<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1997
Securities Act File No. 2-91302
Investment Company Act File No. 811-4031
================================================================================
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. 20 /x/
and/or
Registration Statement Under The Investment Company Act Of 1940 /x/
Amendment No. 20 /x/
(Check appropriate box or boxes)
Pilgrim Government Securities Income Fund, 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 / / on (date) pursuant to paragraph
to paragraph (a)(1) (a)(1)
/ / 75 days after filing pursuant / / on (date) pursuant to paragraph
to 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
<TABLE>
<CAPTION>
N-1A Item Location in Prospectus
- --------- -------------------------
(Caption)
<S> <C>
Part A
- ------
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
Part B Additional Information
- ------ -------------------------
(Caption)
Item 10. Cover Page.........................................................Cover Page
Item 11. Table of Contents..................................................Table of Contents
Item 12. General Information and History....................................Pilgrim America; 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.............................Investment Management
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;
Shareholder Services and
Privileges; Additional
Purchase and Redemption
Information
Item 20. Tax Status.........................................................Tax Considerations
Item 21. Underwriters.......................................................Distributor
Item 22. Calculation of Performance Data....................................Performance Information
Item 23. Financial Statements..............................................Financial Statements
</TABLE>
- ----------
* Contained in the Annual Report of the Registrant
- 9 -
<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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------------------------ -------------------------------------------------- -----------------------
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>
- ---------------------------------- ----------------------------
41
<PAGE>
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42
<PAGE>
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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 GOVERNMENT SECURITIES INCOME FUND
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Pilgrim Government Securities Income Fund, the sole series of Pilgrim Government
Securities Income Fund, Inc. (the "Fund"), is a diversified, open-end management
investment company seeking high current income, consistent with liquidity and
preservation of capital.
This document is not the Prospectus of the Fund and should be read in
conjunction with that Prospectus dated November 1, 1997, which may be obtained
without charge upon written request to the address above or by calling (800)
331-1080.
TABLE OF CONTENTS
Page
----
Investment Objective And Policies...................................... 2
Investment Restrictions................................................ 7
Directors And Officers................................................. 8
Principal Shareholders................................................. 11
Investment Management.................................................. 11
Distributor............................................................ 13
Pilgrim America........................................................ 13
Distribution Plan...................................................... 13
Execution Of Portfolio Transactions.................................... 15
Additional Purchase and Redemption Information......................... 17
Determination of Share Price........................................... 20
Shareholder Services And Privileges.................................... 21
Distributions.......................................................... 23
Tax Considerations..................................................... 24
Performance Information................................................ 26
General Information.................................................... 29
Custodian.............................................................. 29
Independent Auditors................................................... 29
Legal Counsel.......................................................... 29
Financial Statements................................................... 29
- 1 -
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
As described in the Fund's Prospectus, the Fund is a diversified, open-end
management investment company seeking high current income consistent with
liquidity and preservation of capital. There can be no assurance that the Fund's
objective will be attained.
U.S. Government Securities
The Fund's investment objective and the investment policies described in the
first paragraph of the description of the Fund in the prospectus under "The
Funds' Investment Objectives and Policies", "Government Securities Income Fund"
are fundamental and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund.
The U.S. Government securities which may be purchased by the Fund include (1)
U.S. Treasury obligations such as 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 (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities ("Agency
Securities") which are supported by any of the following: (a) the full faith and
credit of the U.S. Treasury, such as obligations of the Government National
Mortgage Association ("GNMA"), (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the U.S. Treasury, such as obligations
of the Federal National Mortgage Association, or (c) the credit of the agency or
instrumentality, such as obligations of the Federal Home Loan Mortgage
Corporation.
The Fund may invest in U.S. Government Agency Mortgage-Backed Securities. These
securities are obligations issued or guaranteed by the U.S. Government or by one
of its agencies or instrumentalities, including but not limited to GNMA, FNMA or
FHLMC. U.S. Government Agency Mortgage-Backed Certificates provide for the
pass-through to investors of their pro rata share of monthly payments (including
any principal prepayments) made by the individual borrowers on the pooled
mortgaged loans, net of any fees paid to the guarantor of such securities and
the services of the underlying mortgage loans. GNMA, FNMA and FHLMC each
guarantee timely distributions of interest to certificate holders. GNMA and FNMA
guarantee timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC Gold Participation Certificates now guarantee timely
payment of monthly principal reductions. Although their close relationship with
the U.S. Government is believed to make them high-quality securities with
minimal credit risks, the U.S. Government is not obligated by law to support
either FNMA or FHLMC. However, historically there have not been any defaults of
FNMA or FHLMC issues. Mortgage-backed securities consist of interests in
underlying mortgages with maturities of up to thirty years. However, due to
early unscheduled payments of principal on the underlying mortgages, the
securities have a shorter average life and, therefore, less volatility than a
comparable thirty-year bond. When interest rates fall, high prepayments could
force the Fund to reinvest principal at a time when investment opportunities are
not attractive. The value of U.S. Government Agency Mortgage-Backed Securities,
like other traditional debt instruments, will tend to move in a direction
opposite to that of interest rates.
The Fund purchases primarily fixed-rate securities, including but not limited to
high coupon U.S. Government Agency Mortgage-Backed Securities, which provide a
higher coupon at the time of purchase than the then prevailing market rate
yield. The prices of high coupon U.S. Government Agency Mortgage-Backed
Securities do not tend to rise as rapidly as those of traditional fixed-rate
securities at times when interest rates are decreasing, and tend to decline more
slowly at times when interest rates are increasing. The Fund may purchase such
securities at a premium, which means that a faster principal prepayment rate
than expected will reduce the market value of and income from such securities,
while a slower prepayment rate will tend to increase the market value of and
income from such securities.
The composition and weighted average maturity of the Fund's portfolio will vary
from time to time, based upon the determination of Pilgrim America Investments,
Inc. (the "Investment Manager") of how best to further the Fund's
- 2 -
<PAGE>
investment objective. The Fund may invest in Government securities of all
maturities, short-term, intermediate-term and long-term.
GNMA Certificates or "Ginnie Maes" are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Each mortgage loan included in the pool is either insured by the
Federal Housing Administration or guaranteed by the Veterans Administration.
The Fund will purchase only GNMA Certificates of the "modified pass-through"
type, which entitle the holder to receive its proportionate share of all
interest and principal payments owed on the mortgage pool, net of fees paid to
the issuer and GNMA. Payment of principal and interest on GNMA Certificates of
the "modified pass-through" type is guaranteed by GNMA.
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with 25-to-30 year maturity, the type
of mortgage which backs the vast majority of GNMA Certificates, is approximately
12 years. It is therefore customary practice to treat GNMA Certificates as
30-year mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
FNMA Mortgage Securities are pass-through mortgage-backed securities that are
issued by FNMA, a U.S. Government sponsored corporation owned by private
stockholders. FNMA mortgage securities are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government. In addition, FNMA Mortgage Securities may include any
obligations of, or instruments issued by or fully guaranteed as to principal and
interest by, FNMA.
FHLMC Mortgage Securities are mortgage-backed securities representing interests
in residential mortgage loans pooled by FHLMC, a U.S. Government sponsored
corporation. FHLMC mortgage securities are guaranteed as to timely payment of
interest and ultimate collection of principal but are not backed by the full
faith and credit of the U.S. Government. ln addition, FHLMC Mortgage Securities
may include any obligations of, or instruments issued by or fully guaranteed as
to principal and interest by, FHLMC.
- 3 -
<PAGE>
Portfolio Turnover Rate
The annual rate of the Fund's portfolio turnover during the fiscal years ended
June 30, 1996 and 1997 was 170% and 172% respectively. The Fund places no
restrictions on portfolio turnover and it may sell any portfolio security
without regard to the period of time it has been held. 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 redemptions, short-term interest
rate volatility and other special market conditions.
Delayed Delivery Transactions
The Fund may, from time to time, purchase securities on a "delayed delivery" or
"when-issued" basis, which means that, while the Fund has ownership rights to
the securities, delivery and payment for the securities normally takes place 15
to 45 days after the date of the transaction. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the buyer enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date if
it is deemed advisable as a matter of investment strategy. A separate account of
the Fund consisting of cash and/or liquid assets equal to the amount of the
above commitments will be maintained at the Fund's Custodian Bank. For the
purpose of determining the adequacy of the assets in the account, the deposited
assets will be valued at market. If the market value of such assets declines,
additional cash or assets will be placed in the account on a daily basis so that
the market value of the account will equal the amount of such commitments by the
Fund.
Securities purchased on a delayed delivery basis and the securities held in the
Fund's portfolio are subject to changes in market value based upon changes in
the level of interest rates. Generally, the value of such securities will
fluctuate inversely to changes in interest rates -- i.e., they will appreciate
in value when interest rates decline and decrease in value when interest rates
rise. Therefore, to the extent that the Fund remains substantially fully
invested at the same time that it has purchased securities on a delayed delivery
basis, which it would normally expect to do, there will be greater fluctuations
in the Fund's net asset value than if it solely set aside cash to pay for the
securities when delivered.
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).
Depending on market conditions, the Fund could experience fluctuations in share
price as a result of delayed delivery or when-issued purchases. In addition, the
Fund may, at any time, sell certain of its portfolio securities on a delayed
delivery or when-issued basis. In such cases the Fund will not receive payment
for these securities until they are delivered to the purchaser, normally 15 to
45 days later.
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 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
- 4 -
<PAGE>
in connection with a loan and may pay a negotiated portion of the income earned
on the cash to the borrower or placing broker.
Dollar Roll Transactions
In order to enhance portfolio returns and manage prepayment risks, the Fund may
engage in dollar roll transactions with respect to mortgage securities issued by
GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage
security held in the portfolio to a financial institutional such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially similar
security (same type, coupon and maturity) from the institution at a later date
at an agreed upon price. The mortgage securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories. 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 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 the
Fund enters into a dollar roll transaction, cash and/or liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated with its custodian at the trade date. These
securities are marked daily and are maintained until the transaction is settled.
Pairing-Off Transactions
The Fund engages in a pairing-off transaction when the Fund commits to purchase
a security at a future date ("delayed delivery" or "when issued"), and then
prior to the predetermined settlement date, 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,
cash and/or liquid assets equal to the value of the outstanding purchase
commitments will be segregated from general investible funds and marked to the
market daily.
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 decrease, 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. Consequently, the Fund will experience a gain. However, if interest
rates increase, than 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. Consequently, the Fund
will experience a loss.
