As filed with the Securities and Exchange Commission on August 28, 1998
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. 21 /x/
and/or
Registration Statement Under The Investment Company Act Of 1940 /x/
Amendment No. 21 /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
1775 Eye Street, N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C> <C> <C>
/ / Immediately upon filing pursuant to paragraph (b) / / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)(1) / / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2) / / on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
If appropriate, check the following box:
/ / This post-effective amendment designated a new effective date for a
previously filed post-effective amendment.
<PAGE>
PILGRIM AMERICA INVESTMENT FUNDS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item
Location in Prospectus
Part A (Caption)
<S> <C> <C>
Item 1. Cover Page................................................ Cover Page
Item 2. Synopsis.................................................. The Income Funds at a Glance;
Summary of Expenses
Item 3. Condensed Financial Information........................... Financial Highlights
Item 4. General Description of Registrant......................... The Funds' Investment Objectives
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...................... Pilgrim America Purchase Options
Item 8. Redemption or Repurchase.................................. How to Redeem Shares
Item 9. Pending Legal Proceedings................................. Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Location in Statement of
Part B Additional Information
(Caption)
<S> <C> <C>
Item 10. Cover Page................................................. Cover Page
Item 11. Table of Contents.......................................... Table of Contents
Item 12. General Information and History............................ General Information
Item 13. Investment Objectives and Policies......................... Supplemental Description of
Investments and Techniques;
Investment Restrictions
Item 14. Management of the Fund.................................. Management of the Fund
Item 15. Control Persons and Principal Holders of Securities..... Management of the Fund; General
Information
Item 16. Investment Advisory and Other Services.................. Management of the Fund
Item 17. Brokerage Allocation and Other Practices................ Portfolio Transactions
Item 18. Capital Stock and Other Securities...................... Distributions; General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered........................... Determination of Share Price;
Additional Purchase and
Redemption Information
Item 20. Tax Status............................................. Tax Considerations
Item 21. Underwriters............................................ Management of the Fund
Item 22. Calculation of Performance Data......................... Performance Information
Item 23. Financial Statements................................... Financial Statements
</TABLE>
_______________________
* Contained in the Annual Report of the Registrant
<PAGE>
PILGRIM AMERICA FUNDS
PROSPECTUS
November 1, 1998
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
(800) 992-0180
The Pilgrim America Funds are a family of diversified, open-end and closed-end
management investment companies. This Prospectus describes the open-end
investment company portfolios, also known as mutual funds (the Funds), each of
which have its own investment objectives and policies.
<TABLE>
<S> <C>
Pilgrim America Bank and Thrift Fund Pilgrim America High Yield Fund
(Bank and Thrift Fund) (High Yield Fund)
Pilgrim America MagnaCap Fund Pilgrim America Strategic Income Fund
(MagnaCap Fund) (Strategic Income Fund)
Pilgrim America MidCap Value Fund Pilgrim Government Securities Income Fund
(MidCap Value Fund) (Government Securities Income Fund)
Pilgrim America LargeCap Value Fund
(LargeCap Value Fund)
Pilgrim America Asia-Pacific Equity Fund
(Asia-Pacific Equity Fund)
</TABLE>
Each Fund offers different 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, 1998, 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) 992-0180.
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.
Like all mutual fund shares, neither the Securities and Exchange Commission
nor any state securities commission have approved or disapproved these
securities or passes upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
THE EQUITY FUNDS AT A GLANCE*
<TABLE>
<CAPTION>
Fund Objectives and Policies Strategy
<S> <C> <C>
Bank and Long-term capital appreciation Portfolio securities are selected principally
Thrift Fund and income is its secondary on the basis of fundamental investment value
objective. and potential for future growth, including
securities of institutions that the Fund
Invests primarily in equity believes are well-positioned to take advantage
securities of national and of opportunities currently developing in the
state-chartered banks (other than banking and thrift industries.
money center banks), thrifts, the
holding or parent companies of such Principal risk factors: exposure to financial
depository institutions, and in and market risks that accompany an investment
savings accounts of mutual thrifts. in equities, and exposure to the financial and
Up to 35% of the Fund's total market risks of the banking and thrift
assets may be invested in equity industries, which may present greater risk
securities of money center banks, than a portfolio that is not concentrated in a
other financial services companies, group of related industries. Bank and thrift
other issuers deemed suitable by stocks may will be impacted by state and
the Investment Manager, debt federal legislation and regulations and
securities, and securities of other regional and general economic conditions.
investment companies.
You can expect fluctuation in the value of the
Normally fully invested. Fund's portfolio securities and the Fund's
shares.*
Pilgrim America Investments, Inc.
serves as Investment Manager for
Bank and Thrift Fund.
MagnaCap Long term growth of capital with The Investment Manager generally selects
Fund income as a secondary companies that meet the Fund's disciplined
consideration. Invests in equity investment strategy : consistent dividend
securities that are determined to increases; substantial dividend substantial
be of high quality by the increases; reinvested substantial earnings;
Investment Manager based upon strong balance sheets; and attractive prices.
certain selection criteria.
Normally fully invested. Principal risk factors: exposure to financial
and market risks that accompany an investment
in equities. You can expect fluctuation in
Pilgrim America Investments, the value of the Fund's portfolio securities
Inc., serves as Investment and the Fund's shares.*
Manager for MagnaCap Fund.
MidCap Long-term capital appreciation. A 'value' manager that seeks to identify
Value Fund middle capitalization companies having one or
Invests in equity securities of more of the following characteristics: they
companies believed to be are undergoing fundamental change; are
undervalued that have a market undervalued; and are misunderstood by the
capitalization of between investment community. Investment prospects
$200million and $5 billion. are viewed on a long-term basis and not on
market timing.
Normally fully invested.
Cramer Rosenthal McGlynn, LLC., Principal risk factors: exposure to financial
provides portfolio management and market risks that accompany an investment in
services for the MidCap Value equities. You can expect fluctuation in the
Fund. value of the Fund's portfolio securities and
the Fund's shares.*
LargeCap Long-term capital appreciation. Seeks large capitalization companies believed
Value Fund to present a good value based upon price
Invests in equity securities compared to projected earnings.
issued by companies believed to
be undervalued that generally Principal risk factors: exposure to
have a market capitalization of financial and market risks that accompany an
at least $5 billion. investment in equities. You can expect
fluctuation in the value of the Fund's
Normally fully invested. portfolio securities and the Fund's shares.*
Pilgrim America Investments, Inc.
serves as Investment Manager for
LargeCap Value Fund.
Asia-Pacific Equity Long-term capital appreciation. A combination of macroeconomic overview of
Fund region, specific country analysis, setting
Invests in equity securities of target country weightings, industry analysis
companies based in the Asia-Pacific and stock selection.
region, which includes China, Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Principal risk factors: exposure to financial
Singapore, Taiwan and Thailand, but and market risks that accompany an investment
does not include Japan or Australia. in equities and exposure to changes in currency
exchange rates and other risks of foreign
Normally fully invested. investment. You can expect fluctuation in the
value of the Fund's portfolio securities and
HSBC Asset Management Americas Inc. the Fund's shares.*
and HSBC Asset Management Hong Kong
Limited, subsidiaries of HSBC
Holdings plc, provides portfolio
management services for Asia-Pacific
Equity Fund.
<FN>
* This summary description should be read in conjunction with the more
complete description of the Fund's investment objectives and policies set
forth elsewhere in this Prospectus. For information regarding the purchase
and redemption of shares of the Fund, refer to the 'Shareholder Guide.' For
information regarding the risk factors of the Fund, refer to 'Investment
Practices and Risk Considerations' below.
</FN>
</TABLE>
<PAGE>
THE INCOME FUNDS AT A GLANCE*
<TABLE>
<CAPTION>
Fund Objectives and Policies Strategy
<S> <C> <C>
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 undue risk relative to the securities'
debt securities commonly referred to as return characteristics.
