, in conformity with such
advice or opinion. If Custodian reasonably believes that it
could not prudently act according to the instructions of the
Fund or the Fund's counsel, it may in its discretion, with
notice to the Fund, not act according to such instructions.
B. Custodian may rely upon the advice and statements of Fund and
Fund's accountants and other persons believed by, it in good
faith, to be expert in matters upon which they are consulted,
and Custodian shall not be liable for any actions taken, in
good faith, upon such advice and statements.
C. If Fund requests Custodian in any capacity to take, with
respect to any securities, any action which involves the
payment of money by it, or which in Custodian's opinion might
make it or its nominee liable for payment of monies or in any
other way, Custodian, upon notice to Fund given prior to such
actions, shall be and be kept indemnified by Fund in an amount
and form satisfactory to Custodian against any liability on
account of such action; provided, however, that nothing herein
shall obligate Custodian to take any such action except in its
sole discretion.
D. Custodian shall be entitled to receive, and Fund agrees to pay
to Custodian, on demand, reimbursement for such cash
disbursements, costs and expenses as may be agreed upon from
time to time by Custodian and Fund.
E. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing
to it to be genuine and to have been properly executed and
shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter
required to be ascertained from Fund hereunder, instructions
or a certificate signed by the Fund's President, or other
authorized officer.
F. Without limiting the generality of the foregoing, Custodian
shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased
by or for Fund, the legality of the purchase thereof
or evidence of ownership required by Fund to be
received by Custodian, or the propriety of the
decision to purchase or amount paid therefor;
13
<PAGE>
2. The legality of the sale of any securities by or for
Fund, or the propriety of the amount for which the
same are sold;
3. The legality of the issue or sale of any Fund Shares,
or the sufficiency of the amount to be received
therefor;
4. The legality of the repurchase or redemption of any
Fund Shares, or the propriety of the amount to be
paid therefor; or
5. The legality of the declaration of any dividend by
Fund, or the legality of the issue of any Fund Shares
in payment of any dividend.
G. Custodian shall not be liable for, or considered to be
Custodian of, any money represented by any check, draft, wire
transfer, clearing house funds, uncollected funds, or
instrument for the payment of money to be received by it on
behalf of Fund, until Custodian actually receives such money,
provided only that it shall advise Fund promptly if it fails
to receive any such money in the ordinary course of business,
and use its best efforts and cooperate with Fund toward the
end that such money shall be received.
H. Except for any subcustodians or eligible foreign custodians
appointed under Section 2.S. to the extent provided therein,
Custodian shall not be responsible for loss occasioned by the
acts, neglects, defaults or insolvency of any broker, bank,
trust company, or any other person with whom Custodian may
deal in the absence of negligence or bad faith on the part of
Custodian.
I. Notwithstanding anything herein to the contrary, Custodian
may, and with respect to any foreign subcustodian appointed
under Section 2.S.2 must, provide Fund for its approval,
agreements with banks or trust companies which will act as
subcustodians for Fund pursuant to Section 2.S of this
Agreement.
J. Custodian shall not be responsible or liable for the failure
or delay in performance of its obligations under this
Agreement, or those of any entity for which it is responsible
hereunder, arising out of or caused, directly or indirectly,
by circumstances beyond the affected entity's reasonable
control, including, without limitation: any interruption, loss
or malfunction of any utility, transportation, computer
(hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a
delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike,
riot, emergency, civil disturbance, terrorism, vandalism,
explosions, labor disputes, freezes, floods, fires, tornados,
acts of God or public enemy, revolutions, or insurrection.
5. COMPENSATION. Fund will pay to Custodian such compensation as is stated
in the Fee Schedule from time to time agreed to in writing by Custodian
and Fund. Custodian may charge such compensation against monies held by
it for the account of Fund.
14
<PAGE>
Custodian will also be entitled, notwithstanding the provisions of
Sections 4.C. or 4.D. hereof, to charge against any monies held by it
for the account of Fund the amount of any loss, damage, liability,
advance, or expense for which it shall be entitled to reimbursement
under the provisions of this Agreement including fees or expenses due
to Custodian for other services provided to the Fund by the Custodian.
Custodian will not be entitled to reimbursement by Fund for any loss or
expenses of any subcustodian, except to the extent Custodian would be
entitled to reimbursement hereunder if it incurred the loss or expense
itself directly.
6. TERMINATION. This Agreement shall continue in effect until terminated
by either party by notice in writing received by the other party not
less than ninety (90) days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, Fund
will pay to Custodian such compensation for its reimbursable
disbursements, costs and expenses paid or incurred to such date. The
governing Board of Fund will, forthwith upon giving or receiving notice
of termination of this Agreement, appoint as successor custodian a
qualified bank or trust company. Custodian will, upon termination of
this Agreement, deliver to the successor custodian so appointed, at
Custodian's office, all securities then held by Custodian hereunder,
duly endorsed and in form for transfer, all funds and other properties
of Fund deposited with or held by Custodian hereunder, or will
co-operate in effecting changes in book-entries at the Depositories. In
the event no written order designating a successor custodian has been
delivered to Custodian on or before the date when such termination
becomes effective, then Custodian may deliver the securities, funds and
properties of Fund to a bank or trust company at the selection of
Custodian and meeting the qualifications for custodian, if any, set
forth in the governing documents of the Fund and having not less that
Two Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report. Upon delivery
to a successor custodian, Custodian will have no further obligations or
liabilities under this Agreement. Thereafter such bank or trust company
will be the successor custodian under this Agreement and will be
entitled to reasonable compensation for its services. In the event that
no such successor custodian can be found, Fund will submit to its
shareholders, before permitting delivery of the cash and securities
owned by Fund to anyone other than a successor custodian, the question
7. NOTICES. Notices, requests, instructions and other writings received by
Fund at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been
properly given to Fund hereunder; and notices, requests, instructions
and other writings received by Custodian at its offices at 127 West
10th Street, 14th Floor, Kansas City, Missouri 64105, or to such other
address as it may have designated to Fund in writing, will be deemed to
have been properly given to Custodian hereunder.
15
<PAGE>
8. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective successors and
permitted assigns.
C. No provisions of the Agreement may be amended or modified, in
any manner except by a written agreement properly authorized
and executed by both partieS hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
E. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original but all of which
together will constitute one and the same instrument.
F. If any part, term or provision of this Agreement is determined
to be illegal, in conflict with any law or otherwise invalid,
the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations
of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
G. Custodian will not release the identity of Fund to an issuer
which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct
communications between such issuer and Fund unless the Fund
directs the Custodian otherwise.
H. This Agreement may not be assigned by either party without
prior written consent of the other party.
I. If any provision of the Agreement, either in its present form
or as amended from time to time, limits, qualifies, or
conflicts with the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, such statues,
rules and regulations shall be deemed to control and supersede
such provision without nullifying or terminating the remainder
of the provisions of this Agreement.
J. The representations and warranties and the indemnification
extended hereunder are intended to and shall continue after
and survive the expiration, termination or
cancellation of this Agreement.