Repurchase Agreements
The Fund may enter into repurchase agreements involving U.S. Government
securities. Under a repurchase agreement, the Fund acquires a debt instrument
for a relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to resell such debt
instrument at a fixed price. The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective for the period
of time during which the Fund's money is invested. The Fund's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the purchase price including accrued interest earned on the underlying U.S.
Government securities. The instruments held as collateral are valued daily, and
as the value of instruments declines, the Fund will require additional
collateral. 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. Repurchase agreements will be made only with U.S. Government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal
- 5 -
<PAGE>
Reserve System. The Investment Manager will monitor the value of the collateral
to ensure that it meets or exceeds the repurchase price. In all cases, the
Investment Manager must find the creditworthiness of the other party to the
transaction satisfactory before execution. The Fund will make payment for
securities it receives as collateral only upon physical delivery or evidence of
book entry transfer to the account of its Custodian Bank. Repurchase agreements
are considered by the staff of the Securities and Exchange Commission to be
loans by the Fund. 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.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreement transactions. Such
transactions involve the sale of U.S. Government securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed
upon price and date. The Fund will employ reverse repurchase agreements when
necessary to meet unanticipated net redemptions so as to avoid liquidating other
portfolio investments during unfavorable market conditions. At the time it
enters into a reverse repurchase agreement, the Fund will place in a segregated
custodial account cash and/or liquid assets having a dollar value equal to the
repurchase price. Reverse repurchase agreements are considered to be borrowings
under the Investment Company Act of 1940 (the "1940 Act"). Reverse repurchase
agreements, together with other permitted borrowings, may constitute up to 33
1/3% of the Fund's total assets. Under the 1940 Act, the Fund is required to
maintain continuous asset coverage of 300% with respect to borrowings and to
sell (within three days) sufficient portfolio holdings to restore such coverage
if it should decline to less than 300% due to market fluctuations or otherwise,
even if such liquidations of the Fund's holdings may be disadvantageous from an
investment standpoint. Leveraging by means of borrowing may exaggerate the
effect of any increase or decrease in the value of portfolio securities or the
Fund's net asset value, and money borrowed will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
Borrowing
The Fund may borrow up to 10% of the value of its total assets for temporary or
emergency purposes. No additional investment may be made while any such
borrowings are in excess of 5% of total assets. For purposes of this investment
restriction, the Fund's entry into reverse repurchase agreements and
dollar-rolls and delayed delivery transactions, including those relating to
pair-offs, shall not constitute borrowings. Such borrowings, together with
reverse repurchase agreements, may constitute up to 33% of the Fund's total
assets. Under the Investment Company Act of 1940, the Fund is required to
maintain continuous asset coverage of 300% with respect to such borrowings and
to sell (within three days) sufficient portfolio holdings to restore such
coverage if it should decline to less than 300% due to market fluctuations or
otherwise, even if such liquidations of the Fund's holdings may be
disadvantageous from an investment standpoint. Leveraging by means of borrowing
may exaggerate the effect of any increase or decrease in the value of portfolio
securities or the Fund's net asset value, and money borrowed will be subject to
interest and other costs (which may include commitment fees and/or the cost of
maintaining minimum average balances) which may or may not exceed the income
received from the securities purchased with borrowed funds.
The Fund may not mortgage, pledge or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the Fund's purchasing of
securities on a forward commitment or delayed delivery basis, entering into
reverse repurchase agreements and engaging in dollar-roll transactions.
Risk Factors
Whether a reverse repurchase agreement or dollar-roll transaction produces a
gain for the Fund depends upon the "costs of the agreements" (e.g., a function
of the difference between the amount received upon the sale of its securities
and the amount to be spent upon the purchase of the same or "substantially the
same" security) and the
- 6 -
<PAGE>
income and gains of the securities purchased with the proceeds received from the
sale of the mortgage security. If the income and gains on the securities
purchased with the proceeds of the agreements exceed the costs of the
agreements, then the Fund's net asset value will increase faster than otherwise
would be the case; conversely, if the income and gains on such securities
purchased fail to exceed the costs of the structure, net asset value will
decline faster than otherwise would be the case. Reverse repurchase agreements
and dollar-roll transactions, as leveraging techniques, may increase the Fund's
yield in the manner described above; however, such transactions also increase
the Fund's risk to capital and may result in a shareholder's loss of principal.
Whether a pairing-off transaction produces a gain for the Fund depends upon the
movement of interest rates. If interest rates decrease, 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. Consequently, the Fund will experience a gain. However, if interest
rates increase, than the money received upon the sale of the security will be
less than the anticipated amount needed at the time the commitment to purchase
the security at the future date was entered. Consequently, the Fund will
experience a loss.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
1. Purchase any securities other than obligations issued or guaranteed
by the United States Government or its agencies, some of which may be
subject to repurchase agreements. There is no limit on the amount of the
Fund's assets that may be invested in the securities of any one issuer of
such obligations.
2. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies, (b) to
the extent the entry into a repurchase agreement is deemed to be a loan or
(c) by the loan of its portfolio securities in accordance with the policies
described under "Investment Objective and Policies."
3. (a) Borrow money, except temporarily for extraordinary or emergency
purposes from a bank and then not in excess of 10% of its total assets (at
the lower of cost or fair market value). No additional investment may be
made while any such borrowing are in excess of 5% of total assets. For
purposes of this investment restriction, the entry into reverse repurchase
agreements, dollar-rolls and delayed delivery transactions, including those
relating to pair-offs, shall not constitute borrowing.
(b) Mortgage, pledge or hypothecate any of its assets except to the
extent necessary to secure permitted borrowing and to the extent related to
the deposit of assets in escrow in connection with (i) the purchase of
securities on a forward commitment or delayed delivery basis, and (ii)
reverse repurchase agreements and dollar-rolls.
(c) Borrow money, including the entry into reverse repurchase
agreements and dollar roll transactions and purchasing securities on a
delayed delivery basis, if, as a result of such borrowing, more than 33-1/3
of the total assets of the Fund, taken at market value at the time of such
borrowing, is derived from borrowing. For purposes of this limitation, a
delay between purchase and settlement of a security that occurs in the
ordinary course for the market on which the security is purchased or issued
is not considered a purchase of a security on a delayed delivery basis.
4. Purchase securities on margin, sell securities short or participate
on a joint or joint and several basis in any securities trading account.
(Does not preclude the Fund from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio
securities.)
- 7 -
<PAGE>
5. Underwrite any securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.
6. Buy or sell interests in oil, gas or mineral exploration or
development programs, or purchase or sell commodities, commodity contracts
or real estate. (Does not preclude the purchase of GNMA mortgage-backed
certificates.)
7. Purchase or hold securities of any issuer, if, at the time of
purchase or thereafter, any of the Officers and Directors of the Fund or
its Investment Manager own beneficially more than 1/2 of 1%, and such
Officers and Directors holding more than 1/2 of 1% together own
beneficially more than 5%, of the issuer's securities.
8. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets.
9. 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 not invest more than 5% of the net assets of
the Fund in warrants, whether or not listed on the New York or American Stock
Exchanges, including no more than 2% of its total assets which may be invested
in warrants that are not listed on those exchanges. Warrants acquired by the
Fund in units or attached to securities are not included in this restriction.
The Fund will not, so long as its shares are registered in the State of Texas,
invest in oil, gas, or other mineral leases or real estate limited partnership
interests. The Fund will not make loans to others, 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 Fund 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 Fund 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.
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.
- 8 -
<PAGE>
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 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 $2,589 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 other
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.
- 9 -
<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).......................... $617 N/A N/A $29,946
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
John P. Burke, Director(2)(4) ........................... $121 N/A N/A $7,200
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Al Burton, Director (3)(4)............................... $617 N/A N/A $29,946
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Bruce S. Foerster, Director (1)(4)....................... $617 N/A N/A $29,946
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Jock Patton (4)(5)....................................... $617 N/A N/A $29,946
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Robert W. Stallings, Director and $0 $0
Chairman (1)(6)........................................ N/A N/A (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.
- 10 -
<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 21.41% of the shares.
With respect to the Class B shares of the Fund, Prudential Securities Inc., 3
Beverly Road, Commack, New York 11725-1701, owned 7.47% of the shares; Donaldson
Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, New
Jersey 07303-2052, owned 25.81% of the shares; Merrill Lynch, Pierce, Fenner &
Smith Inc., 4800 Deer Lake Drive, Jacksonville, Florida 32246-6484, owned 36.15%
of the shares and PaineWebber Incorporated, 21 Chestnut Avenue, Los Gatos,
California 95030-5803, owned 5.77% of the shares. With respect to the Class M
shares, Investors Fiduciary Trust Company ("IFTC") as custodian, 7734 Davis
Circle, Omaha, Nebraska 68134-6620, owned 9.03% of the shares, Donaldson Lufkin
Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, New Jersey
07303-2052, owned 21.02% of the shares, Inda F. Reeves, 4811 13th, Lubbock,
Texas 79416-4613 owned 8.88% of the shares, IFTC, as custodian, 3611 36th
Street, Lubbock, Texas 79413-2237, owned 11.47% of the shares and IFTC, as
custodian, 2704 23rd Street, Snyder, Texas 79549-2456 owned 44.63% of the
shares.
INVESTMENT MANAGEMENT
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
superintends and manages the Fund's investments subject to the ultimate
supervision and direction of the Fund's Board of Directors.
As compensation for the foregoing services, the Investment Manager is paid
monthly a fee equal to 0.50% per annum of the average daily net assets of the
Fund on the first $500 million of net assets. The annual rate is reduced to
0.45% on net assets from $500 million to $1 billion and to 0.40% on net assets
in excess of $1 billion. Pursuant to the terms of the Investment Management
Agreement, the Investment Manager will reimburse the 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 .25% of the average daily net assets of these
classes,
- 11 -
<PAGE>
exceed 1.50% of the Fund's average daily net asset value for the first $40
million of net assets and 1.00% of average daily net assets in excess of $40
million for any one fiscal year. This reimbursement policy cannot be changed
unless the agreement is amended, which would require shareholder approval.
The Fund pays its own operating expenses, which are not assumed by the
Investment Manager, including the fees of its custodian, transfer and
shareholder servicing agent; cost 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 Directors and
shareholders, except those called to accommodate the Investment Manager; fees
and expenses of Directors who are not affiliated with or interested persons of
the Investment Manager; salaries of personnel of the Investment Manager involved
in placing orders for the execution of the Fund's portfolio transactions,
shareholder servicing and in maintaining registration of Fund shares under state
securities laws; insurance premiums on property or personnel of the Fund that
inure to its benefit; costs of preparing and printing reports, proxy statements
and prospectuses of the Fund 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 expenses in connection with
the issuance, registration and transfer of its shares. Under the Agreement, the
Fund is required to pay for the salaries of any officers employed directly by
the Fund. However, no such officers have ever been employed by the Fund nor is
it the current intention of the Fund to employ any such officers.