'junk bonds.' May also invest up to 35%
of its total assets in other types of Principal risk factors: exposure to
fixed income securities, preferred and financial, market and interest rate
common stocks, warrants and other risks and greater credit risks than
securities. with higher-rated bonds. You can
normally expect greater fluctuation in
Normally fully invested. the value of the Fund's shares than for
the Government Securities Income Fund,
particularly in response to economic
Pilgrim America Investments, Inc. serves downturns.*
as Investment Manager for High Yield
Fund.
Strategic Income Fund High level of current income. Invests in The Investment Manager adjusts the
at least two of the following four weighting among these four sectors to
sectors: in investment-grade debt of U. seek an attractive balance between
S. corporations, U. S. Government potential income and potential
securities, lower-rated high yield debt volatility. The Fund may invest in
of U. S. corporations commonly referred sectors indirectly through investment
to as "junk bonds", and senior variable in open-end and closed-end investment
or floating rate loans. companies.
Normally fully invested. Principal Risk Factors: exposure to
financial, market, interest rate and
Pilgrim America Investments, Inc. serves credit risks. High yield bonds and senior
as Investment Manager for Strategic loans normally present greater credit
Income Fund. risks than investment grade bonds. Senior
loans trade on an unregulated limited secondary
market, and are less liquid than publicly traded
securities. If the Fund invests in other
investment companies and it will bear expenses
associated with those investment companies in
addition to its own expenses.*
Government Securities High level of current income consistent The Investment Manager analyzes various
Income Fund with liquidity and preservation of U.S. Government securities and selects
capital. Normally invests at least 70% of those offering the highest yield
its assets in securities issued or consistent with maintaining liquidity
guaranteed by the U.S. Government, or and preserving capital.
certain of its agencies and
instrumentalities. The Fund does not Principal risk factors: exposure to
invest in highly leveraging derivatives, financial and interest rate risks, and
such as swaps, interest-only or prepayment risk on mortgage related
principal-only stripped mortgage-backed securities. You can normally expect
securities or interest rate futures fluctuation in the value of the Fund's
contracts. shares in response to changes in
interest rates, and relatively little
Normally fully invested. fluctuation in the absence of such
changes.*
Pilgrim America Investments, Inc. serves
as Investment Manager for for Government
Securities Income Fund.
<FN>
* This summary description should be read in conjunction with the more complete
description of the Fund's investment objectives and policies set forth elsewhere
in this Prospectus. For information regarding the purchase and redemption of
shares of the Fund, refer to the 'Shareholder Guide.' For information regarding
the risk factors of the Fund, refer to 'Investment Practices and Risk
Considerations' below.
</FN>
</TABLE>
<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). For each Fund, you may select from up to three separate
classes of shares: Class A, Class B and Class M.
Shareholder Transaction Expenses
<TABLE>
<S> <C> <C> <C>
Class A Class B Class M(1)
Maximum initial sales charge imposed on purchases of the Equity Funds
(as a percentage of offering price) 5.75%(2) None 3.50%(2)
Maximum initial sales charge imposed on purchases of the Income Funds
(as a percentage of offering price) 4.75%(2) None 3.25%(2)
Maximum contingent deferred sales charge (CDSC) on each fund (at the lower
of original purchase price or the redemption proceeds) None (3) 5.00%(4) None
The Funds have no redemption fees, exchange fees or sales charges on
reinvested dividends.
<FN>
(1) Bank and Thrift Fund and Strategic Income Fund do not offer Class M
shares.
(2) 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.
(3) 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.
(4) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
</FN>
</TABLE>
The table below reflects the Annual Operating Expenses incurred by the Class
A, B and M shares of each Fund for the fiscal year ended June 30, 1998. The
Annual Operating Expenses for certain Funds are subject to waivers that are
described in the footnotes following the table. The "Examples" to the right of
the table show the cumulative expenses you would pay 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>
Annual Operating Expenses Examples
(As a Percentage of Average Net Assets)
<S> <C> <C> <C> <C> <C> <C>
Bank and Thrift Fund Class A Class B Class A Class B Class B+
Management fees 0.__% 0.__% After 1 year
Distribution
(12b-1 fees)(1) 0.25% 1.00% After 3 years
Other Expenses 0. % 0. % After 5 years
Total fund After 10 years (2) (2)
operating expenses % %
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 0.__% 0.__% 0.__% After 1 year
Distribution (12b-1
fees) (1) 0.30% 1.00% 0.75% After 3 years
Other Expenses 0.__% 0.__% 0.__% After 5 years
Total fund
operating expenses % % % After 10 years (2) (2)
MidCap Value Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.00% 1.00% 1.00% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund
operating expenses(3) 1.75% 2.50% 2.25% After 10 years (2) (2)
LargeCap Value Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.00% 1.00% 1.00% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund
operating expenses(3) 1.75% 2.50% 2.25% After 10 years (2) (2)
Asia-Pacific Equity Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.25% 1.25% 1.25% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund After 10 years (2) (2)
operating expenses(3) 2.00% 2.75% 2.50%
High Yield Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees(3)(4) 0.60% 0.60% 0.60% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.15% 0.15% 0.15% After 5 years
Total fund After 10 years (2) (2)
operating expenses(3) 1.00% 1.75% 1.50%
Strategic Income Fund Class A Class B Class A Class B Class B+
Management fees(3)(5) 0.60% 0.60% After 1 year
Distribution (12b-1
(fees) (1)(6) 0.25% 1.00% After 3 years
Other Expenses 0.15% 0.15% After 5 years
Total fund After 10 years (2) (2)
operating expenses 1.00% 1.75%
Government Sec. Inc. Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 0.50% 0.50% 0.50% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0. % 0. % 0. % After 5 years
Total fund After 10 years (2) (2)
operating expenses(8) % % %
<FN>
+ Assumes no redemption at end of period.
(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) Assumes Class B shares converted to Class A shares at the end of
the eighth year following purchase.
(3) The Investment Manager has entered into expense limitation
agreements under which it will limit expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary
expenses to 1.50% for MidCap Value Fund and LargeCap Value Fund,
1.75% for Asia-Pacific Equity Fund, and 0.75% for High Yield Fund
and Strategic Income Fund. These expense limitations will apply
to each Fund individually until at least December 31, 1998,
except that the expense limitation for Strategic Income Fund will
apply until at least December 31, 1999. Prior to the waiver and
reimbursement of Fund expenses, the total annualized fund
operating expenses, excluding interest, taxes, brokerage, and
extraordinary expenses, for the fiscal year ended June 30, 1998
were __%, __% and __% of the average net assets of the Class A,
Class B, and Class M shares, respectively, of MidCap Value Fund,
__%, __% and __% of the average net assets of the Class A, Class
B and Class M shares, respectively, of LargeCap Value Fund, __%,
__%, and __% of the average net assets of the Class A, Class B,
and Class M shares, respectively, of Asia-Pacific Equity Fund,
and __%, __% and __% of the average net assets of the Class A,
Class B and Class M shares, respectively, of High Yield Fund.
(4) The management fees for High Yield Fund have been restated to
reflect current fees.
(5) The Investment Manager will waive its investment management fee
from Strategic Income Fund to the extent such fees arise from the
Fund's investment in other investment companies managed by the
Investment Manager ("Affiliated Funds")
(6) The Distributor will waive that portion of its distribution
(12b-1) fee from Strategic Income Fund in proportion to the
Fund's investment in an Affiliated Fund to reflect its allocable
share of the distribution fee paid by the Affiliated Fund.
(7) 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 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. Without such waiver, the
annualized total fund operating expenses for the fiscal year
ended June 30, 1998 would have been __% for Class A, __% for
Class B and __% for Class M.
</FN>
</TABLE>
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.' Use of the
assumed 5% return in the Examples is required by the Securities and Exchange
Commission. The Examples are not an illustration of past or future investment
results, and should not be considered a representation of past or future
expenses, actual expenses may be more or less than those shown.