K. The Custody Agreement between Custodian and the Fund, formerly
known
16
<PAGE>
separately as Pilgrim High Yield Trust and Pilgrim MagnaCap
Fund, Inc., dated as of October 1, 1989, is hereby canceled
and superseded effective as of the date hereof, except that
all rights, duties and liabilities which may have arisen under
such Custody Agreement prior to the effectiveness hereof shall
continue and survive. Otherwise, this Agreement does not in
any way affect any other agreements entered into between the
parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:__________________________________
Title:_______________________________
PILGRIM AMERICA INVESTMENT FUNDS, INC.
By:__________________________________
Title:_______________________________
17
<PAGE>
EXHIBIT A
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
TRANSACTION DTC PHYSICAL FED
------------------------- ---------------------------- --------------------------
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
- ---- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
Tender Reorgs. As Received C As Received C N/A
Dividends Paydate C Paydate C N/A
Floating Rate Int. Paydate C Paydate C N/A
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)
Mtg. Backed P&I Paydate C Paydate + 1 Bus. C Paydate F
Day
Fixed Rate Int. Paydate C Paydate C Paydate F
Euroclear N/A C Paydate C
</TABLE>
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
18
<PAGE>
RECORDKEEPING AGREEMENT
THIS AGREEMENT made as of this _____ day of _____________, 1997, by and
between PILGRIM AMERICA INVESTMENT FUNDS, INC., (the "Fund") a Maryland
corporation, on behalf of Pilgrim America MagnaCap Fund and Pilgrim America High
Yield Fund, both a series of the Fund (the "Portfolios") having its principal
place of business at Two Renaissance Square, 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004 ("Fund"), and INVESTORS FIDUCIARY TRUST COMPANY, a
state chartered trust company organized and existing under the laws of the State
of Missouri, having its principal place of business at 127 West 10th Street,
Kansas City, Missouri, 64105 ("IFTC"):
WITNESSETH:
In consideration of the mutual promises herein contained, the parties
hereto, intending to be legally bound, mutually covenant and agree as follows:
1. Appointment of Recordkeeping Agent. Fund hereby constitutes and
appoints IFTC as Recordkeeping Agent for all existing and any future series of
the Fund (the "Portfolios") to perform certain accounting and recordkeeping
functions related to portfolio transactions required of Fund as a registered
investment company in compliance with Rule 31a of the Investment Company Act of
1940 ("1940 Act") and to calculate daily each Portfolio's net asset value.
2. Representations and Warranties of Fund
A. Fund represents and warrants that it is a corporation duly
organized as heretofore described and existing and in good
standing under the laws of Maryland.
B. Fund represents and warrants that it has the power and
authority under applicable laws, its articles of incorporation
and bylaws, and has taken all action necessary, to enter into
and perform this Agreement.
C. Fund represents and warrants that it has determined that the
computerized recordkeeping system to be used by IFTC in
maintaining accounting records of Fund hereunder (the
"System") is appropriate and suitable for Fund's needs.
D. Fund shall preserve the confidentiality of the System and the
tapes, books, reference manuals, instructions, records,
programs, documentation and information of, and other
materials relevant to, the Portfolio Accounting System and the
business of IFTC ("Confidential Information"). Fund shall not
voluntarily disclose such Confidential Information to any
other person other than its own employees who reasonably have
a need to know such information pursuant to this Agreement.
Fund shall return all such Confidential Information to IFTC
upon termination or expiration of this Agreement.
E. Fund has been informed that the System is licensed for use by
IFTC from a third party ("Licensor"), and Fund acknowledges
that IFTC and Licensor have
<PAGE>
proprietary rights in and to the System and all other IFTC or
Licensor programs, code, techniques, know-how, data bases,
supporting documentation, data formats and procedures,
including without limitation any changes or modifications made
at the request or expense or both of Fund (collectively, the
"Protected Information"). Fund acknowledges that the Protected
Information constitutes confidential material and trade
secrets of IFTC and Licensor. Fund shall preserve the
confidentiality of the Protected Information, and Fund hereby
acknowledges that any unauthorized use, misuse, disclosure or
taking of Protected Information, residing or existing internal
or external to a computer, computer system, or computer
network, or the knowing and unauthorized accessing or causing
to be accessed of any computer, computer system, or computer
network, may be subject to civil liabilities and criminal
penalties under applicable law. Fund shall so inform employees
and agents who have access to the Protected Information or to
any computer equipment capable of accessing the same. Licensor
is intended to be and shall be a third party beneficiary of
the Fund's obligations and undertakings contained in this
paragraph.
F. If IFTC shall provide Fund direct access to the System or if
IFTC and Fund shall agree to utilize any electronic system of
communication, Fund shall be fully responsible for any and all
consequences of the use or misuse of the terminal device,
passwords, access instructions and other means of access to
such system(s) which are utilized by, assigned to or otherwise
made available to the Fund. Fund agrees to implement and
enforce appropriate security policies and procedures to
prevent unauthorized or improper access to or use of such
system(s). IFTC shall be fully protected in acting hereunder
upon any instructions, communications, data or other
information received by IFTC by such means as fully and to the
same effect as if delivered to IFTC by written instrument
signed by the requisite authorized representative(s) of the
Fund. Fund shall indemnify and hold IFTC harmless from and
against any and all costs, expenses, losses, liabilities,
damages, charges and counsel fees which may be asserted
against or incurred by IFTC as a consequence of the use or
misuse, whether authorized or unauthorized, of the System or
other computerized recordkeeping and reporting system to which
IFTC provides Fund direct access hereunder or of any other
electronic system of communication used hereunder by Fund or
by any person who acquires access to such system(s) through
the terminal device, passwords, access instructions or other
means of access to such system(s) which are utilized by,
assigned to or otherwise made available to the Fund, except to
the extent attributable to any negligence or willful
misconduct by IFTC.
3. Representation and Warranties of IFTC
A. It is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri.
B. It has the requisite power and authority under applicable
laws, by its charter and bylaws, and by agreement to enter
into this Agreement and has taken all action
2
<PAGE>
necessary to enter into and perform the services contemplated
herein and this Agreement has been duly executed and delivered
by IFTC and constitutes a legal, valid and binding obligation
of IFTC, enforceable in accordance with its terms.
4. Duties and Responsibilities of IFTC
A. Fund shall turn over to IFTC all of Fund's accounts and
records previously maintained. IFTC shall be entitled to rely
conclusively on the completeness and correctness of the
accounts and records turned over to it by Fund and Fund shall
indemnify and hold IFTC harmless of and from any and all
expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or in the failure of
Fund to provide any portion of such or to provide in a timely
manner any other information needed by IFTC to perform its
function hereunder.
B. Accounts and Records
1. IFTC, with the direction and as interpreted by the
Fund or Fund's accountants and/or other advisors,
will prepare and maintain in complete, accurate, and
current form all accounts and records needed to be
maintained as a basis for calculation of each
Portfolio's net asset value and as further agreed
upon by the parties in writing, and will preserve
such records in the manner and for the periods
required by the 1940 Act or such longer period as the
parties may agree upon in writing.
2. Unless the information necessary to perform the above
functions is furnished in writing or its electronic
or digital equivalent to IFTC prior to the next close
of the New York Stock Exchange and calculation of the
Portfolio's net asset values, IFTC shall incur no
liability and the Fund shall indemnify and hold IFTC
harmless from and against any liability in connection
therewith.