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
$170,619, $208,689 and $50,647, respectively. For the fiscal period July 1, 1994
to April 7, 1995, the Fund paid management fees to the former manager of
approximately $196,785. 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 $2,195, 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 will continue in effect from year to year so long as such
continuation is approved at least annually by (1) the Board of Directors or the
vote of a majority of the outstanding voting securities of the Fund, and (2) a
majority of the Directors of the Fund 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 sixty (60) days'
written notice, and is automatically terminated in the event of its assignment
as defined in the 1940 Act.
The use of the name "Pilgrim" in the Fund's name is pursuant to a license
granted by the Investment Manager, and in the event the Agreement is terminated,
the Fund has agreed to amend its corporate name to remove the reference to
"Pilgrim".
- 12 -
<PAGE>
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 ("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 of the Fund for information on how to purchase and sell shares of
the Fund, and the charges and expenses associated with an investment.
For the fiscal years ended June 30, 1995, 1996 and 1997, total commissions
allowed to other dealers under the Fund's underwriting arrangements were
approximately $4,010, $128,009 and $107,900, 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 $1,965, $56 and
$324 or approximately 1.82%, 0.04% and 7.05%, respectively, 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 $512, or approximately
11.15%, of the total commissions assessed on purchases of the Fund. The sales
commissions allowed by the Distributor to selling dealers on the sale of new
Fund shares are not an expense of the Fund and have no effect on the Fund's net
asset value.
PILGRIM AMERICA
The Investment Manager and the Distributor are wholly-owned subsidiaries of
Pilgrim America Group, 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. Express America is a
holding company that through its subsidiaries engages in the financial services
business, focusing primarily on the business 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 America High Yield Fund, open-end investment companies,
and to Pilgrim America Bank and Thrift Fund, Inc. and Pilgrim America Prime Rate
Trust, closed-end investment companies. 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 0.35% 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
- 13 -
<PAGE>
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 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 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
- 14 -
<PAGE>
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 to its
sharesholders 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 $324,529, including expenses for: advertising - $6,189;
salaries and commissions - $228,749; printing, postage, and handling - $16,733;
brokers' servicing fees - $62,622; and miscellaneous and other promotional
activities - $10,236. 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 $16,646, including expenses for:
advertising -- $317; salaries and commissions -- $11,734; printing, postage, and
handling -- $858; brokers' servicing fees -- $3,212; and miscellaneous and other
promotional activities -- $525. 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 $648, including expenses
for: advertising -- $12; salaries and commissions -- $458; printing, postage,
and handling -- $33; brokers' servicing fees -- $125; and miscellaneous and
other promotional activities -- $20. Of the total amount incurred by the
Distributor during the last year, $163,000 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 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 Fund, which
securities are to be purchased and sold by the Fund and which brokers or dealers
are to be eligible to execute its portfolio transactions.
In placing portfolio transactions, the Fund will use its best efforts to choose
a broker or dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
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 or dealer can offer the services needed to obtain the most
favorable price and execution available, consideration may be given to those
brokers or dealers 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,
- 15 -
<PAGE>
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. In selecting a broker or dealer,
the Investment Manager may also take into consideration the sale of the Fund's
shares.
Purchases of portfolio securities also may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) that specialize in the types of securities
that the Fund will be holding, unless better executions are available elsewhere.
Dealers and underwriters usually act as principal for their own account.
Purchases from underwriters will include a concession paid by the issuer to the
underwriter and purchases from dealers will include the spread between the bid
and the asked price. If the execution and price offered by more than one dealer
or underwriter are comparable, the order may be allocated to a dealer or
underwriter that has provided such research or other services as mentioned
above.
The Fund does not intend to effect any transactions 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 its management fee a part of any tender fees that may be legally
received and retained by an affiliated broker-dealer.
Investment decisions for the Fund are made independently from those of other
Pilgrim America Funds. Nevertheless, it is possible, that at times identical
securities will be acceptable for more than one of such funds. However, in such
event 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 seek 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, if any 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. 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 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.
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 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 change.
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
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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 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, 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 at Pilgrim America Funds 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
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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 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.
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<PAGE>
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 "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 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
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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. The mortgage
securities held in the Fund's portfolio will be valued at the mean between the
most recent bid and asked prices as obtained from one or more dealers that make
markets in the securities when over-the counter market quotations are readily
available. 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 Fund. 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 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.
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<PAGE>
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 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 Internal Revenue Service 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).
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<PAGE>
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.
DISTRIBUTIONS
The policy of the Fund is to pay monthly dividends from its net investment
income. Distributions of any net realized long-term capital gains will be made
annually following its fiscal year ending on June 30.
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The Fund's shareholders have the privilege of reinvesting both ordinary income
dividends and capital gain dividends, if any, in additional full or fractional
shares of the same class at the then current net asset value without a sales
charge. The Fund's management believes that most investors desire to take
advantage of this privilege. It has therefore made arrangements with its
Transfer Agent to have all income dividends and capital gains distributions that
are declared by the Fund automatically reinvested for the account of each
shareholder. A shareholder may elect at any time by writing to the Fund or the
Transfer Agent to have subsequent dividends and/or distributions paid 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 Transfer Agent is automatically
appointed to receive the dividends and distributions upon all shares in the
shareholder's account and to reinvest them in full and fractional shares of the
Fund at the 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 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
- 24 -
<PAGE>
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 held
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 would be subject to the distribution
requirements of the Code.
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.
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, 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 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
- 25 -
<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. Certain
states may exempt from state tax Fund dividends attributable to interest earned
on U.S. Treasury securities. 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 Commission:
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
- 26 -
<PAGE>
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.
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 Commission 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
- 27 -
<PAGE>
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 2.22%, 4.26%, and 6.39%,
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 1.40% and 2.59%,
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 3.44% and 3.01%,
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 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)
- 28 -
<PAGE>
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 Fund's authorized capital stock consists of 5,000,000,000 shares. 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 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.
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.
FINANCIAL STATEMENTS
The Financial Statements for the 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.
- 29 -
<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 are incorporated by reference from the
Registrant's Annual Report to Shareholders for the fiscal year
ended June 30, 1997 (audited).
(b) Exhibits
(1)(A) Articles of Incorporation
(1)(B) Certificate of Amendment to Articles of Incorporation
(1)(C) Certificate of Determination
(2) Bylaws
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Management Agreement
(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
(10) Opinion and Consent of Counsel (filed with 24f-2 notice)
C-1
<PAGE>
(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
-------------- ------------------------
Common Stock (No Par Value)
Class A 1,820
Class B 100
Class M 17
ITEM 27. Indemnification
C-2
<PAGE>
Reference is made to Article VI 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.
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
C-3
<PAGE>
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 GOVERNMENT SECURITIES
INCOME FUND, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert W. Stallings Director and President October 24, 1997
- --------------------------------- (Principal Executive Officer)
Robert W. Stallings
- --------------------------------- Director October 24, 1997
Mary A. Baldwin *
- --------------------------------- Director October 24, 1997
John P. Burke *
- --------------------------------- Director October 24, 1997
Al Burton *
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------- Director October 24, 1997
Bruce S. Foerster *
- --------------------------------- Director October 24, 1997
Jock Patton *
- --------------------------------- Treasurer and October 24, 1997
James R. Reis * Principal Accounting Officer
</TABLE>
* 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 Government Securities Income Fund, 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 Government Securities Income Fund, 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 Government Securities Income Fund, 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 Government Securities Income Fund, 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 Government Securities Income Fund, 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 Government Securities Income Fund, 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 Government
Securities Income Fund, 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)(A) Articles of Incorporation
(1)(B) Certificate of Amendment to Articles of Incorporation
(1)(C) Certificate of Determination
(2) Bylaws
(5) Form of Investment Management Agreement
(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>
ARTICLES OF INCORPORATION
OF
PILGRIM GNMA FUND
I
The name of this corporation is PILGRIM GNMA FUND.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporations Code. This corporation will be an open-end investment company
registered under the United States Investment Company Act of 1940.
III
The name and address in the State of California of this corporation's
initial agent for service of process is: MURRAY L. SIMPSON, 5 PALO ALTO SQUARE,
PALO ALTO, CALIFORNIA 94306.
IV
This corporation is authorized to issue only one class of shares of stock,
to wit, common stock, and the total number of shares of common stock which this
corporation is authorized to issue is five billion (5,000,000,000).
V
The shares of common stock of the corporation shall be subject to
redemption as hereinafter set forth:
(1) Redemption by Shareholders:
(a) Each shareholder of this corporation at any time may redeem all or any
portion of such shareholder's shares by tendering the shares to be redeemed in
such manner as the Board of Directors of the corporation may determine, and to
receive the redemption price next determined after a proper tender is made to
the corporation. The redemption price is approximately equal to the shares'
proportionate interest in the net assets of the corporation and shall be
determined in accordance with the provisions set forth in the current Prospectus
of the corporation under the Securities Act of 1933, and shall be paid in cash
or in kind in such manner as the Board of Directors shall determine.
<PAGE>
(b) The right of redemption by the shareholders may be suspended (i) for
any periods during which the New York Stock Exchange is closed (other than for
customary weekend and holiday closings), (ii) when trading in the markets the
corporation normally utilizes is restricted or when an emergency exists as
determined by the United States Securities and Exchange Commission as a result
of which disposal of the corporation's portfolio securities or a fair
determination of the value of the corporation's net assets is not reasonably
practicable; or (iii) for such other periods as the United States Securities and
Exchange Commission by order may permit for protection of the corporation's
shareholders.
(2) Redemption by Corporation:
(a) At the option of the corporation, to be exercised at the discretion of
the Board of Directors, the corporation may redeem the shares owned by a
shareholder if at any time the shares of such shareholder do not have a total
value (per share net asset value times the number of shares held) of at least
$1,000. The Board of Directors shall cause written notice to be mailed to any
such shareholder at the address of such shareholder as then reflected on the
books of the corporation of the corporation's intention to exercise its option
of redemption, and, unless such shareholder 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 shareholder is at least $1,000, the
corporation shall on the date specified in such written notice redeem all shares
owned by such shareholder at the aggregate per share redemption price next
determined as provided in the current Prospectus of the corporation under the
Securities Act of 1933. Said redemption price shall be paid in cash or in kind
in such manner as the Board of Directors shall determine.