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
The following tables present condensed financial information about each Fund.
The tables present historical information based upon a share outstanding through
each Fund's fiscal year. This information has been derived from the financial
statements that are in each Fund's Annual Report dated as of June 30, 1998.
Further information about each Fund's performance is contained in that Fund's
Annual Report, which may be obtained without charge.
Bank and Thrift Fund
For the six-month period ended June 30, 1998 and the periods ended December 31,
1997, 1996, and 1995, the information in the table below, with the exception of
the information in the row labeled "Total Investment Return at Net Asset Value"
for periods prior to January 1, 1997, has been audited by KPMG Peat Marwick LLP,
independent auditors. For all periods ending prior to December 31, 1995, the
financial information, with the exception of the information in the row labeled
"Total Investment Return at Net Asset Value", was audited by another independent
auditor. The information in the row labeled "Total Investment Return at Net
Asset Value" has not been audited for periods prior to January 1, 1997. Prior to
October 17, 1997, the Class A shares were designated as Common Stock and the
Fund operated as a closed-end investment company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
1998* 1997 1996 1995(b) 1994 1993 1992
CLASS A CLASS B CLASS A CLASS B(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period................ ______ ______ $17.84 $25.25 $14.83 $10.73 $11.87 $12.46 $10.12
Income (loss) from
investment
operations:
Net investment
income.............. ______ ______ 0.34 0.04 0.32 0.31 0.26 0.26 0.22
Net realized and
unrealized gain
(loss) on
investments......... ______ ______ 10.83 2.92 5.18 4.78 (0.53) 0.75 2.93
Total from
investment
operations............ ______ ______ 11.17 2.96 5.50 5.09 (0.27) 1.01 3.15
Less distributions:
Net investment
income.............. ______ ______ 0.31 0.04 0.32 0.31 0.22 0.26 0.22
In excess of net
investment
income.............. ______ ______ -- -- 0.03 0.03 -- -- --
Realized capital
gains............... ______ ______ 2.65 2.04 2.14 0.65 0.65 0.73 0.47
Paid-in capital....... ______ ______ 0.18 0.28 -- -- -- -- 0.12
Total
distributions......... ______ ______ 3.14 2.36 2.49 0.99 0.87 0.99 0.81
Other:
Reduction in net
asset value from
rights offering.. ______ ______ -- -- -- -- -- (0.61) --
Net asset value, end
of period............. ______ ______ $25.87 $25.85 $17.84 $14.83 $10.73 $11.87 $12.46
Closing Market
Price, end of
period................ ______ ______ -- -- $15.75 $12.88 $9.13 $10.88 $11.63
TOTAL INVESTMENT
RETURN AT MARKET
VALUE(c).............. ______ ______ -- -- 43.48% 52.81% (8.85)% 1.95%(d) 31.53%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(e).............. ______ ______ 64.86% 11.88% 41.10% 49.69% (1.89)% 7.79%(f) 32.36(g)%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period
$(millions)........... ______ ______ $383 $76 $252 $210 $152 $168 $141
Ratios to average
net assets
Expenses.............. ______ ______ 1.10% 1.85%(h) 1.01% 1.05% 1.28% 0.91% 1.24%
Net investment
income.............. ______ ______ 1.39% 0.99%(h) 1.94% 2.37% 2.13% 2.08% 2.00%
Portfolio turnover
rate.................. ______ ______ 22% 22% 21% 13% 14% 17% 20%
Average commission
rate paid............. ______ ______ $0.013 $0.013 -- -- -- -- --
<FN>
(a) From the period October 20, 1997 (initial offering of Class B shares)
through December 31, 1997.
(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 at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions during
the period.
(d) Calculation of total return excludes the effect of the per share dilution
resulting from the 1993 Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(e) Total return is calculated at net asset value without deduction of sales
commissions and assumes reinvestment of all dividends and distributions during
the period. Total investment returns based on net asset value, which can be
higher or lower than market value, may result in substantially different returns
than total returns based on market value. Total returns for less than one year
are not annualized. For all periods prior to January 1, 1997 the total returns
presented are unaudited.
(f) Total return is calculated assuming full participation in the 1993 rights
offering.
(g) Total return is calculated assuming no participation in the 1992 rights
offering.
(h) Annualized.
* Effective June 30, 1998, Bank and Thrift Fund changed its year end to June 30.
</FN>
</TABLE>
<PAGE>
YEAR ENDED DECEMBER 31,
1991 1990 1989
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period................ $7.49 $10.26 $9.54
Income (loss) from
investment
operations:
Net investment
income.............. 0.24 0.31 0.30
Net realized and
unrealized gain
(loss) on
investments......... 3.33 (2.20) 1.50
Total from
investment
operations............ 3.57 (1.89) 1.80
Less distributions:
Net investment
income.............. 0.24 0.31 0.31
In excess of net
investment
income.............. -- -- --
Realized capital
gains............... -- -- 0.44
Paid-in capital....... 0.70 0.57 0.33
Total
distributions......... 0.94 0.88 1.08
Other:
Reduction in net
asset value from
rights offering.. -- -- --
-- -- --
Net asset value, end
of period............. $10.12 $7.49 $10.26
Closing Market
Price, end of
period................ $9.50 $7.13 $9.13
TOTAL INVESTMENT
RETURN AT MARKET
VALUE(c).............. 47.52% (12.45)% 32.25%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(e).............. 49.49% (18.14)% 20.79%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period $101 $75 $103
Ratios to average
net assets
Expenses.............. 1.31% 1.29% 1.26%
Net investment
income.............. 2.68% 3.59% 4.15%
Portfolio turnover
rate.................. 31% 46% 63%
Average commission
rate paid............. -- -- --
<PAGE>
MagnaCap Fund
For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and 1995, the information in the table below has been audited by KPMG Peat
Marwick LLP, independent auditors. For all periods ending prior to July 1, 1994,
the financial information was audited by another independent auditor.
<TABLE>
<CAPTION>
Class A
Year Ended June 30,
1998 1997 1996 1995(b) 1994 1993 1992 1991 1990
<S> <C> <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%
</TABLE>
<TABLE>
Ratios/Supplemental Data
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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. _____ $0.0 686 -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class M
Year Year Year July 17, Year Year July 17,
Ended Ended Ended 1995(a) to Ended Ended 1995(a) to
June 30, June 30, June 30, June 30, June 30, June 30, June 30,
1989 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period........................... $9.12 _____ $16.59 $14.22 _____ $16.63 $14.22
Income from investment operations:
Net investment income............ 0.17 _____ -- 0.06 _____ 0.02 0.08
Net realized and unrealized gain
(loss) on investments.......... 1.39 _____ 4.13 2.61 _____ 4.16 2.63
Total from investment
operations................... 1.56 _____ 4.13 2.67 _____ 4.18 2.71
Less distributions from:
Net investment income............ 0.16 _____ -- 0.06 _____ 0.02 0.06
Distributions in excess of net
investment income.............. -- _____ -- -- _____ 0.01 --
Realized gains on investments.... -- _____ 4.13 0.24 _____ 4.16 0.24
Distributions in excess of net
realized gains................. -- _____ 0.78 -- _____ 0.75 --
Total distributions............ 0.16 _____ 4.91 0.30 _____ 4.94 0.30
Net asset value, end of period.... $10.52 _____ $15.81 $16.59 _____ $15.87 $16.63
Total Return(c)................... 17.32% _____ 29.92% 18.98% _____ 30.26% 19.26%
Ratios/Supplemental Data
Net assets, end of period (in
thousands)....................... $204,552 _____ $37,427 $10,509 _____ $6,748 $1,961
Ratios to average net assets:
Expenses......................... 1.60% _____ 2.16% 2.38%(d) _____ 1.91% 2.13%(d)
Net investment income............ 1.80% _____ (0.04%) 0.07%(d) _____ 0.22% 0.32%(d)
Portfolio turnover rate........... 129% _____ 77% 15% _____ 77% 15%
Average commission rate paid...... -- _____ $0.0686 -- _____ $0.0686 --
<FN>
(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.