3. It shall be the responsibility of Fund to furnish
IFTC with the declaration, record and payment dates
and amounts of any dividends or income and any other
special actions required concerning the securities in
the portfolio when such information is not readily
available from generally accepted securities industry
services or publications.
4. The accounts and records maintained and preserved by
IFTC shall be the property of the Fund and shall be
made available to the Fund for inspection or
reproduction within a reasonable time, upon demand.
5. IFTC shall assist Fund's independent accountants, or
upon approval of Fund or upon demand, any regulatory
body, in any requested review of Fund's accounts and
records maintained by IFTC but shall be reimbursed by
Fund for all expenses and employee time invested in
any such review
3
<PAGE>
outside of routine and normal periodic reviews.
6. Upon receipt from Fund of any necessary information,
IFTC shall provide information from the books and
records it maintains for Fund that Fund needs for tax
returns, questionnaires, or periodic reports to
shareholders and such other reports and information
requests as Fund and IFTC shall agree upon from time
to time.
7. IFTC and Fund may from time to time adopt procedures
as they agree upon, and IFTC may conclusively assume
that any procedure approved by Fund, or directed by
Fund, does not conflict with or violate any
requirements of Fund's prospectus, declaration of
trust, bylaws, or any rule or regulation of any
applicable regulatory body or governmental agency.
Fund shall be responsible to notify IFTC of any
changes in statutes, rules, requirements, or policies
which may necessitate changes in IFTC's
responsibilities or procedures.
8. IFTC will calculate each Portfolio's net asset value
in accordance with the Fund's prospectus once daily.
IFTC will price the securities and foreign currency
holdings of the Portfolios for which market
quotations are available by the use of outside
services designated by Fund which are normally used
and contracted with for this purpose; all other
securities and foreign currency holdings will be
priced in accordance with Fund's instructions.
5. Limitation of Liability of IFTC
A. IFTC shall not be responsible or liable for, and Fund
shall indemnify and hold IFTC harmless from and against, any
loss or liability arising out of IFTC's action or omission to
act pursuant hereto, except for any loss or damage arising
from any negligent act or willful misconduct of IFTC. IFTC
shall indemnify and hold harmless Fund from and against any
loss or liability arising from such negligence or willful
misconduct. The Fund agrees to minimize any potential monetary
loss(es) by reprocessing shareholder transactions or employing
any other customary procedures to reduce such monetary
loss(es). Neither party shall be liable to the other for
consequential, special, or punitive damages. IFTC may request
and obtain the advice and opinion of counsel for Fund or its
own counsel at the expense of Fund with respect to questions
or matters of law, and it shall be without liability to Fund
for any action taken or omitted by it in good faith, in
conformity with such advice or opinion.
B. IFTC may rely upon the advice and statements of Fund, its
distributor, its management company and its accountants,
officers and other authorized individuals (as provided by
corporate resolution to IFTC) and others believed by it in
good faith to be expert in matters upon which they are
consulted. Actions or inaction taken in reliance on such
advice and statements shall not be considered
4
<PAGE>
"negligent" and IFTC shall not be liable for any actions taken
in good faith upon such advice and statements.
C. If Fund requests IFTC in any capacity to take any action which
involves the payment of money by it, or which in IFTC's
opinion might make it liable for payment of money or in any
other way, IFTC shall be and be kept indemnified by Fund in an
amount and form satisfactory to IFTC against any liability on
account of such action; provided, however that IFTC shall not
be obligated to expend its own moneys or to take any such
action except in IFTC's sole discretion.
D. IFTC shall be entitled to receive and Fund agrees to pay to
IFTC, on demand, reimbursement for such cash disbursements,
costs and expenses as may be agreed upon in writing from time
to time by IFTC and Fund.
E. IFTC shall be protected in acting hereunder upon any
instructions, advice, notice, request, consent, certificate or
other instrument or paper appearing to it to be genuine and to
have been properly executed and shall, unless otherwise
specifically provided herein, be entitled to receive as
conclusive proof of any fact or matter required to be
ascertained from Fund as determined by IFTC, instructions or a
certificate signed by Fund's President or other officer of
Fund as requested by IFTC.
F. Without limiting the generality of the foregoing, IFTC shall
be under no duty or obligation to inquire into, and shall not
be liable for:
1. The validity of the issue of any securities purchased
by or for Fund, or the legality of the purchase
thereof;
2. The legality of the sale of any securities by or for
Fund, or the propriety of the amount for which the
same are sold;
3. The legality of the issue or sale of any shares of
Fund, or the sufficiency of the amount to be received
therefore;
4. The legality of the purchase of any shares of Fund,
or the propriety of the amount to be paid therefore;
or
5. The legality of the declaration of any dividend by
Fund, or the legality of the issue of any shares of
Fund in payment of any dividend.
G. IFTC shall not be liable for, or considered to be the
custodian of, any money represented by any check, draft, wire
transfer, clearing house funds, uncollected funds, or
instrument for the payment of money received by it on behalf
of Fund, until IFTC actually receives such money, provided
only that it shall advise Fund promptly if it fails to receive
any such moneys in the ordinary course of business, and use
reasonable efforts and cooperate with Fund toward the end that
such
5
<PAGE>
money shall be received.
H. Notwithstanding anything herein to the contrary, it is
expressly understood and agreed that IFTC shall have no
responsibility to Fund, the Fund's shareowners or any other
person or entity for moneys or securities of Fund held by
banks or trust companies as custodians in the absence of
negligence or willful misconduct of IFTC.
I. IFTC shall not use any information made available to it under
the terms of this Agreement for any purpose other than
complying with its duties and responsibilities under this
Agreement or as specifically authorized by Fund in writing to
IFTC.
6. Force Majeure. IFTC shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including without limitation any interruption, loss
or malfunction of any utility, transportation, computer (hardware or
software) or communication service; or inability to obtain labor,
material, equipment or transportation; nor shall any such failure or
delay give Fund any additional right to terminate this Agreement.
7. Additional Funds. IFTC shall act as recordkeeper for additional
Portfolios of Fund upon 30 days notice to IFTC provided IFTC consents
to such arrangement. Rates or charges for such additional Portfolios
shall be as agreed by IFTC and Fund in writing.
8. Compensation. Fund shall pay to IFTC such compensation at such time as
may from time to time be agreed upon in writing by IFTC and Fund. Fund
shall also reimburse IFTC for all out-of-pocket expenses incurred by
IFTC in connection with services performed pursuant to this Agreement.
9. Procedures. IFTC and Fund may from time to time adopt procedures as
they agree upon, and IFTC may conclusively assume that any procedure
approved or directed by Fund or its accountants or other advisors does
not conflict with or violate any requirements of Fund's prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which the Fund may be
bound.
10. Termination. This Agreement shall continue in effect until terminated
by either party by notice in writing received by the other party not
less than ninety (90) days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement:
A. Fund shall pay to IFTC its fees and compensation due hereunder
and its reimbursable disbursements, costs and expenses paid or
incurred to such date.
B. Fund shall designate a successor (which may be Fund) by notice
in writing to IFTC on or before the termination date.