(b) At the option of the corporation, to be exercised by the Board of
Directors, the corporation may redeem all or a portion of the shares owned by a
shareholder if at any time, in the opinion of the Board of Directors, ownership
of the corporation's shares has or may become concentrated to an extent which
would cause the corporation to fail to qualify for tax treatment applicable to a
"regulated investment company" under Subchapter M of the United States Internal
Revenue Code of 1954, as amended, or any successor statute. No shareholder (or
group of shareholders deemed to be a single shareholder under said Subchapter M)
holding less than 5% of the net asset value of the corporation shall be subject
to redemption under this subparagraph. Such option shall be exercised by the
Board of Directors causing written notice to mailed to such shareholder, at the
shareholder's address as then reflected on the books of the corporation, of its
intention to redeem all or a portion of such shares, and the corporation shall
redeem such shares upon the date specified in such notice at the redemption
price thereof next determined as provided in the current Prospectus of the
corporation under the Securities Act of 1933.
(3) General
Upon redemption by the shareholder or by the corporation, as provided
hereunder, the shareholder shall have no further rights relative to, or interest
in, the shares redeemed, including, without limitation, the right to vote such
shares or to receive further dividends in respect thereto, other than the right
to receive payment of the redemption price on the date and in the manner
specified by the Board of Directors.
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<PAGE>
DATED: __________________, 1997
___________________________________
Murray L. Simpson, Incorporator
I hereby declare that I am the person who executed the foregoing Articles
of Incorporation, which execution is my act and deed.
___________________________________
Murray L. Simpson
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<PAGE>
CERTIFICATE
OF
AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
PILGRIM GOVERNMENT SECURITIES INCOME FUND
Nancy L. Peden and Theodore J. Cohen certify that:
1. They are the Vice President and Assistant Secretary, respectively, of Pilgrim
Government Securities Income Fund, a California corporation.
2. Article I of the Articles of Incorporation is PILGRIM GOVERNMENT SECURITIES
INCOME FUND, INC.
3. Article IV of the Articles of Incorporation of the Corporation is amended and
restated in its entirety, as follows:
(1) The total number of shares of stock which the Corporation has authority
to issue is five billion (5,000,000,000) shares, designated "Pilgrim Government
Securities Income Fund" shares.
(2) The Pilgrim Government Securities Income Fund shares shall be divided
into series. There is hereby designated a series of shares, designated "Class A"
shares. The total number of Class A shares which the Corporation has authority
to issue is, one billion (1,000,000,000). Upon the amendment of this Article,
each outstanding share of Common Stock shall be reclassified as one Class A
Pilgrim Government Securities Income Fund share.
(3) The Pilgrim Government Securities Income Fund shares may be divided
into such additional number of series as the Board of Directors may determine.
The Board of Directors is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Pilgrim Government Securities Income Fund shares, and to fix
the number of shares of any wholly unissued series of Pilgrim Government
Securities Income Fund shares and the designation of any such wholly unissued
series of Pilgrim Government Securities Income Fund shares. The Board of
Directors, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
such series then outstanding) the number of shares of any series subsequent to
the issue of shares of that series.
(4) Each series of Government Securities Income Fund shares shall have the
following preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption:
<PAGE>
(a) i. All consideration received by the Corporation for the issuance
or sale of any series of shares together with all income, earnings, profits
and proceeds thereof, shall irrevocably belong to such series for all
purposes, subject only to the rights of creditors, and are herein referred
to as "assets belonging to" such series.
ii. The assets belonging to such series shall be charged with the
liabilities of the Corporation in respect of such series and with such
series' share of the general liabilities of the Corporation, in the latter
case in the proportion that the net asset value of such series bears to the
net asset value of all series of shares outstanding. The determination of
the Board of Directors shall be conclusive as to the allocation of
liabilities, including accrued expenses and reserves, to a series.
iii. Dividends or distributions on shares of each series, whether
payable in stock or cash, shall be paid only out of earnings, surplus or
other assets belonging to such series, as determined by the Board of
Directors.
iv. In the event of the liquidation or dissolution of the Corporation,
shareholders of each series shall be entitled to receive, as a class, out
of the assets of the Corporation available for distribution to
shareholders, the assets belonging to such series and the assets to
distributable to the shareholders of such series shall be distributed among
such shareholders in proportion to the number of shares of such series held
by them.
(b) A series may be invested with one or more other series in a common
investment portfolio. Notwithstanding the provisions of paragraph (4)(a) of this
Article IV, if two or more series are invested in a common investment portfolio,
the shares of each such series 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 series of stock invested in a different investment portfolio, shall
also be subject to the provisions of paragraph (4)(a) of this Article IV at the
portfolio level as if the series invested in the common investment portfolio
were one series:
(i) The income and expenses of the investment portfolio shall be
allocated among the series invested in the investment portfolio in
accordance with the value of the assets belonging to such series and in
accordance with any order obtained from the Securities and Exchange
Commission or any future amendment to such order or any rule or
interpretation under the Investment Company Act of 1940, as amended.
(ii) 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 series to series
invested in the same investment portfolio.
(iii) The dividends and distributions of investment income and capital
gains with respect to the series 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
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<PAGE>
such dividends and distributions may vary among the series invested in the
same investment portfolio. The allocation of investment income, capital
gains, expenses and liabilities of the Corporation among the series shall
be determined by the Board of Directors in a manner that is consistent with
any order obtained from the Securities and Exchange Commission or any
future amendment to such order or any rule or interpretation under the
Investment Company Act of 1940, as amended.
(c) Except as otherwise provided by law or by these Articles, on each
matter submitted to a vote of the shareholders, each holder of a share of stock
shall be entitled to one vote for each share outstanding in such holder's name
on the books of the Corporation irrespective of the series thereof. 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 Securities and Exchange Commission, or otherwise, or except with respect
to any matter which affects only one or more series of stock, in which case only
the holders of shares of the series affected shall be entitled to vote.
4. Article V of the Articles of Incorporation of this Corporation is amended and
restated in its entirety as follows:
The Pilgrim Government Securities Income Fund shares shall be subject to
redemption as hereinafter set forth:
(1) Redemption of Shareholders:
(a) Each shareholder of the Corporation at any time may redeem all or
any portion of such shareholder's shares by tendering the shares to be
redeemed in such manner as the Board of Directors of the Corporation may
determine, and to receive the redemption price next determined after a
proper tender is made to the Corporation. The redemption price is
approximately equal to the shares' proportionate interest in the net assets
of the Corporation belonging to such share's series and shall be determined
in accordance with the provisions set forth in the current Prospectus of
the Corporation under the Securities Act of 1933, and shall be paid in cash
or in kind in such manner as the Board of Directors shall determine.
(b) The right of redemption by the shareholders may be suspended (i)
for any periods during which the New York Stock Exchange is closed (other
than for customary weekend and holiday closings), (ii) when trading in the
markets the Corporation normally utilizes is restricted or when an
emergency exists as determined by the United States Securities and Exchange
Commission as a result of which disposal of the Corporation's portfolio
securities or a fair determination of the value of the Corporation's net
assets is not reasonably practicable; or (iii) for such other periods as
the United States Securities and Exchange Commission by order may permit
for protection of the Corporation's shareholders.
- 3 -
<PAGE>
(2) Redemption By Corporation:
(a) At the option of the Corporation, to be exercised at the
discretion of the Board of Directors, the Corporation may redeem the shares
owned by a shareholder if at any time the shares of such shareholder do not
have a total value (per share net asset value times the number of shares
held) of at least $1,000. The Board of Directors shall cause written notice
to be mailed to any such shareholder at the address of such shareholder as
then reflected on the books of the Corporation of the Corporation's
intention to exercise its option of redemption, and, unless such
shareholder 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 shareholder is at least $1,000, the Corporation shall on the
date specified in such written notice redeem all shares owned by such
shareholder at the aggregate per share redemption price next determined as
provided in the current Prospectus of the Corporation under the Securities
Act of 1933. Said redemption price shall be paid in cash or in kind in such
manner as the Board of Directors shall determine.
(b) At the option of the Corporation, to be exercised by the Board of
Directors, the Corporation may redeem all or a portion of the shares owned
by a shareholder if at any time, in the opinion of the Board of Directors,
ownership of the Corporation's shares has or may become concentrated to an
extent which would cause the Corporation to fail to qualify for tax
treatment applicable to a "regulated investment company" under Subchapter M
of the United States Internal Revenue Code of 1954, as amended, or any
successor statute. No shareholder (or group of shareholders deemed to be a
single shareholder under said Subchapter M) holding less than 5% of the net
asset value of the Corporation shall be subject to redemption under this
subparagraph. Such option shall be exercised by the Board of Directors
causing written notice to be mailed to such shareholder, at the
shareholder's address as then reflected on the books of the Corporation, of
its intention to redeem all or a portion of such shares, and the
Corporation shall redeem such shares upon the date specified in such notice
at the redemption price thereof next determined as provided in the current
Prospectus of the Corporation under the Securities Act of 1933.
(3) General:
Upon redemption by the shareholder or by the Corporation, as provided
hereunder, the shareholder shall have no further rights relative to, or interest
in, the shares redeemed, including, without limitation, the right to vote such
shares or to receive further dividends in respect thereto, other than the right
to receive payment of the redemption price on the date and in the manner
specified by the Board of Directors.
5. The amendment set forth has been duly approved by the Board of Directors.
6. The foregoing amendment of articles of incorporation has been duly approved
by the required vote of shareholders in accordance with Section 902 of the
Corporations Code. The total number of outstanding shares of the corporation is
3,762,739.574. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50%.
- 4 -
<PAGE>
________________________________
Nancy L. Peden, Vice President
________________________________
Theodore J. Cohen, Assistant Secretary
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our knowledge.
Dated: _________________, 1997 ________________________________
Nancy L. Peden
Dated: _________________, 1997 ________________________________
Theodore J. Cohen
- 5 -
<PAGE>
CERTIFICATE OF DETERMINATION
OF
PILGRIM GOVERNMENT SECURITIES INCOME FUND, INC.
Nancy L. Peden and James M. Hennessy certify that:
1. They are the Senior Vice President and the Secretary, respectively, of
Pilgrim Government Securities Income Fund, Inc., a California corporation.
2. The Board of Directors duly adopted the foregoing resolution:
WHEREAS, the series of Pilgrim Government Securities Income Fund, Inc.
currently consists of one series of shares: Class A; and
WHEREAS, Article IV, as amended, Section 3 of the Articles of Incorporation
of the Fund provides that the Board of Directors may designate additional
series of shares without shareholder vote;
WHEREAS, the Directors desire to create additional series of shares of the
Fund and the Directors have determined, in the exercise of their reasonable
business judgment and in light of their fiduciary duties as Directors, that
it would be in the best interest of the Fund to create such additional
series of the Fund to be designated as "Class B and Class M Shares."