</FN>
</TABLE>
<PAGE>
Pilgrim America MidCap Value Fund
The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class M
Ten Ten Ten
Months Months Months
Year Year Ended Year Year Ended Year Year Ended
Ended Ended June Ended Ended June Ended Ended June
June 30, June 30, 30, June 30, June 30, 30, June 30, June 30, 30,
1998 1997 1996(a) 1998 1997 1996(a) 1998 1997 1996(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $11.99 $10.00 ____ $11.94 $10.00 _____ $11.93 $10.00
Income from investment operations:
Net investment income (loss)......... _____ (0.02) 0.13 ____ (0.05) 0.07 _____ (0.03) 0.06
Net realized and unrealized gains on
investments........................ _____ 2.85 1.91 ____ 2.76 1.90 _____ 2.76 1.91
Total from investment operations.... _____ 2.83 2.04 ____ 2.71 1.97 _____ 2.73 1.97
Less distributions:
Net investment income................. _____ -- 0.05 ____ -- 0.03 _____ -- 0.04
In excess of net investment income.... _____ 0.07 -- ____ 0.05 -- _____ 0.06 --
Realized gains on investments......... _____ 0.11 -- ____ 0.11 -- _____ 0.11 --
Total distributions................. _____ 0.18 0.05 ____ 0.16 0.03 _____ 0.17 0.04
Net asset value, end of period.......... _____ $14.64 $11.99 ____ $14.49 $11.94 _____ $14.49 $11.93
Total Return(b)......................... _____ 23.89% 20.48% ____ 22.95% 19.80% _____ 23.21% 19.82%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $16,985 $2,389 ____ $23,258 $2,123 _____ $8,378 $1,731
Ratios to average net assets:
Expenses(c)(d)(e)..................... _____ 1.75% 1.75%(f) ____ 2.50% 2.50%(f) _____ 2.25% 2.25%(f)
Net investment income (loss)(c)(d)(e). _____ (0.13)% 2.00%(f) ____ (0.90)% 1.27%(f) _____ (0.63)% 1.16%(f)
Portfolio turnover rate................. _____ 86% 60%(f) ____ 86% 60%(f) _____ 86% 60%(f)
Average commission rate paid............ _____ $0.0592 -- ____ $0.0592 -- _____ $0.0592 --
<FN>
(a) The Fund commenced operations on September 1, 1995.
(b) 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.
(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 1.94%, 2.69% and
2.44% and the ratios of net investment income (loss) to average net assets were
(0.32)%, (1.11)% and (0.81)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 4.91%,
5.32% and 4.72% and the annualized ratios of net investment income (loss) to
average net assets were (1.17)%, (1.56)% and (1.32)% for Class A, B and M
shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.
(f) Annualized.
</FN>
</TABLE>
<PAGE>
Pilgrim America LargeCap Value Fund(a)
The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class M
Ten Ten Ten
Months Months Months
Year Year Ended Year Year Ended Year Year Ended
Ended Ended June Ended Ended June Ended Ended June
June 30, June 30, 30, June 30, June 30, 30, June 30, June 30, 30,
1998 1997 1996(b) 1998 1997 1996(b) 1998 1997 1996(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $11.77 $10.00 ____ $11.71 $10.00 _____ $11.73 $10.00
Income from investment operations:
Net investment income (loss)......... _____ 0.06 0.07 ____ (0.02) 0.06 _____ -- 0.06
Net realized and unrealized gains on
investments........................ _____ 2.63 1.87 ____ 2.59 1.81 _____ 2.62 1.83
Total from investment operations.... _____ 2.69 1.94 ____ 2.57 1.87 _____ 2.62 1.89
Less distributions:
Net investment income................. _____ -- 0.07 ____ -- 0.06 _____ -- 0.06
In excess of net investment income.... _____ 0.05 0.01 ____ -- 0.01 _____ 0.01 0.01
Realized gains on investments......... _____ 0.24 0.09 ____ 0.24 0.09 _____ 0.24 0.09
Total distributions................. _____ 0.29 0.17 ____ 0.24 0.16 _____ 0.25 0.16
Net asset value, end of period.......... _____ $14.17 $11.77 ____ $14.04 $11.71 _____ $14.10 $11.73
Total Return(c)......................... _____ 23.24% 19.56% ____ 22.23% 18.85% _____ 22.58% 19.06%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $8,961 $2,530 ____ $13,611 $1,424 _____ $4,719 $1,240
Ratios to average net assets:
Expenses(d)(e)(f)..................... _____ 1.75% 1.75%(g) ____ 2.50% 2.50%(g) _____ 2.25% 2.25%(g)
Net investment income (loss)(d)(e)(f). _____ 0.41% 0.65%(g) ____ (0.35)% (0.25)%(g) _____ (0.10)% 0.06%(g)
Portfolio turnover rate................. _____ 86% 59%(g) ____ 86% 59%(g) _____ 86% 59%(g)
Average commission rate paid............ _____ $0.0586 -- ____ $0.0586 -- _____ $0.0586 --
<FN>
(a) Since November 1, 1997, the Investment Manager has provided investment
advisory services directly to the Fund. Prior to that date, a different firm
served as Portfolio Manager to the Fund.
(b) The Fund commenced operations on September 1, 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) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and
2.83% and the ratios of net investment income (loss) to average net assets were
(0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 5.44%,
5.79% and 5.90% and the annualized ratios of net investment income (loss) to
average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M
shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.
(g) Annualized.
</FN>
</TABLE>
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class M
Ten Ten Ten
Months Year Months Year Months
Year Year Ended Ended Year Ended Ended Year Ended
Ended Ended June June Ended June June Ended June
June 30, June 30, 30, 30, June 30, 30, 30, June 30, 30,
1998 1997 1996(a) 1998 1997 1996(a) 1998 1997 1996(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $10.35 $10.00 ____ $10.31 $10.00 _____ $10.32 $10.00
Income from investment operations:
Net investment income (loss)......... _____ 0.02 0.03 ____ (0.07) (0.01) _____ (0.05) --
Net realized and unrealized gains on
investments and foreign
currency transactions.............. _____ 0.58 0.34 ____ 0.59 0.32 _____ 0.59 0.33
Total from investment operations.... _____ 0.60 0.37 ____ 0.52 0.31 _____ 0.54 0.33
Less distributions:
Net investment income................. _____ -- -- ____ -- -- _____ -- --
In excess of net investment income.... _____ -- 0.02 ____ -- -- _____ -- 0.01
Realized gains on investments......... _____ -- -- ____ -- -- _____ -- --
Tax return of capital ................ _____ 0.02 -- ____ -- -- _____ -- --
Total distributions................. _____ 0.02 0.02 ____ -- -- _____ -- 0.01
Net asset value, end of period.......... _____ $10.93 $10.35 ____ $10.83 $10.31 _____ $10.86 $10.32
Total Return(b)......................... _____ 5.78% 3.76% ____ 5.04% 3.19% _____ 5.26% 3.32%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $32,485 $18,371 ____ $30,169 $17,789 _____ $11,155 $6,476
Ratios to average net assets:
Expenses(c)(d)(e)..................... _____ 2.00% 2.00%(f) ____ 2.75% 2.75%(f) _____ 2.50% 2.50%(f)
Net investment income (loss)(c)(d)(e). _____ 0.00% 0.33%(f) ____ (0.79)% (0.38)%(f) _____ (0.55)% (0.16)%(f)
Portfolio turnover rate................. _____ 38% 15%(f) ____ 38% 15%(f) _____ 38% 15%(f)
Average commission rate paid............ _____ $0.0096 -- ____ $0.0096 -- _____ $0.0096 --
<FN>
(a) The Fund commenced operations on September 1, 1995.