C. IFTC shall deliver to the successor, or if none has been
designated, to Fund, at
6
<PAGE>
IFTC's office, all records, funds and other properties of Fund
deposited with or held by IFTC hereunder. In the event that
neither a successor nor Fund takes delivery of all records,
funds and other properties of Fund by the termination date,
IFTC's sole obligation with respect thereto from the
termination date until delivery to a successor or Fund shall
be to exercise reasonable care to hold the same in custody in
its form and condition as of the termination date, and IFTC
shall be entitled to reasonable compensation therefor,
including but not limited to all of its out-of-pocket costs
and expenses incurred in connection therewith.
11. Notices. Notices, requests, instructions and other writings received by
Fund at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004, or at such address as Fund may have designated
to IFTC in writing, shall be deemed to have been properly given to Fund
hereunder; and notices, requests, instructions and other writings
received by IFTC at its offices at 127 West 10th Street, Kansas City,
MO 64105, or to such other address as it may have designated to Fund in
writing, shall be deemed to have been properly given to IFTC hereunder.
12. Miscellaneous.
A. This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of said state.
B. All terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted
assigns.
C. No provisions of the Agreement may be amended or modified in
any manner except by a written agreement properly authorized
and executed by both parties hereto.
D. The captions in the Agreement are included for convenience of
reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effort.
E. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
F. If any part, term or provision of this Agreement is determined
to be illegal, in conflict with any law or otherwise invalid,
the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations
of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
G. This Agreement may not be assigned by either party without
prior written consent in writing of the other party.
7
<PAGE>
H. The representations and warranties, the indemnification
extended hereunder, and the provisions of Section 2.D. and
2.E. are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
I. The Recordkeeping Agreement between IFTC and the Fund,
formerly known separately as Pilgrim High Yield Trust and
Pilgrim Magnacap Fund, Inc., dated as of June 1, 1985, is
hereby cancelled and superseded effective as of the date
hereof, except that all rights, duties and liabilities which
may have arisen under such Custody Agreement prior to the
effectiveness hereof shall continue and survive. Otherwise,
this Agreement does not in any way affect any other agreements
entered into between the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective and duly authorized corporate or trust officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: _________________________________
Title: _____________________________
PILGRIM AMERICA INVESTMENT FUNDS, INC.
By: ________________________________
Title: _____________________________
8
<PAGE>
SHAREHOLDER SERVICE AGREEMENT
This Agreement made on the 29th day of July, 1996 by and between Pilgrim America
Investment Funds, Inc., a Maryland Corporation having its principal place of
business at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004 (the "Fund"), and Pilgrim America Group Inc., a Delaware
corporation having its principal place of business at Two Renaissance Square, 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004 ("PAGI"):
WITNESSETH:
WHEREAS, the Fund is party to a transfer agent agreement with IFTC
wherein IFTC provides all transaction processing and record keeping for the
Fund's shareholders and would provide shareholder services for the Fund if the
Fund so desired, and
WHEREAS, the Fund has determined that PAGI is capable of providing
superior shareholder services to the Fund in conjunction with IFTC as the
Transfer Agent, and
WHEREAS, the Fund desires to appoint PAGI as Shareholder Service Agent
and PAGI desires to accept such appointment:
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Scope of Appointment
Fund hereby appoints PAGI as Shareholder Service Agent and as such PAGI hereby
accepts such appointment and agrees that it will provide the Fund with services
which include but are not limited to the following:
A. Reviewing correspondence pertaining to any former, existing or new
shareholder account, processing such correspondence for proper record keeping,
and responding promptly to correspondence from shareholders and dealers.
B. Receiving telephone calls pertaining to any former, existing or new
shareholder account, verbally responding to such calls and when required
responding in writing and maintaining prior record keeping regarding such calls
from shareholders and dealers and responses thereto.
C. PAGI further agrees that the scope of this appointment does not include any
services required to be provided by a registered broker-dealer or registered
transfer agent.
<PAGE>
Certain Representations and Warranties of PAGI and the Fund
PAGI represents and warrants to the Fund that:
A. It is a corporation duly organized and existing and in good standing under
the laws of Delaware.
B. It is duly qualified to carry on its business in the State of Arizona.
C. It has and will continue to have and maintain the necessary facilities,
equipment and personnel to perform its duties and obligations under this
agreement.
D. PAGI is empowered under applicable laws and by its charter and bylaws to
enter into this Agreement.
The Fund represents and warrants to PAGI that:
A. It is a corporation duly organized and existing and in good standing under
the laws of Maryland.
B. It is an open-end diversified management investment company registered under
the Investment Company Act of 1940, as amended.
C. The Fund is empowered under applicable laws and by its charter and bylaws to
enter into this Agreement.
Compensations and Expenses
In consideration for its services here under as Shareholder Service Agent, the
Fund will pay to PAGI reasonable compensations for all services rendered as
Agent, and all its reasonable out-of-pocket expenses incurred in connection with
the agency. Such compensation is set forth in a separate schedule to be agreed
to by the Fund and PAGI, a copy of which is attached hereto.
The Fund agrees to promptly reimburse PAGI for all reasonable out-of-pocket
expenses or disbursements incurred by PAGI in connection with the performance of
services under this Agreement including, but not limited to, expenses for
postage, express delivery services, envelopes, forms, telephone communication
expenses and stationary supplies. PAGI agrees to furnish to the Fund's Board of
Directors, upon request, reasonable documentation of any expenses for which
reimbursement is sought.
<PAGE>
Indemnifications
PAGI shall at all times use reasonable care, due diligence and act in good faith
in performing its duties under this Agreement. PAGI shall not be responsible
for, and the Fund shall indemnify and hold PAGI harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability which may be asserted against PAGI or for which PAGI may be held
liable, arising out of or attributable to all actions of PAGI required to be
taken by PAGI pursuant to this Agreement provided that PAGI has acted in good
faith and with due diligence and reasonable care. The Fund shall not be
responsible for, and PAGI shall indemnify and hold harmless the Fund from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses, and liability which any be asserted against the Fund or for which the
Fund may be held liable, arising out of or attributable to all actions of PAGI
required to be taken by PAGI pursuant to this Agreement in which PAGI has not
acted in good faith and with due diligence and reasonable care.
Termination of Agreement
This Agreement shall be in effect for an initial period of ____ years and
thereafter may be terminated by either party upon receipt of 60 days' written
notice.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, to be effective as of the
day and year first above written.
PILGRIM AMERICA GROUP, INC.
By: ___________________________________
Title:__________________________________
PILGRIM AMERICA INVESTMENT FUNDS, INC.
(On behalf of Pilgrim America MagnaCap Fund and
Pilgrim America High Yield Fund)
By:_____________________________________
Title:___________________________________
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pilgrim America Investment Funds, Inc.:
We consent to the use of our report incorporated herein by reference and to the
references to our firm under the headings "Financial Highlights" in the
Prospectus and "Independent Auditors" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
Los Angeles, California
October 28, 1997
<PAGE>
Amended and Restated
Service and Distribution Plan for
Pilgrim America Investment Funds, Inc.