NOW, THEREFORE, BE IT RESOLVED, that the creation of Fund Class B and M
Shares be and hereby is approved; and it is further
RESOLVED, that the total number of Class B shares that the Fund has
authority to issue is one billion (1,000,000,000) and the total number of
Class M shares that the fund has authority to issue is one billion
(1,000,000,000); and it is further
RESOLVED, that the shares of Class B and Class M designated hereby shall
have the rights, preferences, privileges, and restrictions as currently set
forth in Articles IV and V of the Articles of Incorporation of the Fund,
with the addition that shares of Class B (but not Class M) shall
automatically convert into shares of Class A on the first business day of
the month in which the eighth anniversary of the issuance of the Class B
shares occurs; and it is further
RESOLVED, that the number of Class A shares into which a shareholder's
Class B shares shall be converted shall be equal to the number of Class B
shares to be converted (including a
<PAGE>
proportionate mount of all Class B shares representing dividends and
distributions paid in additional Class B shares) times the net asset value
per share of the Class B shares as of the end of the date of conversion,
divided by the net asset value of the Class A shares of the Fund as of the
end of the date of conversion; and it is further
RESOLVED, that the officers of the Fund are hereby authorized to prepare,
execute, file, and deliver any documents or materials and take any action
which they deem necessary or appropriate to effectuate and consummate the
issuance and offering of Fund Class B and Class M Shares and to carry out
the intent of this resolution.
3. The total number of Class B shares which the Fund has authority to issue is
one billion (1,000,000,000) and the total number of Class M shares which
the Fund has authority to issue is one billion (1,000,000,000). None of the
shares of Class B or Class M have been issued.
______________________________
Nancy L. Peden
Senior Vice President
______________________________
James M. Hennessy
Secretary
VERIFICATION BY WRITTEN DECLARATION
Nancy L. Peden declares under penalty of perjury under the laws of the
State of California that she has read the foregoing Certificate and knows the
contents thereof and that the same is true of her own knowledge.
Dated: ________________, 1997 _______________________________
Nancy L. Peden
- 2 -
<PAGE>
VERIFICATION BY WRITTEN DECLARATION
James M. Hennessy declares under penalty of perjury under the laws of the
State of California that he has read the foregoing Certificate and knows the
contents thereof and that the same is true of his own knowledge.
Dated: ___________________, 1997 ________________________________
James M. Hennessy
- 3 -
<PAGE>
BY-LAWS
OF
PILGRIM GNMA FUND
A California Corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The Board of Directors shall fix the location
of the principal executive office of the corporation at any place within or
outside the State of California. If the principal executive office is located
outside this state and the corporation has one or more business offices in this
state, the Board of Directors shall fix and designate a principal business
office in the State of California.
Section 2. OTHER OFFICES. The Board of Directors may at any time establish
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any
place within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
<PAGE>
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be held
each year at 4:00 p.m. on the fourth Wednesday of the fourth month following the
end of the corporation's fiscal year, or at such other time and date as the
Board of Directors may set by resolution. However, if this day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At this meeting directors shall be elected and any
other proper business may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders may be
called at any time by the Board of Directors or by the chairman of the board or
by the president or by one or more shareholders holding shares of the aggregate
entitled to cast not less than ten (10%) percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting shall be held at the time requested by the person or persons
calling the meeting not less than thirty-five (35) nor more than sixty (60) days
after the receipt of the request. If the notice is not given within twenty (20)
days after receipt of the request, the person or persons requesting the meeting
may give the notice. Nothing contained in
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<PAGE>
this paragraph of this Section 3 shall be construed as limiting, fixing or
affecting the time when a meeting of the shareholders called by action of the
Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the Board of Directors at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominees or nominees
whom at the time of the notice management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, (ii) an amendment of the Articles of Incorporation, (iii) a
reorganization of the corporation, (iv) a voluntary dissolution of the
corporation, or (v) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, the notice shall also state the
general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of he
corporation or given by the shareholder to the
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<PAGE>
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written demand
of the shareholder at the principal execute office of the corporation for a
period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the corporation giving the notice and shall be filed and
maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a
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<PAGE>
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholder's meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum no other business may be
transacted at that meeting, except as provided in Section 6 of this Article II.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting at
which the adjournment is taken, unless a new record date of the adjourned
meeting is fixed or unless the adjournment is for more than forty-five (45) days
from the date set for the original meeting, in which case the Board of Directors
shall set a new record date. Notice of any such adjourned meeting shall be given
to each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of the Corporations Code of
California relating to voting shares held by a fiduciary in the name of a
corporation or in joint ownership. The shareholders' vote may be by
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<PAGE>
voice vote or by ballot, provided, however, that any election for directors must
be by ballot if demanded by any shareholder before the voting has begun. On any
matter other than elections of directors any shareholder may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares or
vote them against the proposal, but if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect
total shares that the shareholder is entitled to vote. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on any matter (other than the election of directors) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or by the Articles
of Incorporation.
At a shareholder's meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates as
the shareholder thinks fit. The candidates receiving the highest number of votes
up to the number of directors to be elected shall be elected.
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Section 9. WAIVER OF NOTICE OF CONSENT BY ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, either annual or special, however
called and noticed and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice if a quorum be present either in
person or by proxy and if either before or after the meeting, each person
entitled to vote who was not present in person or by proxy signs a written
waiver of notice or a consent to a holding of the meeting or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken and any annual or special meeting of shareholders may
be taken without a meeting and without prior notice if a consent in writing
setting forth the action so taken is signed by the holders of outstanding shares
having not less than the minimum
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number of votes that would be necessary to authorize or take that action at a
meeting at which all shares entitled to vote on that action were present and
voted. In the case of election of directors, such a consent shall be effective
only if signed by the holder of all outstanding shares entitled to vote for the
election of directors; provided however, that a director may be elected at any
time to fill a vacancy on the Board of Directors that has not been filled by the
directors by the written consent of the holders of a majority of the outstanding
shares entitled to vote for the election of directors. All such consents shall
be filed with the Secretary of the corporation and shall maintained in the
corporate records. Any shareholder giving a written consent or the shareholder's
proxy holders or a transferee of the shares or a personal representative of the
shareholder or their respective proxy holders may revoke the consent by a
writing received by the Secretary of the corporation before written consents of
the number of shares required to authorized the proposed action have been filed
with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
II. In the case of approval of (i) contracts of transactions in which a director
has a direct or indirect financial interest, (ii) indemnification of agents of
the corporation, (iii) a reorganization of the corporation, and (iv) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, the notice shall be given at least ten (10) days
before the consummation by any action authorized by that approval.
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Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of any meeting
or to vote or entitled to give consent to corporate action without a meeting,
the Board of Directors may fix in advance a record date which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting nor more than sixty (60) days before such action without a meeting and
in this event only shareholders of record on the date so fixed are entitled to
notice and to vote or to give consents as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the California General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business
on the business day next preceding the day on which notice is given or
if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, (i) when no prior
action by the Board of Directors has been taken, shall be the day on
which the first written consent is given, or (ii) when prior action of
the Board of Directors has been taken, shall be at the close of
business on the day on which the Board of Directors adopt the
resolution relating to that action or the sixtieth day before the date
of such other action, whichever is later.
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Section 12. PROXIES. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it before the vote pursuant to that proxy by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by or attendance at the meeting and voting in person
by the person executing that proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided however, that no proxy shall be
valid after the expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of the
California General Corporation Law.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders the
Board of Directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting on the request of one or more
shareholders or
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proxies, the holders of a majority of shares of their proxies present at the
meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may and on the request of any
shareholder or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum
and the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
By-Laws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs
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of the corporation shall be managed and all corporate powers shall be exercised
by or under the direction of the Board of Directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors shall be not less than four (4) nor more than seven (7), until changed
by a duly adopted amendment to the Articles of Incorporation or by an amendment
to this By-Law adopted by the vote or written consent of holders of a majority
of the outstanding shares entitled to vote; provided however, that an amendment
reducing the number of directors to a fixed number or a minimum number less than
four (4) cannot be adopted if the votes cast against its adoption at a meeting
or the shares not consenting in the case of action by written consent are equal
to more than sixteen and two thirds (16 2/3 %) percent of the outstanding shares
entitled to vote. The Board of Directors shall by resolution fix the exact
number of directors within the limits set forth herein. Until there are
shareholders of the corporation, the authorized number of directors shall be one
(1).
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the Board of Directors may be filled by
a majority of the remaining directors, though less than a quorum, or by a sole
remaining director, except that a vacancy created by the removal of a director
by the vote or written consent of the
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shareholders or by court order may be filled only by the vote of a majority of
the shares entitled to vote represented at a duly held meeting at which quorum
is present or by the written consent of holders of a majority of the outstanding
shares entitled to vote. Each director so elected shall hold office until the
next annual meeting of the share-holders and until a successor has been elected
and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
in the event of the death, resignation or removal of any director, or if the
Board of Directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a felony
or if the authorized number of directors is increased or if the shareholders
fail at any meeting of shareholders at which any director or directors are
elected to elect the number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote; provided, however, that any vacancy created by removal
of any director may be filled by written consent only by unanimous written
consent of all shares entitled to vote for the election of directors.
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the Board of Directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time,
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the Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
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
sixty (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 United States Securities and Exchange Commission.
Notwithstanding the above, whenever and for so long as the corporation is a
participant in or otherwise has in effect a Plan under which the corporation may
be deemed to bear expenses of distributing its shares as that practice is
described in Rule 12b-1 under the Investment Company Act of 1940, then the
selection and nomination of the directors who are not interested persons of the
corporation (as that term is defined in the Investment Company Act of 1940)
shall be, and is, committed to the discretion of such disinterested directors.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of
the Board of Directors may be held at any place within or outside the State of
California that has been designated from time to time by resolution of the
board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the
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corporation. Special meetings of the board shall be held at any place within or
outside the State of California that has been designated in the notice of the
meeting or if not stated in the notice or there is no notice, at the principal
executive office of the corporation. Any meeting, regular or special, may be
held by conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another and all such
directors shall be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the Board of Directors shall hold a regular meeting of the purpose
of organization, any desired election of officers, and the transaction of other
business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board of
Directors shall be held without call at such time as shall from time to time be
fixed by the Board of Directors. Such regular meetings may be held without
notice.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors for
any purpose or purposes may be called at any time by the chairman of the board
or the president or any vice president or the secretary or any two (2)
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the
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time of the holding of the meeting. In case the notice is delivered personally
or by telephone or to the telegraph company, it shall be given at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose of the meeting or the place if the meeting
is to be held at the principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors, subject to
the provisions of the California General Corporation Law relating to approval of
contracts or transactions in which a director has a direct or indirect material
financial interest, to appointment of committee, and to indemnification of
directors. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors if any action
taken is approved by a least a majority of the required quorum for that meeting.