(b) 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.
(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and
3.04% and the ratios of net investment income (loss) to average net assets were
(0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 3.47%,
4.10% and 3.88% and the annualized ratios of net investment income (loss) to
average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M
shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.
(f) Annualized.
</FN>
</TABLE>
<PAGE>
High Yield Fund
For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and the eight-month period ended June 30, 1995, the information in the
table below has been audited by KPMG Peat Marwick LLP, independent auditors. For
all periods ending prior to November 1, 1994, 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.
<TABLE>
<CAPTION>
Class A
Eight Months
Year Ended June 30, Ended Year Ended October 31,
June 30,
1998 1997 1996 1995(b)(c) 1994 1993 1992
<S> <C> <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
(`000's)......................... ____ $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%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class M
Year Year July 17, Year Year July 17,
Year Ended Ended Ended 1995(a) to Ended Ended 1995(a) to
October 31, June 30, June 30, June 30, June 30, June 30, June 30,
1991 1990 1989 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period........................... $5.03 $6.46 $7.29 _____ $6.36 $6.20 _____ $6.36 $6.20
Income (loss) from investment
operations:
Net investment income............ 0.66 0.82 0.88 _____ 0.57 0.48 _____ 0.58 0.50
Net realized and unrealized gain
(loss) on investments.......... 0.74 (1.40) (0.80) _____ 0.41 0.14 _____ 0.41 0.14
Total from investment
operations................... 1.40 (0.58) 0.08 _____ 0.98 0.62 _____ 0.99 0.64
Less distributions from:
Net investment income............ 0.68 0.85 0.91 _____ 0.56 0.46 _____ 0.57 0.48
Realized gains on investments.... 0.05 -- -- _____ -- -- _____ -- --
Total distributions............ 0.73 0.85 0.91 _____ 0.56 0.46 _____ 0.57 0.48
Net asset value, end of period.... $5.70 $5.03 $6.46 _____ $6.78 $6.36 _____ $6.78 $6.36
Total Return(d)................... 30.00% (10.08)% 0.94% _____ 16.04% 10.37% _____ 16.29% 10.69%
Ratios/Supplemental Data
Net assets, end of period
(in thousands)................... $23,820 $21,598 $31,356 _____ $40,225 $2,374 _____ $8,848 $1,243
Ratios to average net assets:
Expenses......................... 1.89% 1.75% 1.79% _____ 1.75%(e) 1.75%(f)(g) _____ 1.50%(e) 1.50%(f)(g)
Net investment income............ 12.40% 14.11% 12.61% _____ 8.64%(e) 9.02%(f)(g) _____ 8.93%(e) 9.41%(f)(g)
Portfolio turnover rate........... 173% 183% 210% _____ 394% 339% _____ 394% 339%
<FN>
(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 ratios of expenses to average net assets were 2.19%, 2.94%
(annualized) and 2.69% (annualized) for Class A, B and M shares, respectively.
Prior to the waiver and reimbursement of expenses for the period ended June 30,
1996, the ratios of net investment income to average net assets were 8.27%,
8.05% (annualized) and 8.51% (annualized) 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.
</FN>
</TABLE>
<PAGE>
Government Securities Income Fund*
For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and 1995, the information in the table below has been audited by KPMG Peat
Marwick LLP, independent auditors. For all periods ending prior to July 1, 1994,
the financial information was audited by another independent auditor.
<TABLE>
<CAPTION>
Class A
Year Ended June 30,
1998 1997 1996 1995(b) 1994 1993(c) 1992 1991 1990 1989
<S> <C> <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
(`000's).................. ____ $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%
</TABLE>
<TABLE>
<CAPTION>
Class B Class M
Year Year July 17, Year Year July 17,
Ended Ended 1995(a) to Ended Ended 1995(a) to
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period...................... ____ $12.59 $12.95 ____ $12.59 $12.95
Income (loss) from investment
operations:
Net investment income....... ____ 0.67 0.66 ____ 0.70 0.68
Net realized and unrealized
gain (loss) on
investments............... ____ 0.11 (0.37) ____ 0.14 (0.36)
Total from investment
operations.............. ____ 0.78 0.29 ____ 0.84 0.32
Less distributions from:
Net investment income....... ____ 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....... ____ 0.69 0.65 ____ 0.71 0.68
Net asset value, end of
period...................... ____ $12.68 $12.59 ____ $12.72 $12.59
Total Return(d)............... ____ 6.38% 2.25% ____ 6.88% 2.52%
Ratios/Supplemental Data
Net assets, end of period
(`000's).................. ____ $1,534 $73 ____ $61 $24
Ratios to average net assets:
Expenses.................... ____ 2.17% 2.26%(e)(f) ____ 1.92% 2.01%(e)(f)
Net investment income....... ____ 4.92% 4.98%(e)(f) ____ 5.25% 5.73%(e)(f)
Portfolio turnover rate....... ____ 172% 170% ____ 172% 170%
<FN>
(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.
</FN>
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Bank and Thrift Fund. The Fund primarily seeks long-term capital appreciation; a
secondary objective is income. The Fund pursues its objectives by investing,
under normal market conditions, at least 65% of its total assets in equity
securities of (i) national and state-chartered banks (other than money center
banks), (ii) thrifts, (iii) the holding or parent companies of such depository
institutions, and (iv) in savings accounts of mutual thrifts, which investment
may entitle the investor to participate in future stock conversions of the
mutual thrifts. These portfolio securities are selected principally on the basis
of fundamental investment value and potential for future growth, including
securities of institutions that the Fund believes are well positioned to take
advantage of the attractive investment opportunities developing in the banking
and thrift industries. In making decisions concerning the selection of portfolio
securities for the Fund, the Investment Manager conducts its own evaluation of
the depository institution which is a potential investment by the Fund and does
not take into account the credit rating of the debt securities issued by such
institution. These equity securities include common stocks and securities
convertible into common stock (including convertible bonds, convertible
preferred stock, and warrants) but do not include non-convertible preferred
stocks or adjustable rate preferred stocks. An investment in the Fund's shares
cannot be considered a complete investment program. Because the Fund's
investment portfolio will be concentrated in specific segments of the banking
and thrift industries, the shares may be subject to greater risk than the shares
of a fund whose portfolio is less concentrated.
The Investment Manager believes that a number of factors may contribute to the
potential for growth in the value of equity securities of depository
institutions, including the fact that such depository institutions are:
(i) located in geographic regions experiencing strong economic growth
and able to participate in such growth;
(ii) well-managed and currently providing above-average returns on
assets and shareholders' equity;
(iii) attractive candidates for acquisition by a money center bank or
another regional bank, as defined in 'The Banking and Thrift
Industries,' below, or attractive partners for business combinations,
as a result of opportunities created by the trend towards deregulation
and interstate banking or in order to create larger, more efficient
banking combinations;
(iv) expanding their business into new financial services or
geographic areas that have become or may become permissible due to an
easing of regulatory constraints; or
(v) investing assets in technology that is intended to increase
productivity.
The Investment Manager also believes that factors may contribute to increased
earnings of securities of depository institutions, including the following:
(i) changes in the sources of revenues of banks, such as the
implementation of certain new transaction-based fees;
(ii) a focus on variable rate pricing of bank products, which is less
sensitive than fixed pricing to cyclical interest rate changes;
(iii) the ability, as a result of liberalization of regulation, to
offer financial products and services which may have a higher rate of
return than traditional banking and financial services products;
(iv) the recent implementation of share repurchase programs by certain
banks; or
(v) a trend towards increased savings and investing as the average age
of the population of the United States gets older.
The Fund's policy of investing under normal market conditions at least 65% of
its total assets in the equity securities of (i) national and state-chartered
banks (other than money center banks), (ii) thrifts, (iii) the holding or parent
companies of such depository institutions, and (iv) in savings accounts of
mutual thrifts is fundamental and may only be changed with approval of the
shareholders of the Fund.