Class A Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim America Investment Funds, Inc. (the
"Company") engages in business as an open-end management
investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently
divided into two series, PILGRIM AMERICA MAGNACAP FUND and
PILGRIM AMERICA HIGH YIELD FUND (the "Funds");
WHEREAS, adoption of a Multiple Class Plan by the Company's
Board of Directors at a meeting on June 7, 1995, shares of common
stock of the Funds are divided into classes of shares, one of
which is designated Class A;
WHEREAS, Class A is the successor to the shares of the Fund
that had been offered prior to adoption of the Multiple Class
Plan, and a distribution plan pursuant to Rule 12b-1 ("12b-1
Plan") of the Investment Company Act of 1940 had been adopted for
such shares and was in effect through June 7, 1995; and
WHEREAS, the Company wishes to amend its 12b-1 Plan to make
it consistent with its Multiple Class Plan, and such amended 12b-
1 Plan shall apply to its Class A shares;
WHEREAS, the Company employs Pilgrim America Securities,
Inc. (the "Distributor") as distributor of the securities of
which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into
an Underwriting Agreement pursuant to which the Company has
employed the Distributor in such capacity during the continuous
offering of shares of the Company.
NOW, THEREFORE, the Company hereby amends and restates on
behalf of the Funds with respect to its Class A shares, and the
Distributor hereby agrees to the terms of, the Plan, in
accordance with Rule 12b-l under the Act on the following terms
and conditions:
1. A. Pilgrim America MagnaCap Fund shall pay to the
Distributor, as the distributor of the Class A shares of the
Fund, a fee for distribution of the shares at the rate of up to
0.05% on an annualized basis of the average daily net assets of
the Fund's Class A shares, provided that, at any time such
payment is made, whether or not this Plan continues in effect,
the making thereof will not cause the limitation upon such
<PAGE>
payments established by this Plan to be exceeded. Such fee shall
be calculated and accrued daily and paid at such intervals as the
Board of Directors shall determine, subject to any applicable
restriction imposed by rules of the National Association of
Securities Dealers, Inc. Some portion of this fee may in the
future be paid for distribution expenses.
B. Pilgrim America MagnaCap Fund and Pilgrim America
High Yield Fund shall pay to the Distributor, as the distributor
of the Class A shares of the Funds, a service fee at the rate of
0.25% on an annualized basis of the average daily net assets of
the Funds' Class A shares, provided that, at any time such
payment is made, whether or not this Plan continues in effect,
the making thereof will not cause the limitation upon such
payments established by this Plan to be exceeded. Such fee shall
be calculated and accrued daily and paid at such intervals as the
Board of Directors shall determine, subject to any applicable
restriction imposed by rules of the National Association of
Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan
shall be paid for the Distributor's services as distributor of
the shares of the Funds in connection with any activities or
expenses primarily intended to result in the sale of the Class A
shares of the Funds, including, but not limited to, payment of
compensation, including incentive compensation, to securities
dealers (which may include the Distributor itself) and other
financial institutions and organizations (collectively, the
"Service Organizations") to obtain various distribution related
and/or administrative services for the Funds. These services
include, among other things, processing new shareholder account
applications, preparing and transmitting to the Funds' Transfer
Agent computer processable tapes of all transactions by customers
and serving as the primary source of information to customers in
answering questions concerning the Funds and their transactions
with the Funds. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature
and other promotional activities on behalf of the Funds. In
addition, this Plan hereby authorizes payment by the Fund of the
cost of preparing, printing and distributing Fund Prospectuses
and Statements of Additional Information to prospective investors
and of implementing and operating the Plan. Distribution
expenses also include an allocation of overhead of the
Distributor and accruals for interest on the amount of
distribution expenses that exceed distribution fees and
contingent deferred sales charges received by the Distributor.
- 2 -
<PAGE>
The amount set forth in paragraph 1.B. of this Plan may be
used by the Distributor to pay securities dealers (which may
include the Distributor itself) and other financial institutions
and organizations for servicing shareholder accounts, including a
continuing fee which may accrue immediately after the sale of
shares.
Payments under the Plan will not exceed the Distributor's
cumulative reimbursable expenses under the Plan. For purposes of
determining the Distributor's cumulative reimbursable expenses
under the Plan, expenses of the current year shall be added to
prior expenses of the Distributor which were incurred not more
than three years prior and for which the Distributor has not yet
been reimbursed. Reimbursement of expenses shall then be
calculated on a "first-in, first-out" basis.
3. The Plan shall continue in full force and effect as to
the Class A shares of the Funds for so long as such continuance
is specifically approved at least annually by votes of a majority
of both (a) the Directors of the Company and (b) those Directors
of the Company who are not "interested persons" of the Company
(as defined in the Act) and who have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it (the "Rule 12b-l Directors"), cast in
person at a meeting (or meetings) called for the purpose of
voting on this Plan and such related agreements.
4. The Distributor shall provide to the Directors of the
Company, and the Directors shall review, at least quarterly, a
written report of the amounts so expended and the purposes for
which such expenditures were made.
5. This Plan may be terminated as to each Fund at any
time, without payment of any penalty, by vote of the Directors of
the Company, by vote of a majority of the Rule 12b-l Directors,
or by a vote of a majority of the outstanding voting securities
of Class A shares of the Funds on not more than 30 days' written
notice to any other party to the Plan.
6. This Plan may not be amended to increase materially the
amount of distribution fee (including any service fee) provided
for in paragraph 1 hereof unless such amendment is approved by a
vote of the shareholders of the Class A shares of each of the
Funds, and no material amendment to the Plan shall be made unless
approved in the manner provided for annual renewal in paragraph 3
- 3 -
<PAGE>
hereof.
7. While this Plan is in effect, the selection and
nomination of Directors who are not interested persons (as
defined in the Act) of the Company shall be committed to the
discretion of the Directors who are not such interested persons.
8. The Company shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 6
hereof, for a period of not less than six years from the date of
this Plan, any such agreement or any such report, as the case may
be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Company, on behalf of the Funds, and
the Distributor have executed this Service and Distribution Plan
as of the ____ day of ________, 1995.
PILGRIM AMERICA INVESTMENT FUNDS, INC.
By:_____________________________________
PILGRIM AMERICA SECURITIES, INC.
By:_____________________________________
- 4 -
<PAGE>
Service and Distribution Plan for
Pilgrim America Investment Funds, Inc.
Class B Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim America Investment Funds, Inc. (the
"Company") engages in business as an open-end management
investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently
divided into two series, PILGRIM AMERICA MAGNACAP FUND and
PILGRIM AMERICA HIGH YIELD FUND (the "Funds);
WHEREAS, shares of common stock of the Funds are divided
into classes of shares, one of which is designated Class B;
WHEREAS, the Company employs Pilgrim America Securities,
Inc. (the "Distributor") as distributor of the securities of
which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into
an Underwriting Agreement pursuant to which the Company has
employed the Distributor in such capacity during the continuous
offering of shares of the Company.
NOW, THEREFORE, the Company hereby adopts on behalf of the
Funds with respect to its Class B shares, and the Distributor
hereby agrees to the terms of, the Plan, in accordance with Rule
12b-l under the Act on the following terms and conditions:
1. A. The Funds shall pay to the Distributor, as the
distributor of the Class B shares of the Funds, a fee for
distribution of the shares at the rate of up to 0.75% on an
annualized basis of the average daily net assets of the Funds'
Class B shares, provided that, at any time such payment is made,
whether or not this Plan continues in effect, the making thereof
will not cause the limitation upon such payments established by
this Plan to be exceeded. Such fee shall be calculated and
accrued daily and paid at such intervals as the Board of
Directors shall determine, subject to any applicable restriction
imposed by rules of the National Association of Securities
Dealers, Inc.