Section 10. WAIVER OF NOTICE. Notice of any meeting need not be given to
any director who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents and approval shall be filed with the
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corporate records or made a part of the minutes of the meeting. Notice of a
meeting shall also be deemed given to any director who attends the meeting
without protesting before or at its commencement the lack of notice to that
director.
Section 11. ADJOURNMENT. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting in the manner specified in
Section 8 of this Article III to the directors who were present at the time of
the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to e
taken by the Board of Directors may be taken without a meeting if all members of
the Board of Directors shall individually or collectively consent in writing to
that action. Such action by written consent shall have he same force and effect
as a unanimous vote of the Board of Directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board of Directors.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Directors. This Section 14 shall not be construed to preclude any
director from serving the corporation in
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any other capacity as an officer, agent, employee or otherwise and receiving
compensation for those services.
ARTICLE IV
COMMITTEE
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors may by
resolution adopted by a majority of the authorized number of directors designate
one or more committees, each consisting of two (2) or more directors, to serve
at the pleasure of the board. The board may designate one or more directors as
alternate members of any committee who may replace any absent member at any
meeting of the committee. Any committee to the extent provided in the resolution
of the board, shall have the authority of the board, except with respect to:
(a) the approval of any action which under the California General
Corporation Law also requires shareholders' approval or approval of
the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the Board
of Directors or on any committee;
(d) the amendment or repeal of By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of Directors
which by its express terms is not so amendable or repealable;
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(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the
Board of Directors; or
(g) the appointment of any other committees of the Board of Directors or
the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors or
by resolution of the committee. Special meetings of committees may also be
called by resolution of the Board of Directors, and notice of special meetings
of committees shall also be given to all alternate members who shall have the
right to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a president,
a secretary, and a chief financial officer. The corporation may also have at the
discretion of the Board of Directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers,
one or more assistant financial officers and such
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other officers as may be appointed in accordance with the provisions of Section
3 of this Article V. Any number o offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation, except
such officers as may appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Directors, and each
shall serve at the pleasure of the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint and may
empower the president to appoint such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the By-Laws or as the
Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Directors at any regular or
special meeting of the Board of Directors or except in the case of an officer
upon whom such power or removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall
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not be necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or other cause shall be filled in the
manner prescribed in these By-Laws for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer is elected, shall if present preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the chairman of the board, if there be such
an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and in the
absence of the chairman of the board or if there are none, at all meetings of
the Board of Directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the Board of
Directors or if not ranked, a vice
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president designated by the Board of Directors or if not ranked, a vice
president designated by the Board of Directors, shall perform all the duties of
the president and when so acting shall have all powers of and be subject to all
the restrictions upon the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Directors or by the By-Laws and the president
or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept at the
principal executive office or such other place as the Board of Directors may
direct a book of minutes of all meetings and actions of directors, committees of
directors and shareholders with the time and place of holding, whether regular
or special, and if special, how authorized, the notice given, the names of those
present at directors' meetings or committee meetings, the number of shares
present or represented at shareholders' meetings and the proceedings.
The secretary shall keep or cause to be kept at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the Board of Directors, a share register or a
duplicate share register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all meetings of the
shareholders and of the Board of Directors required by the By-Laws or by law to
be given and he shall keep the
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seal of the corporation if one be adopted in safe custody and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or by the By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep
and maintain or cause to be kept and maintained adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or the By-Laws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a director, officer, employee or
other agent of this corporation or is or was serving at the request of this
corporation as a director, officer,
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employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise or was a director, officer, employee or agent
of a foreign or domestic corporation which was a predecessor corporation of this
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
"expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY CORPORATION. This corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding (other than an action by or in the right of this corporation)
by reason of the fact that such person is or was an agent of this corporation,
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted in
good faith and in a manner that person reasonably believed to be in the best
interests of this corporation and in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of this corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 3. ACTIONS BY THE CORPORATION. This corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending
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or completed action by or in the right of this corporation to procure a judgment
in its favor by reason of the fact that that person is or was an agent of this
corporation, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith, in a manner that person believed to be in the best interests of this
corporation and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with the corporation.
No indemnification shall be made under Section 2 of 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable in the performance of that person's
duty to this corporation, unless and only to the extent that the court
in which that action was brought shall determine upon application that
in view of all the circumstances of the case, that person was not
liable by reason of the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to indemnity for the
expenses which the court shall determine; or
(b) Of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or of expenses
incurred in defending a
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threatened or pending action which is settled or otherwise disposed of
without court approval, unless the required approval set forth in
Section 6 of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this
corporation has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Directors, including a majority who are disinterested, non-party directors, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth, in Sections 2 or 3 of this
Article and is not prohibited form indemnification because of the disabling
conduct set forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of directors who are not
parties to the proceeding and are not interested persons of the
corporation as defined in the Investment Company Act of 1940;
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(b) Approval by the affirmative vote of a majority of the shares of this
corporation entitled to vote represented at a duly held meeting at
which a quorum is present or by the written consent of holders of a
majority of the outstanding shares entitled to vote. For this purpose
the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon;
(c) The court in which the proceeding is or was pending, on application
made by this corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
corporation; or
(d) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article, provided
the agent provides a security for his undertaking, or a majority of a quorum of
the disinterested, non-party directors, or an independent legal counsel in a
written opinion, determine that based on a review of readily available facts,
there is reason to believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than directors
and officers of this corporation or any subsidiary hereof may be entitled by
contract or otherwise.
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Section 9. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Section 5 or Section 6(c) in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the Articles of
Incorporation, a resolution of the shareholders or an agreement in
effect at the time of accrual of the alleged cause of action asserted
in the proceeding in which the expenses were incurred or other amounts
were paid which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by
a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such, but only to the
extent that this corporation would have the power to indemnify the agent against
that liability under the provisions of this Article.
Section 11. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This Article
does not apply to any proceeding against any trustee, investment manager or
other fiduciary of an employee benefit plan in that person's capacity as such,
even though that person may also be an agent of the corporation as defined in
Section 1 of this Article. Nothing contained in this Article shall limit any
right to indemnification to which such a trustee, investment manager
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or other fiduciary may be entitled by contract or otherwise which shall be
enforceable to the extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five (5) days' prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholder's names and addresses who
are entitled to vote for the election of directors and their shareholdings as of
the most recent record date for which that list has been compiled or as of a
date specified by the shareholder after the date of demand. This list shall be
made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or the date specified in the
demand as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection on the written
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demand of any shareholder or holder of a voting trust certificate at any time
during usual business hours for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate. Any
inspection and copying under this Section 1 may be made in person or by an agent
or attorney of the shareholder or holder of voting trust certificate making the
demand.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The corporation shall
keep at its principal executive office or if its principal executive office is
not in the State of California, at its principal business office in this state,
the original or copy of the By-Laws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the secretary shall upon the written request of any shareholder furnish to that
shareholder a copy of the By-Laws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the Board of Directors and any committee or committees of the Board of Directors
shall be kept at such place or places designated by the Board of Directors or in
the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any shareholder or holder
of a voting trust certificate at any reasonable time during usual business hours
for a purpose reasonably related to the holder's interests as a shareholder or
as the holder of a
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voting trust certificate. The inspection may be made in person or by an agent or
attorney and shall include the right to copy and make extracts. These rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the corporation and each of its
subsidiary corporations. This inspection by a director may be made in person or
by an agent or attorney and the right of inspection includes the right to copy
and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to shareholders
referred to in the California General Corporation Law is expressly dispensed
with, but nothing herein shall be interpreted as prohibiting the Board of
Directors from issuing annual or other periodic reports to the shareholders of
the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statements
and any income statement of the corporation for each quarterly period of each
fiscal year and accompanying balance sheet of the corporation as of the end of
each such period that has been prepared by the corporation shall be kept on file
in the principal executive office of the corporation for twelve (12) months and
each such statement shall be exhibited at all reasonable
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times to any shareholder demanding an examination of any such statement or a
copy shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three (3) -month, six (6) -month, or nine (9) -month period of the then current
fiscal year ended more than thirty (30) days before the date of the request and
a balance sheet of the corporation as of the end of that period, the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, this report shall likewise be delivered or mailed to
the shareholder or shareholders within thirty (30) days after the request.
The corporation shall also on the written request of any shareholder mail
to the shareholder a copy of the last annual, semi-annual or quarterly income
statement which it has prepared and a balance sheet as of the end of that
period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
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Section 7. ANNUAL STATEMENT OF GENERAL. The corporation shall during the
month in which the anniversary of its incorporation occurs in each year, file
with the California Secretary of State on the prescribed form a statement
setting forth the authorized number of directors, the names and complete
business or residence addresses of all incumbent directors, the names and
complete business or residence addresses of the chief executive officer,
secretary and chief financial officer, the street address of its principal
executive office or principal business office in this state and the general type
of business constituting the principal business activity of the corporation,
together with a designation of the agent of the corporation for the purpose of
service of process, all in compliance with the California General Corporation
Law.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the Board of Directors may
fix in advance a record date which shall not be more than sixty (60) days before
any such action and in that case only shareholders of record on the date so
fixed are entitled to receive the dividend, distribution or allotment of rights
or to exercise the rights as the case may be, notwithstanding any transfer of
any shares on the books of the corporation after the record date so fixed,
except as provided in the California General Corporations Law.
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If the Board of Directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the applicable
resolution or the sixtieth day before the date of that action, whichever is
later.
Section 2. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts, or
other orders for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the corporation shall be signed or endorsed
by such person or persons and in such manner as from time to time shall be
determined by resolution of the Board of Directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Directors, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation and this authority
may be general or confined to specific instances; and unless so authorized or
ratified by the Board of Directors or within the agency power of an officer, no
officer, agent, or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares if fully paid and the Board of Directors
may authorize the issuance of certificates or shares as partly
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paid provided that these certificates shall state the amount of the
consideration to be paid for them and the amount paid. All certificates shall be
signed in the name of the corporation by the chairman of the board or vice
chairman of the board or the president or vice president and by the chief
financial officer or an assistant treasurer or the secretary or any assistant
secretary, certifying the number of shares and the class or series of shares
owned by the shareholders. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed on a certificate shall have ceased
to be that officer, transfer agent, or registrar before that certificate is
issued, it may be issued by the corporation with the same effect as if that
person were an officer, transfer agent or registrar at the date of issue.