The Fund invests the remaining 35% of its total assets in the equity securities,
including preferred stocks or adjustable rate preferred stocks, of money center
banks, other financial services companies, other issuers deemed suitable by the
Investment Manager (which may include companies that are not in financial
services industries), in securities of other investment companies and in
nonconvertible debt securities (including certificates of deposit, commercial
paper, notes, bonds or debentures) that are either issued or guaranteed by the
United States Government or agency thereof or issued by a corporation or other
issuer and rated investment grade or comparable quality by at least one
nationally recognized rating organization. The Fund may also invest in
short-term, investment grade debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
MagnaCap Fund. The Fund's objective is growth of capital, with dividend income
as a secondary consideration. In selecting investments for the Fund,
preservation of capital is also an important consideration. The Fund normally
seeks its objectives by investing primarily in equity securities issued by
companies that the Investment Manager determines are of high quality based upon
the selection criteria described below. The equity securities in which the Fund
may invest include common stocks, securities convertible into common stocks,
rights or warrants to subscribe for or purchase common stocks, repurchase
agreements, and foreign securities (including American Depository Receipts
(ADRs)), although it is anticipated that the Fund normally will be invested as
fully as practicable in equity securities in accordance with its investment
policies. Assets of the Fund not invested in equity securities may be invested
in high quality debt securities, as described in "Investment
Techniques--Temporary Defensive and other Short-Term Positions." In a period
that the Investment Manager believes presents weakness in the stock market or in
economic conditions, the Fund may establish a defensive position to attempt to
preserve capital and increase its investment in these instruments.
MagnaCap Fund is managed in accordance with the philosophy that companies that
can best meet the Fund's objectives have paid increasing dividends or have had
the capability to pay rising dividends from their operations. Normally, stocks
are acquired only if at least 65% of the Fund's assets are invested in companies
that meet the following criteria:
1. Consistent dividends. A company must have paid or had the
financial capability from its operations to pay a dividend in 8
out of the last 10 years.
2. Substantial dividend increases. A company must have increased its
dividend or had the financial capability from its operations to
have increased its dividend at least 100% over the past 10 years.
3. Reinvested earnings. Dividend payout must be less than 65% of
current earnings.
4. Strong balance sheet. Long term debt should be no more than 25%
of the company's total capitalization or a company's bonds must
be rated at least A- or A-3.
5. Attractive price. A company's current share price should be in
the lower half of the stock's price/earnings ratio range for the
past ten years, or the ratio of the share price to its
anticipated future earnings must be an attractive value in
relation to the average for its industry peer group or that of
the Standard & Poor's 500 Composite Stock Price Index.
The Investment Manager may also consider other factors in selecting investments
for the Fund. The remainder of the Fund's assets may be invested in equity
securities that the Investment Manager believes have growth potential because
they represent an attractive value. MagnaCap Fund may not invest more than 5% of
its total assets in the securities of companies which, including predecessors,
have not had a record of at least three years of continuous operations, and it
may not invest in any restricted securities.
MidCap Value Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investment in
equity securities issued by companies with middle market capitalizations, i.e.,
market capitalizations between $200 million and $5 billion, although the Fund
may also invest to a limited degree in companies that have larger or smaller
market capitalizations. The equity securities in which the Fund may invest
include common stock, convertible securities, preferred stock and warrants. The
Fund will normally be invested as fully as practicable (at least 80%) in equity
securities of companies with middle market capitalizations. The Fund may also
invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
The Fund is managed in accordance with the disciplined investment style that the
Portfolio Manager, Cramer Rosenthal McGlynn, LLC (CRM), employs in managing
midcap value portfolios. As a value adviser, CRM does not attempt to time market
fluctuations; rather it relies on stock selection to achieve investment results,
seeking out those stocks that are undervalued and, in some cases, neglected by
financial analysts. The Portfolio Manager's investment philosophy is to take
advantage of periodic inefficiencies that develop in the valuation of publicly
traded companies. Generally, its approach to finding such companies is to first
identify dynamic change that can be material to a company's operations. Dynamic
change means change within a company that is likely to have a material impact on
its operations. Examples include new senior management, new products or markets,
or any material divestitures, acquisitions, or mergers. The philosophy is that
this type of change often creates misunderstanding in the marketplace that can
result in a company's stock being undervalued relative to its future prospects
and peer group. The Portfolio Manager seeks to identify this change at an early
stage and conduct an evaluation of the company's business. In applying this
approach, the Portfolio Manager focuses on middle capitalization companies where
dynamic change can be material.
CRM seeks companies that it believes will look different in the future in terms
of their operations, finances, and/or management. Once change is identified, the
Portfolio Manager conducts an evaluation of a company that includes creating a
financial model based principally upon projected cash flow, as opposed to
reported earnings. The company's stock is evaluated in the context of what the
market is willing to pay for the shares of comparable companies and what a
strategic buyer would pay for the whole company. CRM also evaluates the degree
of investor recognition of a company by monitoring the number of sell side
analysts who closely follow the company and the nature of the shareholder base.
Before deciding to purchase a stock CRM conducts a business analysis to
corroborate its observations and assumptions, including, in most instances,
discussions with management, customers and suppliers. Also, an important
consideration is the extent to which management holds an ownership interest in a
company. In its overall assessment, CRM seeks stocks that have a favorable
risk/reward ratio over an 18 to 24 month holding period.
LargeCap Value Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investing at
least 80% of its assets in equity securities and at least 65% of its assets in
equity securities issued by companies with large market capitalizations that the
Portfolio Manager believes sell at reasonable prices relative to their projected
earnings. The Portfolio Manager's investment goal is to participate in up
markets while cushioning the portfolio during a downturn. A company with a
market capitalization (outstanding shares multiplied by price per share) of over
$5 billion is considered to have large market capitalization, although the Fund
may also invest to a limited degree in companies that have a market
capitalization between $1 billion and $5 billion. The equity securities in which
the Fund may invest include common stock, convertible securities, preferred
stock, ADRs, and warrants. The Fund will normally be invested as fully as
practicable (at least 80%) in equity securities and will normally invest at
least 65% of its assets in companies with large market capitalizations. The Fund
may also invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
Asia-Pacific Equity Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investment in
equity securities listed on stock exchanges in countries in the Asia-Pacific
region or issued by companies based in this region. Asia-Pacific countries in
which the Fund invests include, but are not limited to, China, Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but do
not include Japan and Australia. The equity securities in which the Fund may
invest include common stock, convertible securities, preferred stock, warrants,
American Depositary Receipts (ADRs), European Depositary Receipts and other
depositary receipts. The Fund will normally be invested as fully as practicable
(at least 80%) in equity securities of Asia-Pacific issuers. The Fund may also
invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
The Fund will be managed using the investment philosophy that the Portfolio
Manager, HSBC Asset Management Americas, Inc. and HSBC Asset Management Hong
Kong Limited (HSBC), employ in managing private Asia-Pacific portfolios.
Investment decisions are based upon a disciplined approach that takes into
consideration the following factors: (i) macroeconomic overview of the region;
(ii) specific country analysis; (iii) setting target country weightings; (iv)
evaluation of industry sectors within each country; and (v) selection of
specific stocks. Decisions on company selection include analysis of such
fundamental factors as absolute rates of change of earnings growth, earnings
growth relative to the market and industry, quality of earnings and stability of
earnings growth, quality of management and product line, interest rate
sensitivity and liquidity of the stock. HSBC seeks to take profits when the
Portfolio Manager believes that a market or stock has risen fairly or
disproportionately to other investment opportunities.
The criteria used by the Fund to determine whether an issuer is based in the
Asia-Pacific region are: (1) the country in which the issuer was organized; (2)
the country in which the principal securities market for that issuer is located;
(3) the country in which the issuer derives at least 50% of its revenues or
profits from goods produced or sold, investments made, or services performed; or
(4) the country in which the issuer has at least 50% of its assets situated.