B. The Funds shall pay to the Distributor, as the
distributor of the Class B shares of the Funds, a service fee at
the rate of 0.25% on an annualized basis of the average daily net
assets of the Funds' Class B shares, provided that, at any time
such payment is made, whether or not this Plan continues in
effect, the making thereof will not cause the limitation upon
such payments established by this Plan to be exceeded. Such fee
<PAGE>
shall be calculated and accrued daily and paid at such intervals
as the Board of Directors shall determine, subject to any
applicable restriction imposed by rules of the National
Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan
shall be paid for the Distributor's services as distributor of
the shares of the Funds in connection with any activities or
expenses primarily intended to result in the sale of the Class B
shares of the Funds, including, but not limited to, payment of
compensation, including incentive compensation, to securities
dealers (which may include the Distributor itself) and other
financial institutions and organizations (collectively, the
"Service Organizations") to obtain various distribution related
and/or administrative services for the Funds. These services
include, among other things, processing new shareholder account
applications, preparing and transmitting to the Funds' Transfer
Agent computer processable tapes of all transactions by customers
and serving as the primary source of information to customers in
answering questions concerning the Funds and their transactions
with the Funds. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature
and other promotional activities on behalf of the Funds. In
addition, this Plan hereby authorizes payment by the Funds of the
cost of preparing, printing and distributing Fund Prospectuses
and Statements of Additional Information to prospective investors
and of implementing and operating the Plan. Distribution
expenses also include an allocation of overhead of the
Distributor and accruals for interest on the amount of
distribution expenses that exceed distribution fees and
contingent deferred sales charges received by the Distributor.
Payments under the Plan are not tied exclusively to actual
distribution and service expenses, and the payments may exceed
distribution and service expenses actually incurred.
The amount set forth in paragraph 1.B. of this Plan may be
used by the Distributor to pay securities dealers (which may
include the Distributor itself) and other financial institutions
and organizations for servicing shareholder accounts, including a
continuing fee which may accrue immediately after the sale of
shares.
3. The Plan shall not take effect with respect to the
Class B shares of the Funds until it has been approved by a vote
of the then sole shareholder of the Class B shares of each of the
Funds.
-2-
<PAGE>
4. This Plan shall not take effect until it, together with
any related agreements, has been approved by votes of a majority
of both (a) the Directors of the Company and (b) those Directors
of the Company who are not "interested persons" of the Company
(as defined in the Act) and who have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it (the "Rule 12b-l Directors"), cast in
person at a meeting (or meetings) called for the purpose of
voting on this Plan and such related agreements.
5. After approval as set forth in paragraphs 3 and 4, this
Plan shall take effect. The Plan shall continue in full force
and effect as to the Class B shares of the Funds for so long as
such continuance is specifically approved at least annually in
the manner provided for approval of this Plan in paragraph 4.
6. The Distributor shall provide to the Directors of the
Company, and the Directors shall review, at least quarterly, a
written report of the amounts so expended and the purposes for
which such expenditures were made.
7. This Plan may be terminated as to the Funds at any
time, without payment of any penalty, by vote of the Directors of
the Company, by vote of a majority of the Rule 12b-l Directors,
or by a vote of a majority of the outstanding voting securities
of Class B shares of the Funds on not more than 30 days' written
notice to any other party to the Plan.
8. This Plan may not be amended to increase materially the
amount of distribution fee (including any service fee) provided
for in paragraph 1 hereof unless such amendment is approved in
the manner provided for initial approval in paragraph 3 hereof,
and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal
in paragraph 4 hereof.
9. While this Plan is in effect, the selection and
nomination of Directors who are not interested persons (as
defined in the Act) of the Company shall be committed to the
discretion of the Directors who are not such interested persons.
10. The Company shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 6
hereof, for a period of not less than six years from the date of
this Plan, any such agreement or any such report, as the case may
- 3 -
<PAGE>
be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Company, on behalf of the Funds, and
the Distributor have executed this Service and Distribution Plan
as of the ____ day of ________, 1995.
PILGRIM AMERICA INVESTMENT FUNDS, INC.
By:____________________________________
PILGRIM AMERICA SECURITIES, INC.
By:____________________________________
- 4 -
<PAGE>
Service and Distribution Plan for
Pilgrim America Investment Funds, Inc.
Class M Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim America Investment Funds, Inc. (the
"Company") engages in business as an open-end management
investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided
into two series, PILGRIM AMERICA MAGNACAP FUND and PILGRIM AMERICA HIGH YIELD
FUND (the "Funds");
WHEREAS, shares of common stock of the Funds are divided into classes
of shares, one of which is designated Class M;
WHEREAS, the Company employs Pilgrim America Securities,
Inc. (the "Distributor") as distributor of the securities of
which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into a
Underwriting Agreement pursuant to which the Company has employed the
Distributor in such capacity during the continuous offering of shares of the
Company.
NOW, THEREFORE, the Company hereby adopts on behalf of the Funds with
respect to its Class M shares, and the Distributor hereby agrees to the terms
of, the Plan, in accordance with Rule 12b-l under the Act on the following terms
and conditions:
1. A. The Funds shall pay to the Distributor, as the distributor
of the Class M shares of the Funds, a fee for distribution of the shares at the
rate of up to 0.75% on an annualized basis of the average daily net assets of
the Funds' Class M shares, provided that, at any time such payment is made,
whether or not this Plan continues in effect, the making thereof will not cause
the limitation upon such payments established by this Plan to be exceeded. Such
fee shall be calculated and accrued daily and paid at such intervals as the
Board of Directors shall determine, subject to any applicable restriction
imposed by rules of the National Association of Securities Dealers, Inc.
B. The Funds shall pay to the Distributor, as the distributor
of the Class M shares of the Funds, a service fee at the rate of 0.25% on an
annualized basis of the average daily net assets of the Funds' Class M shares,
provided that, at any time such payment is made, whether or not this Plan
continues in effect, the making thereof will not cause the limitation upon such
payments established by this Plan to be exceeded. Such fee
<PAGE>
shall be calculated and accrued daily and paid at such intervals as the Board of
Directors shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid
for the Distributor's services as distributor of the shares of the Funds in
connection with any activities or expenses primarily intended to result in the
sale of the Class M shares of the Funds, including, but not limited to, payment
of compensation, including incentive compensation, to securities dealers (which
may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Funds. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Funds' Transfer Agent computer
processable tapes of all transactions by customers and serving as the primary
source of information to customers in answering questions concerning the Funds
and their transactions with the Funds. The Distributor is also authorized to
engage in advertising, the preparation and distribution of sales literature and
other promotional activities on behalf of the Funds. In addition, this Plan
hereby authorizes payment by the Funds of the cost of preparing, printing and
distributing Fund Prospectuses and Statements of Additional Information to
prospective investors and of implementing and operating the Plan. Distribution
expenses also include an allocation of overhead of the Distributor and accruals
for interest on the amount of distribution expenses that exceed distribution
fees received by the Distributor. Payments under the Plan are not tied
exclusively to actual distribution and service expenses, and the payments may
exceed distribution and service expenses actually incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. The Plan shall not take effect with respect to the Class M shares of
the Funds until it has been approved by a vote of the then sole shareholder of
the Class M shares of each of the Funds.
