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SIGNATURE MICHAEL J. ROLAND
TITLE SR. VICE PRESIDENT
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<NAME> Pilgrim America Investment Funds, Inc.
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<NAME> Pilgrim America Investment Funds, Inc.
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[LETTERHEAD OF KPMG PEAT MARWICK LLP]
The Board of Directors
Pilgrim America Investment Funds, Inc.:
In planning and performing our audit of the financial statements of Pilgrim
America MagnaCap Fund and Pilgrim America High Yield Fund (two funds comprising
Pilgrim America Investment Funds, Inc.), as of and for the year ended June 30,
1998, we considered the Funds' internal control structure, including procedures
for safeguarding securities, in order to determine our auditing procedures for
the purpose of expressing our opinion on the financial statements and to comply
with the requirements of Form N-SAR, not to provide assurance on the internal
control structure.
The management of Pilgrim America MagnaCap Fund and Pilgrim America High Yield
Fund is responsible for establishing and maintaining an internal control
structure. In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
internal control structure policies and procedures. Two of the objectives of an
internal control structure are to provide management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from unauthorized
use or disposition and that transactions are executed in accordance with
management's authorization and recorded properly to permit preparation of
financial statements in conformity with generally accepted accounting
principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any evaluation
of the structure to future periods is subject to the risks that it may become
inadequate because of changes in conditions or that the effectiveness of the
design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
June 30, 1998.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
/s/ KPMG Peat Marwick LLP
July 31, 1998
Exhibit 77(c) -- MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
SPECIAL MEETING:
A special meeting of shareholders of Pilgrim America High Yield Fund
was held at the offices of the Fund on April 16, 1998. A brief description of
each matter voted upon as well as the voting results are outlined below:
Shares
Shares voted against Shares Broker
voted for or withheld abstained non-vote Total
--------- ----------- --------- -------- -----
I. To approve an Amendment to the Investment Management Agreement between the
Fund and Pilgrim America Investments, Inc. that changes the investment
management fee paid by the Fund.
11,065,450 1,624,190 861,237 -- 13,550,877
II. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof:
12,049,644 613,076 888,156 -- 13,550,876
Exhibit 77D(g)
SUPPLEMENT DATED FEBRUARY 3, 1998 TO THE
PROSPECTUS FOR THE PILGRIM AMERICA ELITE SERIES
DATED NOVEMBER 1, 1997
CHANGE TO CERTAIN INVESTMENT POLICIES OF PILGRIM AMERICA MAGNACAP FUND
On February 2, 1998, the Board of Directors of Pilgrim America
Investment Funds, Inc. (the "Company") approved changes to certain investment
policies of the Pilgrim America MagnaCap Fund ("MagnaCap Fund"), which became
effective on February 2. The investment objective of MagnaCap Fund continues to
be growth of capital, with dividend income as a secondary consideration. The
changes in investment policies revise to some degree the criteria generally used
to select portfolio companies. The investment objective and policies of the
MagnaCap Fund, as described on page 8 of the Prospectus, are changed to read as
follows:
MAGNACAP FUND. The 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 its objectives by investing
primarily in equity securities issued by companies that the Investment
Manager determines are of high quality based upon the selection
criteria described below. 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)), although 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 philosophy that
companies that can best meet the Fund's objectives have paid
increasing dividends or have had the capability to pay rising
dividends from their operations. Normally, stocks are acquired only if
at least 65% of the Fund's assets are invested in companies that meet
the following criteria:
1. CONSISTENT DIVIDENDS. A company must have paid or had the
financial capability from its operations to pay a dividend in 8
out of the last 10 years.
2. SUBSTANTIAL DIVIDEND INCREASES. A company must have increased its
dividend or had the financial capability from its operations to
have increased its dividend at least 100% over the past 10 years.
<PAGE>
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 the company's total capitalization or a company's bonds must
be rated at least A- or A-3.
5. ATTRACTIVE PRICE. A company's current share price should be in
the lower half of the stock's price/earnings ratio range for the
past ten years, or the ratio of the share price to its
anticipated future earnings must be an attractive value in
relation to the average for its industry peer group or that of
the Standard & Poor's 500 Composite Stock Price Index.
The Investment Manager may also consider other factors in selecting
investments for the Fund. The remainder of the Fund's assets may be
invested in equity securities that the Investment Manager believes
have growth potential because they represent an attractive value.
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.
No change has been made to the investment objectives or policies of the
Pilgrim America High Yield Fund or the Pilgrim Government Securities Income
Fund.
Exhibit 77Q1(b) - Text of proposal as described in answer to sub-item 77D(g)
Incorporated by reference is answer to sub-item 77D(g) which is an exhibit in
this NSAR which shows the change in Pilgrim America MagnaCap Fund's investment
policies and objectives.
Exhibit 77Q1(e)
AMENDMENT TO RESTATED
INVESTMENT MANAGEMENT AGREEMENT
The 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"), is hereby amended as set
forth in this Amendment to the Investment Management Agreement, which is made as
of the ___ day of __________, 1998.
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 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, and the Manager wish to
amend the Investment Management Agreement as provided below; and
NOW, THEREFORE, in consideration of the covenants and the mutual
promises in the Investment Management Agreement, the parties hereto, intending
to be legally bound hereby, mutually agree as follows:
1. Section 8(a) of the Investment Management Agreement is amended by replacing
the language thereof with the following paragraph:
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 an annual percentage rate of .60% of the average daily net
assets of the Fund.
2. This Amendment shall become effective as of the date indicated above
provided that it has been approved by the shareholders of the Fund at a
meeting held for that purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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:
------------------------ ------------------------------
-2-