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 floating rate loans and notes. See 'Investment
Practices and Risk Considerations--High Yield Securities' for information on
High Yield Securities.
Strategic Income Fund. This Fund's investment objective is to seek a high level
of current income. The Fund normally seeks to achieve its objective by investing
in securities from one or more of the following four sectors:
o investment-grade debt of U.S. corporations,
o U.S. Government securities,
o lower-rated high yield debt of U.S. corporations, and
o senior variable or floating rate loans of U.S. corporations,
partnerships, limited liability companies or business entities
organized under U.S. law or domiciled in Canada or U.S.
territories or possessions.
Based on current or anticipated market conditions, the Investment Manager
adjusts the weighting of assets among the sectors to seek an attractive balance
between potential income and potential volatility. Under normal circumstances,
the Fund invests in securities from at least two sectors; however, the Fund may
invest up to 100% of its assets in any sector.
The Fund may seek to achieve its objective by investing directly in individual
securities within the above sectors, or by investing in affiliated or
unaffiliated open-end or closed-end investment companies that invest in these
sectors. For instance, the Fund could invest in high yield debt by investing in
Pilgrim America High Yield Fund, and could invest in U.S. Government securities
by investing in Pilgrim Government Securities Income Fund. The Fund could invest
in senior variable or floating rate loans by investing in closed-end funds that
concentrate in this sector, sometimes referred to as "prime rate" funds. This
may include investments in Pilgrim America Prime Rate Trust. Pilgrim America
High Yield Fund, Pilgrim Government Securities Income Fund and Pilgrim America
Prime Rate Trust are each managed by the Investment Manager. Pilgrim America
High Yield Fund and Pilgrim Government Securities Income Fund are described in
this prospectus. The Fund may also invest in open-end or closed-end funds that
are not managed by the Investment Manager.
The Fund has sought and intends to seek additional exemptive relief from the
Securities and Exchange Commission which, if granted, would permit the Fund
considerable flexibility in investing in affiliated and non-affiliated open-end
and closed-end funds. However, until the exemptive relief described above is
obtained, the Fund may only invest in (i) other open-end Pilgrim America Funds,
(ii) U.S. Government securities and (iii) short-term paper. Until the exemptive
relief described above is obtained, the Fund will be inhibited from investing in
certain of the sectors described above. There can be no assurance that the
exemptive relief described above will be obtained.
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 one or more the Funds may invest and strategies the Funds may employ in
pursuit of the investment objectives. See the Statement of Additional
Information for more detailed information on these investment techniques and the
securities in which the Funds may invest.
Risk Considerations
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. Each Fund is
subject to varying degrees of financial, market and credit risks.
Temporary Defensive and Other Short-Term Positions. Each Fund's assets may be
invested in certain short-term, high-quality debt instruments (and, in the case
of Bank and Thrift Fund, investment grade debt instruments) and in U.S.
Government securities for the following purposes: (i) to meet anticipated
day-to-day operating expenses; (ii) pending the Investment Manager's or
Portfolio Manager's ability to invest cash inflows; (iii) to permit the Fund to
meet redemption requests; and (iv) for temporary defensive purposes. Bank and
Thrift Fund, MagnaCap Fund, LargeCap Value Fund, MidCap Value Fund and
Asia-Pacific Equity Fund may also invest in such securities if the Fund's assets
are insufficient for effective investment in equities.
Although it is expected that each Fund will normally be invested consistent with
its investment objectives and policies, the short-term instruments in which a
Fund (except Government Securities Income Fund) may invest include: (i)
short-term obligations of the U.S. Government and its agencies,
instrumentalities, authorities or political subdivisions; (ii) other 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. LargeCap Value Fund, MidCap Value
Fund and Asia-Pacific Equity Fund may also invest in long-term U.S. Government
securities and money market funds, while Asia-Pacific Equity Fund may invest in
short-term obligations of foreign governments and their agencies,
instrumentalities, authorities, or political subdivisions. The short-term
instruments in which Government Securities Income Fund may invest include
short-term U.S. Government securities and repurchase agreements on U.S.
Government securities. The Funds will normally invest in short-term instruments
that do not have a maturity of greater than one year.
Bank and Thrift Fund: Securities of Banks and Thrifts. Bank and Thrift Fund
invests primarily in equity securities of banks and thrifts. A 'money center
bank' is a bank or bank holding company that is typically located in an
international financial center and has a strong international business with a
significant percentage of its assets outside the United States. 'Regional banks'
are banks and bank holding companies which provide full service banking, often
operating in two or more states in the same geographic area, and whose assets
are primarily related to domestic business. Regional banks are smaller than
money center banks and also may include banks conducting business in a single
state or city and banks operating in a limited number of states in one or more
geographic regions. The third category which constitutes the majority in number
of banking organizations are typically smaller institutions that are more
geographically restricted and less well-known than money center banks or
regional banks and are commonly described as 'community banks.'
The Bank and Thrift Fund may invest in the securities of banks or thrifts that
are relatively smaller, engaged in business mostly within their geographic
region, and are less well-known to the general investment community than money
center and larger regional banks. The shares of depository institutions in which
the Fund may invest may not be listed or traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System ('NASDAQ'); as a result there may be limitations on the Fund's
ability to dispose of them at times and at prices that are most advantageous to
the Fund.
The profitability of banks and thrifts is largely dependent upon interest rates
and the resulting availability and cost of capital funds over which these
concerns have limited control, and, in the past, such profitability has shown
significant fluctuation as a result of volatile interest rate levels. In
addition, general economic conditions are important to the operations of these
concerns, with exposure to credit losses resulting from financial difficulties
of borrowers.
Changes in state and Federal law are producing significant changes in the
banking and financial services industries. Deregulation has resulted in the
diversification of certain financial products and services offered by banks and
financial services companies, creating increased competition between them. In
addition, state and federal legislation authorizing interstate acquisitions as
well as interstate branching has facilitated the increasing consolidation of the
banking and thrift industries. Although regional banks involved in intrastate
and interstate mergers and acquisitions may benefit from such regulatory
changes, those which do not participate in such consolidation may find that it
is increasingly difficult to compete effectively against larger banking
combinations. Proposals to change the laws and regulations governing banks and
companies that control banks are frequently introduced at the federal and state
levels and before various bank regulatory agencies. The likelihood of any
changes and the impact such changes might have are impossible to determine.
The last few years have seen a significant amount of regulatory and legislative
activity focused on the expansion of bank powers and diversification of services
that banks may offer. These expanded powers have exposed banks to
well-established competitors and have eroded the distinctions between regional
banks, community banks, thrifts and other financial institutions.
The thrifts in which the Bank and Thrift Fund invests generally are subject to
the same risks as banks discussed above. Such risks include interest rate
changes, credit risks, and regulatory risks. Because thrifts differ in certain
respects from banks, however, thrifts may be affected by such risks in a
different manner than banks. Traditionally, thrifts have different and less
diversified products than banks, have a greater concentration of real estate in
their lending portfolio, and are more concentrated geographically than banks.
Thrifts and their holding companies are subject to extensive government
regulation and supervision including regular examinations of thrift holding
companies by the Office of Thrift Supervision (the 'OTS'). Such regulations have
undergone substantial change since the 1980's and will probably change in the
next few years.
Midcap Company Equity Securities. The MidCap Value Fund will invest
substantially all of its assets, and MagnaCap Fund, Bank and Thrift Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund may invest, in the equity
securities of middle capitalization companies. Investment in middle
capitalization companies may involve greater risk than is customarily associated
with securities of larger, more established companies. These securities may be
less marketable and subject to more abrupt or erratic market movements than
securities of larger companies.
Investments in Foreign Securities. Asia-Pacific Equity Fund invests primarily,
and 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) settlement and clearance
procedures in some countries that may not be reliable and can result in delays
in settlement; (vii) higher transactional and custodial expenses than for
domestic securities; and (viii) 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.