- 2 -
<PAGE>
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
take effect. The Plan shall continue in full force and effect as to the Class M
shares of the Funds for so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 4.
6. The Distributor shall provide to the Directors of the Company, and
the Directors shall review, at least quarterly, a written report of the amounts
so expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to each Fund at any time, without
payment of any penalty, by vote of the Directors of the Company, by vote of a
majority of the Rule 12b-l Directors, or by a vote of a majority of the
outstanding voting securities of Class M shares of the Funds on not more than 30
days' written notice to any other party to the Plan.
8. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
10. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily
accessible place.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Company, on behalf of the Funds, and the
Distributor have executed this Service and Distribution Plan as of the ____ day
of _________, 1995.
PILGRIM AMERICA INVESTMENT FUNDS, INC.
By: ________________________________
PILGRIM AMERICA SECURITIES, INC.
By: ________________________________
- 4 -
<PAGE>
FORM OF
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
FOR
PILGRIM AMERICA INVESTMENT FUNDS, INC.
Pilgrim America Magnacap Fund
Pilgrim America High Yield Fund
WHEREAS, Pilgrim America Investment Funds, Inc. (the "Company") engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided into
two separate series, Pilgrim America MagnaCap Fund ("MagnaCap Fund") and Pilgrim
America High Yield Fund ("High Yield Fund") (the "Funds");
WHEREAS, the Company desires to adopt, on behalf of each of the Funds, a
Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with
respect to each of the Funds; and
WHEREAS, pursuant to an Underwriting Agreement dated June 7, 1995, the
Company employs Pilgrim America Securities, Inc. ("Distributor") as distributor
of the securities of which it is the issuer.
NOW, THEREFORE, the Company hereby adopts, on behalf of the Funds, the
Plan, in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. Features of the Classes. Each of the Funds issues its shares of common
stock in three classes: "Class A Shares," "Class B Shares" and "Class M Shares."
Shares of each class of a Fund shall represent an equal pro rata interest in
such Fund and, generally, shall have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any Class Expenses, as defined
in Section 5 below; and (c) each class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution
arrangement and each class shall have separate voting rights on any matter
submitted to shareholders in which
<PAGE>
the interests of one class differ from the interests of any other class. In
addition, Class A, Class B and Class M shares shall have the features described
in Sections 2, 5 and 6 below.
2. Sales Charge Structure.
(a) Class A Shares. Class A shares of a Fund shall be offered at the
then-current net asset value plus a front-end sales charge. The front-end sales
charge shall be in such amount as is disclosed in a Fund's current prospectus or
prospectus supplement and shall be subject to reductions for larger purchases
and such waivers or reductions as are determined or approved by the Board of
Directors. There is no initial front-end sales charge on purchases of an amount
as disclosed in the prospectus. Class A shares generally shall not be subject to
a contingent deferred sales charge provided, however, that such a charge may be
imposed when shares are redeemed within one or two years of purchase and/or in
such other cases as is disclosed in the Fund's current prospectus or supplement
thereto subject to the supervision of the Board of Directors.
(b) Class B Shares. Class B shares of a Fund shall be offered at the
then-current net asset value without the imposition of a front-end sales charge.
A contingent deferred sales charge in such amount as is described in a Fund's
current prospectus or prospectus supplement shall be imposed on Class B shares,
subject to such waivers or reductions as are described in the Fund's prospectus
or supplement thereto, subject to the supervision of the Fund's Board of
Directors.
(c) Class M Shares. Class M shares of a Fund shall be offered at the
then-current net asset value plus a front-end sales charge that is lower than
the sales charge applicable to Class A. The front-end sales charge shall be in
such amount as is disclosed in a Fund's current prospectus or prospectus
supplement and shall be subject to reductions for larger purchases and such
waivers or reductions as are described in the Fund's prospectus or supplement
thereto, subject to the supervision of the Fund's Board of Directors. Orders for
Class M shares in excess of an amount as disclosed in the prospectus will be
accepted as an order for Class A shares or declined.
3. Service and Distribution Plans. Each class of shares of each Fund has
adopted a Rule 12b-1 plan each with the following terms:
(a) Class A Shares. Class A shares of MagnaCap Fund and High Yield
Fund may pay Distributor monthly a fee at an
-2-
<PAGE>
annual rate of 0.30% and 0.25%, respectively, of the average daily net assets of
that Fund's Class A shares for distribution or service activities (each as
defined in paragraph (d), below), as designated by Distributor. Such payment
represents reimbursement for expenses incurred by the Distributor. Distributor,
on behalf of Class A shares of each Fund, may pay Authorized Dealers a fee at
the annual rate of 0.25% of the average daily net assets of the Fund's Class A
shares for distribution or service activities (as defined in paragraph (d),
below) rendered to Class A Shareholders.
(b) Class B Shares. Class B shares of each Fund may pay Distributor
monthly a fee at the annual rate of 1.00% of the average daily net assets of the
Fund's Class B shares for distribution or service activities (as defined in
paragraph (d), below), as designated by Distributor. Distributor, on behalf of
Class B shares of each Fund, may pay Authorized Dealers quarterly a fee at the
annual rate of 0.25% of the average daily net assets of the Fund's Class B
shares for distribution or service activities (as defined in paragraph (d),
below) rendered to Class B shareholders.
(c) Class M Shares. Class M shares of each Fund may pay Distributor
monthly a fee at the annual rate of 1.00% of the average daily net assets of the
Fund's Class M shares for distribution or service activities (as defined in
paragraph (d), below) as designated by Distributor. Distributor, on behalf of
Class M shares of each Fund may pay Authorized Dealers quarterly a fee at the
annual rate of 0.65% of the average daily net assets of MagnaCap Fund's Class M
shares and 0.40% of the average daily net assets of High Yield Fund's Class M
shares for distribution or service activities (as defined in paragraph (d),
below) rendered to Class M shareholders of that Fund.
(d) Distribution and Service Activities.
(i) As used herein, the term "distribution services" shall include
services rendered by Distributor as distributor of the shares of a Fund in
connection with any activities or expenses primarily intended to result in the
sale of shares of a Fund, including, but not limited to, compensation to
registered representatives or other employees of Distributor to other
broker-dealers that have entered into an Authorized Dealer Agreement with
Distributor, compensation to and expenses of employees of Distributor who engage
in or support distribution of the Funds' shares; telephone expenses; interest
expense; printing of prospectuses and reports for other than existing
shareholders; preparation, printing and distribution of sales literature and
advertising materials; and profit and overhead on the foregoing.
-3-
<PAGE>
(ii) As used herein, the term "service activities" shall mean
activities in connection with the provision of personal, continuing services to
investors in each Fund, excluding transfer agent and subtransfer agent services
for beneficial owners of shares of a Fund, aggregating and processing purchase
and redemption orders, providing beneficial owners with account statements,
processing dividend payments, providing subaccounting services for Fund shares
held beneficially, forwarding shareholder communications to beneficial owners
and receiving, tabulating and transmitting proxies executed by beneficial
owners; provided, however, that if the National Association of Securities
Dealers Inc. ("NASD") adopts a definition of "service fee" for purposes of
Section 26(d) of the Rules of Fair Practice of the NASD that differs from the
definition of "service activities" hereunder, or if the NASD adopts a related
definition intended to define the same concept, the definition of "service
activities" in this Paragraph shall be automatically amended, without further
action of the Board of Directors, to conform to such NASD definition. Overhead
and other expenses of Distributor related to its "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
4. Compliance Standards. Masters Series desires that investors in the Funds
select the Fund that best suits his or her investment objective, and also the
sales financing method that best suits his or her particular financial
situation. In this connection, Distributor has established standards which
govern sales of shares of the Funds in order to assist investors in making
investment decisions and to help ensure proper supervision of purchase
recommendations. PASI is requested to share these standards with authorized
dealers wherever possible and practicable.