Notwithstanding the foregoing, the corporation may adopt and use a system of
issuance, recordation and transfer of its shares by electronic or other means as
provided in the General Corporation Law.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
Board of Directors may in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the Board of Directors
may require, including a provision for indemnification of the corporation
secured by a bond or other adequate security sufficient to protect the
corporation against any claim that may be made against it, including any expense
or liability on account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.
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Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of
the board, the president or any vice president or any other person authorized by
resolution of the Board of Directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority granted to these officers to vote or
represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by law or by
the Articles of Incorporation or these By-Laws.
Section 2. AMENDMENT BY DIRECTORS. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal By-Laws, and
except as otherwise provided by law or by the Articles of Incorporation, these
By-Laws, other than a By-Law or amendment thereof changing the maximum or
minimum number of directors, may be adopted, amended, or repealed by the Board
of Directors.
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INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the 7th day of April, 1995 by
and between PILGRIM GOVERNMENT SECURITIES INCOME FUND, INC., a corporation
organized and existing under the laws of the State of California (hereinafter
called the "Company") 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 Company is 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 desires to retain the Manager to render advice and
services to the Company 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 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 Company, subject to the
supervision and direction of the Company's Board of Directors. The Manager
shall, except as otherwise provided for herein, render or make available
all administrative services needed for the management and operation of the
Company, and shall, as part of its duties hereunder, (i) furnish the
Company with advice and recommendations with respect to the investment of
the Company'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 Company 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 Company, and (iv) in
general superintend and manage the investments of the Company, 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 Company 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 Company in any
way, or in any way be deemed an agent for the Company. It is expressly
understood and agreed that the services to be rendered by the Manager to
the Company 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.
<PAGE>
4. The Manager agrees to use its best efforts in the furnishing of
such advice and recommendations to the Company, in the preparation of
reports and information, and in the management of the Company'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 Company will from time to time furnish to the Manager detailed
statements of the investments and assets of the Company 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
Company or available to it and such other information as the Manager may
reasonably request.
6. Whenever the Manager has determined that the Company 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 Company 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 Company 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 Company's portfolio
transactions or in maintaining registration of its shares under state
securities laws; insurance premiums on property or personnel of the Company
which inure to its benefit; the cost of preparing and printing reports,
proxy statements and prospectuses of the Company 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 Company, as set forth herein, the
Company shall promptly reimburse the Manager for such costs and expenses.
To the extent the services for which the
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Company is obligated to pay are performed by the Manager, the Manager shall
be entitled to recover from the Company only to the extent of its costs for
such services.
8. (a) The Company 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 Company and as
a 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 Company:
.50% on the first $500 million of net assets; plus
.45% on the net assets from $500 million to $1 billion; plus
.40% on net assets in excess of $1 billion
(b) The management fees shall be accrued daily by the Company 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 Company (excluding any interest taxes, brokerage commissions,
amortization of organization expenses, and, with the prior written
approval of any state securities commission requiring same, any
extraordinary expenses, such as litigation) exceed one and one-half
percent (1.5%) of the Company's average net asset value on the first
$40 million of net assets and one percent (1%) on average net assets
in excess of $40 million for any one fiscal year, the Manager shall
reimburse the Company for the amount of such excess expenses.
(d) The management fee payable by the Company 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
Company. 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 Company to
take any action contrary to its Articles of Incorporation 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 Company.
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
Company, or to any shareholder of the Company, 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 Company.
(b) Notwithstanding the foregoing, the Manager agrees to
reimburse the Company 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
Company 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
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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 Company for any expenditures related to the
institution of an administrative proceeding or civil litigation by the
Company or by a Company 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 Company 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 Company therefor. This provision shall not be
deemed to be a waiver of any claim the Company may have or may assert
against the Manager or others or costs, expenses, or damages
heretofore incurred by the Company for costs, expenses, or damages the
Company 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 Company, 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, 1997 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 Company, 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 Company.
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 Company.
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
Company 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 the right to use the name "Pilgrim" as part of
its corporate name. The Company agrees that in the event this Agreement is
terminated, the Company shall immediately take such steps as are necessary
to amend its corporate name to remove the reference to "Pilgrim".
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers,all on the day and
year first above written.
PILGRIM GOVERNMENT SECURITIES
INCOME FUND, INC.
Attest:_______________________________ By:________________________________
Title: _______________________________ Title: ____________________________
PILGRIM AMERICA INVESTMENTS, INC.
Attest:_______________________________ By:________________________________
Title: _______________________________ Title: ____________________________
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GOVERNMENT SECURITIES INCOME FUND, INC.
10100 Santa Monica Boulevard
Los Angeles, California 90067
April 7, 1995
Pilgrim America Securities, Inc.
10100 Santa Monica Boulevard
Los Angeles, California 90067
Re: Underwriting Agreement
Gentlemen:
We are a California corporation operating as an open-end management
investment company (hereinafter referred to as the "Fund"). As such, the Fund is
registered 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"). We desire to offer and sell our authorized but
unissued capital shares to the public in accordance with the applicable Federal
and state securities laws.
You have informed us that your company 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 to
execute and deliver this Agreement to you by a resolution of our Board of
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 Fund
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
of the Fund, 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 us 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, but this
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Agreement shall not 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 a variable percentage of the public
offering price as a sales commission. 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
plus your sales commission; 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 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 such
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.
4. Sales Commission. You shall be entitled to charge a sales commission on
the sale of our shares in the amount set forth in our Prospectus (including any
supplements or amendments thereto) then in effect under the 1933 Act. Such
commission (subject to any quantity or other discounts or eliminations of
commission as set forth in our then currently effective Prospectus) shall be an
amount mutually agreed upon between us and equal to the difference between the
net asset value and the public offering price of our shares. You may allow such
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 our 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 Transfer Agent of a certificate signed by an officer of the Fund
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
- 2 -
<PAGE>
Transfer Agent, in which case certificates for shares in such names and amounts
as is specified in such writing will be delivered by the Transfer Agent, as soon
as practicable after their registration on the books.
7. Purchases for Your Own Account. You shall not purchase our 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 our shares at net asset
value, pursuant to a uniform offer described in our Prospectus, to our Directors
and officers, our investment manager or your company or affiliated companies
thereof, or 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, or to
any trust, pension, profit-sharing, or other benefit plan for such persons, or
to any other person set forth in our 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.
9. Allocation of Expenses.
(a) We will pay the expenses:
(i) Of 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) Of 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 your
(including your "Parents") or related to your activities where such
amendments or supplements result in expenses which we would not otherwise
have incurred;
(iii) Of the preparation, printing, and distribution of any reports or
communications, including Prospectuses and Statements of Additional
Information, which are sent to our existing shareholders; and
(iv) Of filing and other fees to Federal and state securities
regulatory authorities necessary to register and maintain registration of
the shares.
- 3 -
<PAGE>
(b) Except to the extent that you are entitled to reimbursement under the
provisions of the Distribution Plan pursuant to Rule 12b-1 under the
1940 Act, you will pay the following expenses:
(i) 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) Of 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 your
(including your "Parent") or related to your activities where those
expenses would not otherwise have been incurred by us; and
(iii) Of printing 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, from time to time,
with such additional information regarding our financial condition, as you may
reasonably request.
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
- 4 -
<PAGE>
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,
1997. This Agreement 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 Fund or by a vote of the Board of Directors
of the Fund, and (ii) by a vote of a majority of the Board of Directors of the
Fund who are not interested persons or parties to this Agreement (other than as
Directors of the Fund), cast in person at a meeting called for the purpose of
voting on this Agreement.
This Agreement: (i) may, at any time, be terminated without the payment of
any penalty, either by vote of the Board of Directors of the Fund or by a vote
of a majority of the outstanding voting securities of the 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 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 securities holders 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 two
such counterparts to us, whereupon this shall constitute a binding agreement as
of the date first above written.
- 5 -
<PAGE>
Very truly yours,
PILGRIM GOVERNMENT SECURITIES
INCOME FUND, INC.
By: ___________________________________
Senior Vice President and Assistant
Secretary
Accepted:
PILGRIM AMERICA SECURITIES, INC.
By: ____________________________
President and Chairman
- 6 -
<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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 ____________________________________
<PAGE>
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
NASDAQ
FUND CUSIP # 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 GOVERNMENT
SECURITIES INCOME FUND, INC., a California corporation, 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 Fund
("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
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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
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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;
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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.
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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
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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.
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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
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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
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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
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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
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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;
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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.
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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 of whether Fund will be liquidated or function without a
custodian. Notwithstanding the foregoing requirement as to delivery upon
termination of this Agreement, Custodian may make any other delivery of the
securities, funds and property of Fund which is permitted by the Investment
Company Act of 1940, Fund's governing documents then in effect or apply to
a court of competent jurisdiction for the appointment of a successor
custodian.
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 Pilgrim GNMA Fund dated as
of
16
<PAGE>
October 1, 1989, 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 duly respective authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:_________________________________
Title:______________________________
PILGRIM GOVERNMENT SECURITIES INCOME
FUND, INC.
By:_________________________________
Title:______________________________
17
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
==========================================================================================
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. Day C Paydate F
------------------------------------------------------------------------------------------
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 GOVERNMENT SECURITIES INCOME FUND, INC., a California
corporation, 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 California.
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 proprietary rights in and to the System and all other
IFTC or Licensor programs,
<PAGE>
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 necessary to enter into and perform the services
contemplated herein and this
2
<PAGE>
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 outside of routine and
normal periodic reviews.
3
<PAGE>
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 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 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 "negligent" and
IFTC shall not be liable for any actions taken in good faith upon such
advice and statements.
4
<PAGE>
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
money shall be received.
5
<PAGE>
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 IFTC's office, all records, funds and other properties of
Fund deposited with or
6
<PAGE>
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 Pilgrim GNMA Fund dated
June 1, 1986, 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 GOVERNMENT SECURITIES INCOME
FUND, INC.
By:_________________________________
Title:______________________________
8
<PAGE>
SHAREHOLDER SERVICE AGREEMENT
This Agreement made on the 29th day of July 1996 by and between Pilgrim
Government Securities Income Fund, Inc., a California 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 California.
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 GOVERNMENT SECURITIES
INCOME FUND, INC.