5. Allocation of Income and Expenses. (a) The gross income of each Fund
shall, generally, be allocated to each class on the basis of net assets. To the
extent practicable, certain expenses (other than Class Expenses as defined below
which shall be allocated more specifically) shall be subtracted from the gross
income on the basis of the net assets of each class of the Fund. These expenses
include:
(1) Expenses incurred by the Company (for example, fees of Directors,
auditors and legal counsel) not attributable to a particular Fund or to a
particular class of shares of a Fund ("Corporate Level Expenses"); and
-4-
<PAGE>
(2) Expenses incurred by a Fund not attributable to any particular
class of the Fund's shares (for example, advisory fees, custodial fees, or other
expenses relating to the management of the Fund's assets) ("Fund Expenses").
(b) Expenses attributable to a particular class ("Class Expenses") shall be
limited to: (i) payments made pursuant to a 12b-1 plan; (ii) transfer agent fees
attributable to a specific class; (iii) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders of a specific class; (iv) Blue Sky
registration fees incurred by a class; (v) SEC registration fees incurred by a
class; (vi) the expense of administrative personnel and services to support the
shareholders of a specific class; (vii) litigation or other legal expenses
relating solely to one class; and (viii) directors' fees incurred as a result of
issues relating to one class. Expenses in category (i) above must be allocated
to the class for which such expenses are incurred. All other "Class Expenses"
listed in categories (ii)-(viii) above may be allocated to a class but only if
the President and Chief Financial Officer have determined, subject to Board
approval or ratification, which of such categories of expenses will be treated
as Class Expenses, consistent with applicable legal principles under the Act and
the Internal Revenue Code of 1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each class of shares
depending on the nature of the expense item. Corporate Level Expenses and Fund
Expenses will be allocated among the classes of shares based on their relative
net asset values. Approved Class Expenses shall be allocated to the particular
class to which they are attributable. In addition, certain expenses may be
allocated differently if their method of imposition changes. Thus, if a Class
Expense can no longer be attributed to a class, it shall be charged to a Fund
for allocation among classes, as determined by the Board of Directors. Any
additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of the
Company in light of the requirements of the Act and the Internal Revenue Code of
1986, as amended.
6. Exchange Privileges. Shares of one class of a Fund that have been held
for a minimum of 30 days 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
-5-
<PAGE>
charge. However, a sales charge, equal to the excess, if any, of the sales
charge rate applicable to the shares being acquired over the sales charge rate
previously paid, may be assessed on exchanges from Pilgrim America Government
Securities Income Fund and Pilgrim America High Yield Fund. If a shareholder
exchanges and subsequently redeems his or her shares, any applicable Contingent
Deferred Sales Charge fee will be based on the full period of the share
ownership. Class A Shares of a Fund may be exchanged for shares of Money Market,
and shares of the Money Market may be exchanged for Class A or Class M shares of
any Fund upon payment of the excess, if any, of the sales charge applicable to
the Class A or Class M shares over the sales charge rate previously paid.
7. Conversion Features. A shareholder's Class B shares will automatically
convert to Class A shares in the Fund on the first business day of the month in
which the eighth anniversary of the issuance of the Class B shares occurs,
together with a pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion of
Class B shares into Class A shares is subject to the continuing application of
an Internal Revenue Service ruling to the effect that (1) such conversion will
not constitute taxable events for federal tax purposes; and (2) the payment of
different dividends on Class A and Class B shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986. The Class B shares so converted will no longer be
subject to the higher expenses borne by Class B shares. The conversion will be
effected at the relative net asset values per share of the two Classes.
8. Quarterly and Annual Reports. The Directors shall receive quarterly and
annual statements concerning all allocated Class Expenses and distribution and
servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as it
may be amended from time to time. In the statements, only expenditures properly
attributable to the sale or servicing of a particular class of shares will be
used to justify any distribution or servicing fee or other expenses charged to
that class. Expenditures not related to the sale or servicing of a particular
class shall not be presented to the Directors to justify any fee attributable to
that class. The statements, including the allocations upon which they are based,
shall be subject to the review and approval of the independent Directors in the
exercise of their fiduciary duties.
9. Accounting Methodology. (a) The following procedures shall be
implemented in order to meet the objective of properly
-6-
<PAGE>
allocating income and expenses among the Funds:
(1) On a daily basis, a fund accountant shall calculate the Plan Fee
to be charged to each 12b-1 class of shares by calculating the average daily net
asset value of such shares outstanding and applying the applicable fee rate of
the respective class to the result of that calculation.
(2) The fund accountant will allocate designated Class Expenses, if
any, to the respective classes.
(3) The fund accountant shall allocate income and Corporate Level and
Fund Expenses among the respective classes of shares based on the net asset
value of each class in relation to the net asset value of the Fund for Fund
Expenses, and in relation to the net asset value of the Company for Corporate
Level Expenses. These calculations shall be based on net asset values at the
beginning of the day.
(4) The fund accountant shall then complete a worksheet, developed for
purposes of complying with this section of this Plan, using the allocated income
and expense calculations from Paragraph (3) above, and the additional fees
calculated from Paragraphs (1) and (2) above. The fund accountant may make non-
material changes to the form of worksheet as it deems appropriate.
(5) The fund accountant shall develop and use appropriate internal
control procedures to assure the accuracy of its calculations and appropriate
allocation of income and expenses in accordance with this Plan.
10. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser to the Company, by the Company's underwriter or any
other provider of services to the Company without the prior approval of the
Company's Board of Directors.
11. Effectiveness of Plan. This Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of the Company
and (b) those Directors of the Company who are not "interested persons" of the
Company (as defined in the Act) and who have no direct or indirect financial
interest in the operation of this Plan, cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan.
12. Material Modifications. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in paragraph 10
-7-
<PAGE>
hereof.
13. Limitation of Liability. The Directors of the Company and the
shareholders of each Fund shall not be liable for any obligations of the Company
or any Fund under this Plan, and Distributor or any other person, in asserting
any rights or claims under this Plan, shall look only to the assets and property
of the Company or such Funds in settlement of such right or claim, and not to
such Directors or shareholders.
IN WITNESS WHEREOF, the Company, on behalf of the Funds, has adopted this
Multiple Class Plan as of the ____ day of _________, 1995, to be effective
_________, 1995.
PILGRIM AMERICA INVESTMENT FUNDS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
-8-
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<DISTRIBUTIONS-OF-GAINS> 4,722
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 6,748
<DIVIDEND-INCOME> 5,281
<INTEREST-INCOME> 687
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<DISTRIBUTIONS-OF-INCOME> 4
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<SERIES>
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<MULTIPLIER> 1,000
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<S> <C>
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