By:_____________________________________
Title:___________________________________
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pilgrim Government Securities Income Fund, 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 Government Securities Income Fund, Inc.
Class A Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim Government Securities Income Fund, 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 currently consist of one
series, PILGRIM AMERICA GOVERNMENT SECURITIES INCOME FUND (the "Fund");
WHEREAS, by 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 Fund 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, 1991; 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
Fund 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. The Fund shall pay to the Distributor, as the distributor of the Class A
shares of the Fund, a service fee at the rate of 0.25% 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 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. Some portion of
this fee may in the future be paid for distribution expenses.
2. The amount set forth in paragraph 1 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 this Plan. For purposes of determining the
Distributor's cumulative reimbursable expenses, 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 Fund 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) who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 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 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 Fund 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
- 2 -
<PAGE>
amount of service fee provided for in paragraph 1 hereof unless such amendment
is approved by a vote of the shareholders of Class A shares of the Fund, and no
material amendment to the Plan shall be made unless approved in the manner
provided for annual renewal in paragraph 3 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 Fund, and the Distributor
have executed this Service and Distribution Plan as of the ____ day of ________,
1995.
PILGRIM GOVERNMENT SECURITIES INCOME FUND, INC.
By: ___________________________________________
PILGRIM AMERICA SECURITIES, INC.
By: ___________________________________________
- 3 -
<PAGE>
Service and Distribution Plan for
Pilgrim Government Securities Income Fund, Inc.
Class B Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim Government Securities Income Fund, 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 currently consist of one
series, PILGRIM AMERICA GOVERNMENT SECURITIES INCOME FUND (the "Fund);
WHEREAS, shares of common stock of the Fund 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 Fund 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 Fund shall pay to the Distributor, as the distributor of the
Class B shares of the Fund, 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 Fund's
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 Fund shall pay to the Distributor, as the distributor of the Class B
shares of the Fund, a service fee at the rate of 0.25% on an annualized basis of
the average daily net assets of the Fund's 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 Fund in
connection with any activities or expenses primarily intended to result in the
sale of the Class B shares of the Fund, 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 Fund. These services
include, among other things, processing new shareholder account applications,
preparing and transmitting to the Fund's 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 Fund and their
transactions with the Fund. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of the Fund. 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. 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
Fund until it has been approved by a vote of the then sole shareholder of the
Class B shares of the Fund.
- 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 Fund 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 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 Fund 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 Fund, and the Distributor
have executed this Service and Distribution Plan as of the ____ day of ________,
1995.
PILGRIM GOVERNMENT SECURITIES INCOME
FUND, INC.
By:_________________________________
PILGRIM AMERICA SECURITIES, INC.
By:_________________________________
- 4 -
<PAGE>
Service and Distribution Plan for
Pilgrim Government Securities Income Fund, Inc.
Class M Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim Government Securities Income Fund, 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 currently consist of one
series, PILGRIM AMERICA GOVERNMENT SECURITIES INCOME FUND (the "Fund");
WHEREAS, shares of common stock of the Fund 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 Fund 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 Fund shall pay to the Distributor, as the distributor of the
Class M shares of the Fund, 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 Fund's
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 Fund shall pay to the Distributor, as the distributor of the Class M
shares of the Fund, a service fee at the rate of 0.25% on an annualized basis of
the average daily net assets of the Fund's 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 Fund in
connection with any activities or expenses primarily intended to result in the
sale of the Class M shares of the Fund, 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 Fund. These services
include, among other things, processing new shareholder account applications,
preparing and transmitting to the Fund's 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 Fund and their
transactions with the Fund. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of the Fund. 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 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
Fund until it has been approved by a vote of the then sole shareholder of the
Class M shares of the Fund.
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority
- 2 -
<PAGE>
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 Fund 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 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 Fund 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 Fund, and the Distributor
have executed this Service and Distribution Plan as of the ____ day of
_________, 1995.
PILGRIM GOVERNMENT SECURITIES INCOME FUND,
INC.
By: ____________________________________
PILGRIM AMERICA SECURITIES, INC.
By: ____________________________________
- 4 -
<PAGE>
FORM OF
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
FOR
PILGRIM GOVERNMENT SECURITIES INCOME FUND, INC.
Pilgrim America Government Securities Income Fund
WHEREAS, Pilgrim Government Securities Income Fund, 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 currently consist of one
series, Pilgrim America Government Securities Income Fund (the "Fund");
WHEREAS, the Company desires to adopt, on behalf of the Fund, a Multiple
Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with respect to the
Fund; 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 Fund, the Plan,
in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. Features of the Classes. The Fund issues its shares of common stock in
three classes: "Class A Shares," "Class B Shares" and "Class M Shares." Shares
of each class of the Fund shall represent an equal pro rata interest in the 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 the interests of one class differ from the interests of
any other class. In addition, Class A, Class B and Class M shares shall
<PAGE>
have the features described in Sections 2, 5 and 6 below.
2. Sales Charge Structure.
(a) Class A Shares. Class A shares of the 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 the 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 the 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 the 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 the 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 the 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 the Fund has
adopted a Rule 12b-1 plan each with the following terms:
(a) Class A Shares. Class A shares of the Fund may pay Distributor monthly
a fee at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares for distribution or service activities (each as defined in
paragraph (d), below), as designated by Distributor. This payment
- 2 -
<PAGE>
represents reimbursement for expenses incurred by the Distributor. Distributor,
on behalf of Class A shares of the 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 A shares for distribution and service activities (as defined in paragraph
(d), below) rendered to Class A Shareholders.
(b) Class B Shares. Class B shares of the 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 the 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 the 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, may pay Authorized Dealers quarterly a fee at the annual rate of 0.40%
of the average daily net assets of the Fund's Class M shares for distribution or
service activities (as defined in paragraph (d), below) rendered to Class M
shareholders.
(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 the Fund in connection
with any activities or expenses primarily intended to result in the sale of
shares of the 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 Fund's 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.
(ii) As used herein, the term "service activities" shall mean activities in
connection with the provision of personal, continuing services to investors in
the Fund, excluding transfer agent and subtransfer agent services for beneficial
owners of shares of the Fund, aggregating and processing purchase
- 3 -
<PAGE>
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 Fund
select 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 Fund 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 the 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 the Fund or to a particular
class of shares of the Fund ("Corporate Level Expenses"); and
(2) Expenses incurred by the 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
- 4 -
<PAGE>
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 the 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 the
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 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
- 5 -
<PAGE>
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 availability of
an opinion of counsel or 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 allocating income and
expenses:
(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
- 6 -
<PAGE>
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 hereof.
13. Limitation of Liability. The Directors of the Company and the
shareholders of the Fund shall not be liable for any obligations of the Company
or the 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 the Fund in settlement of such right or claim, and not to such
Directors or shareholders.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the Company, on behalf of the Fund, has adopted this
Multiple Class Plan as of the ____ day of _________, 1995, to be effective
_________, 1995.
PILGRIM GOVERNMENT SECURITIES
INCOME FUND, INC.
By: _______________________________
Name:______________________________
Title:_____________________________
- 8 -
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000746575
<NAME> Pilgrim Government Securities Income Fund
<SERIES>
<NUMBER> 001
<NAME> Class A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 33,485
<INVESTMENTS-AT-VALUE> 33,669
<RECEIVABLES> 386
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 34,087
<PAYABLE-FOR-SECURITIES> 2,518
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74
<TOTAL-LIABILITIES> 2,592
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,584
<SHARES-COMMON-STOCK> 2,353
<SHARES-COMMON-PRIOR> 3,078
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 8,273
<ACCUM-APPREC-OR-DEPREC> 184
<NET-ASSETS> 29,900
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,456
<OTHER-INCOME> 0
<EXPENSES-NET> 490
<NET-INVESTMENT-INCOME> 1,966
<REALIZED-GAINS-CURRENT> (66)
<APPREC-INCREASE-CURRENT> 510
<NET-CHANGE-FROM-OPS> 2,410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,930
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 138
<NUMBER-OF-SHARES-SOLD> 87
<NUMBER-OF-SHARES-REDEEMED> 883
<SHARES-REINVESTED> 70
<NET-CHANGE-IN-ASSETS> (7,355)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 171
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 490
<AVERAGE-NET-ASSETS> 33,393
<PER-SHARE-NAV-BEGIN> 12.59
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 0.20
<PER-SHARE-DIVIDEND> 0.69
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<RETURNS-OF-CAPITAL> 0.08
<PER-SHARE-NAV-END> 12.71
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000746575
<NAME> Pilgrim Government Securities Income Fund
<SERIES>
<NUMBER> 002
<NAME> Class B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 33,485
<INVESTMENTS-AT-VALUE> 33,669
<RECEIVABLES> 386
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 34,087
<PAYABLE-FOR-SECURITIES> 2,518
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74
<TOTAL-LIABILITIES> 2,592
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,584
<SHARES-COMMON-STOCK> 121
<SHARES-COMMON-PRIOR> 6
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 8,273
<ACCUM-APPREC-OR-DEPREC> 184
<NET-ASSETS> 1,534
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,456
<OTHER-INCOME> 0
<EXPENSES-NET> 490
<NET-INVESTMENT-INCOME> 1,966
<REALIZED-GAINS-CURRENT> (66)
<APPREC-INCREASE-CURRENT> 510
<NET-CHANGE-FROM-OPS> 2,410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 34
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1
<NUMBER-OF-SHARES-SOLD> 201
<NUMBER-OF-SHARES-REDEEMED> 86
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (7,355)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 8,207
<GROSS-ADVISORY-FEES> 171
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 490
<AVERAGE-NET-ASSETS> 695
<PER-SHARE-NAV-BEGIN> 12.59
<PER-SHARE-NII> 0.67
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> 0.67
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<RETURNS-OF-CAPITAL> 0.02
<PER-SHARE-NAV-END> 12.68
<EXPENSE-RATIO> 2.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000746575
<NAME> Pilgrim Government Securities Income Fund
<SERIES>
<NUMBER> 003
<NAME> Class M
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 33,485
<INVESTMENTS-AT-VALUE> 33,669
<RECEIVABLES> 386
<ASSETS-OTHER> 23
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<PAYABLE-FOR-SECURITIES> 2,518
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74
<TOTAL-LIABILITIES> 2,592
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,584
<SHARES-COMMON-STOCK> 5
<SHARES-COMMON-PRIOR> 2
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 8,273
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<NET-ASSETS> 60
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
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<REALIZED-GAINS-CURRENT> (66)
<APPREC-INCREASE-CURRENT> 510
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<EXPENSE-RATIO> 1.92
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