Emerging Market Investments. Asia-Pacific Equity Fund may invest in emerging
market securities issued by companies based in emerging market countries in the
Asia-Pacific region. An emerging market country is generally considered to be a
country whose economy is less developed or mature than economies in other more
developed countries or whose markets are undergoing a process of relatively
basic development. 'Emerging market countries' consist of all countries
determined by the World Bank or the United Nations to have developing or
emerging economies and markets. Because of less developed markets and economies
and, in some countries, less mature governments and governmental institutions,
the risks of investing in foreign securities can be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
market countries.
In addition to the risks generally of investing in emerging market securities,
there are particular risks associated with investing in developing Asia-Pacific
countries including: (i) certain markets, such as those of China, being in the
earliest stages of development; (ii) high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial
intermediaries; (iii) political and social uncertainties; (iv) over-dependence
on exports, especially with respect to primary commodities, making these
economies vulnerable to changes in commodity prices; (v) overburdened
infrastructure and obsolete financial systems; (vi) environmental problems;
(vii) less well developed legal systems than many other industrialized nations;
and (viii) less reliable custodial services and settlement practices.
Corporate Debt Securities. Strategic Income Fund may invest up to 100% of its
assets in investment-grade debt of U.S. corporations, while High Yield Fund may
invest in these and in lower-rated corporate debt securities. In addition, each
Fund may also invest in high quality short-term corporate debt for temporary
defensive purposes. See "Temporary Defensive and Other Short-Term Positions"
below. Corporate debt securities include corporate bonds, debentures, notes and
other similar corporate debt instruments, including convertible securities. The
investment return on a corporate debt security reflects interest earnings and
changes in the market value of the security. The market value of a corporate
debt security will generally increase when interest rates decline, and decrease
when interest rates rise. There is also the risk that the issuer of a debt
security will be unable to pay interest or principal at the time called for by
the instrument. Investments in corporate debt securities that are rated below
investment grade are described in "High Yield Securities" below.
High Yield Securities. High Yield Fund and Strategic Income Fund may 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
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, 1998, 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--__%,
BBB--__%, BB--____%, B--____%, CCC--____%, and CC--____%, respectively, and (2)
unrated High Yield Securities as a group--____%.
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.
Other Investment Companies. Strategic Income Fund, LargeCap Value Fund, MidCap
Value Fund, Asia-Pacific Equity Fund and Bank and Thrift Fund may each invest in
other investment companies ("Underlying Funds"). LargeCap Value Fund, MidCap
Value Fund, Asia-Pacific Equity Fund and Bank and Thrift Fund currently may not
(i) invest more than 10% of their total assets in other investment companies,
(ii) invest more than 5% of their total assets in any one investment company, or
(iii) purchase greater than 3% of the total outstanding securities of any one
Underlying Fund. Strategic Income Fund currently may invest up to 100% of its
assets in open-end investment companies ("mutual funds") for which PAII serves
as the Investment Manager.
Strategic Income Fund has sought and intends to seek additional exemptive relief
from the Securities and Exchange Commission which, if granted, would permit the
Fund to invest in both (i) mutual funds and closed-end investment companies for
which PAII serves as Investment Manager ("Affiliated Funds"), and (ii) mutual
funds and closed-end investment companies for which PAII does not serve as
Investment Manager ("Unaffiliated Funds"). If such relief is granted, the Fund
will have considerable flexibility in investing in Affiliated Funds and
Unaffiliated Funds. In addition, if the exemptive relief described above is
granted, the Strategic Income Fund will be able to purchase shares directly from
affiliated closed-end funds. There can be no assurance that the exemptive relief
will be obtained.
To the extent that the assets of the Strategic Income Fund are invested in
Underlying Funds, the Fund's investment performance is directly related to the
investment performance of the Underlying Funds held. The ability of the
Strategic Income Fund to meet its investment objective is directly related to
the ability of the Underlying Funds to meet their objectives, as well as to the
allocation among the Underlying Funds by the Investment Manager. There can be no
assurance that the investment objective of the Strategic Income Fund or any
Underlying Fund will be achieved.
There are some potential disadvantages associated with investing in other
investment companies. For example, you would indirectly bear additional fees.
The Underlying Funds pay various fees, including, management fees,
administration fees, and custody fees. By investing in those Underlying Funds
indirectly, you indirectly pay a proportionate share of the expenses of those
funds (including management fees, administration fees, and custodian fees), and
you also pay the expenses of the Fund. However, the Investment Manager has
agreed to waive a portion of its management fee from the Strategic Income Fund
in proportion to the Fund's investment in an Affiliated Fund. In addition, you
will bear your proportionate share of expenses related to the distribution of
the Fund's Shares, and also may indirectly bear expenses paid by an Underlying
Fund related to the distribution of its shares. However, to the extent that
assets of Strategic Income Fund are invested in Affiliated Funds, the
Distributor has agreed to waive a portion of the Fund's distribution (12b-1) fee
in proportion to the Fund's investment in an Affiliated Fund to reflect its
allocable share of the distribution fee paid by the Affiliated Fund. The
Strategic Income Fund may only buy shares of a load fund where the Investment
Manager reasonably believes the shares may be purchased without a sales load
through quantity discounts, waivers or otherwise. The Fund will aggregate any
sales charges and distribution and shareholder service expenses it pays on
Underlying Funds to ensure that such aggregate amounts do not exceed limits
imposed by the NASD.
There are some potential advantages associated with an investment in a
closed-end investment company. For example, a Fund may be able to purchase
closed-end fund shares at a discount to net asset value, thereby yielding assets
at work for the Fund that are greater than the amount invested. In addition, if
a Fund invests in a closed-end fund that is exchange listed, it may be able to
get exposure to relatively illiquid assets through a liquid investment.
If the exemptive relief described above is granted, the Strategic Income Fund
may be required to comply with a condition that an Unaffiliated Fund whose
shares are purchased by the Fund is not obligated to redeem more than 1% of the
Unaffiliated Fund's outstanding securities held by the Fund during any 30 day
period. In such a case, shares held by the Strategic Income Fund in excess of 1%
of an Unaffiliated Fund's outstanding securities will be considered illiquid,
and therefore, together with other such securities, may not exceed 15% of the
Fund's net assets. In light of the various legal constraints on buying and
selling shares of Unaffiliated Funds, occasions may arise when the Investment
Manager might not take advantage of certain opportunities to invest in an
Unaffiliated Fund, and may seek suitable alternatives.
Some Unaffiliated Funds may elect to make payment for the redemption of shares
by a distribution in kind of securities from its portfolio, instead of in cash.
If a Fund receives securities as part of an in kind redemption from an
Underlying Fund, the Fund may receive and hold such securities if the Investment
Manager believes it is in the best interest of shareholders, whether or not the
purchase of such securities would have been permitted by the investment
objectives and policies of the Fund.
The securities that these Unaffiliated Funds might hold may include, but are not
limited to, High Yield Securities, Senior Loans, U.S. Government securities,
short term instruments, and various fixed income securities. In certain
instances, some of the Unaffiliated Funds may also buy or sell interest rate
futures contracts relating to debt securities and/or write or buy put and call
options relating to interest rate futures contracts. Depending on an
Unaffiliated Fund's investment objective, policies, and restrictions, additional
risks may be created by a Fund's investment in an Unaffiliated Fund.
Unaffiliated Funds may follow some or all of the investment practices of the
Fund and may follow other investment practices. The Investment Manager has no
control over the investment activities of the Unaffiliated Funds. There may, in
fact, be additional investment practices, not discussed in this Prospectus or in
the Statement of Additional Information, that the Unaffiliated Funds may engage
in from time to time. In addition, an Underlying Fund may be able to invest
defensively in assets other than those normally called for by the Underlying
Fund's investment objectives or policies. In such a case, an investment in the
Underlying Fund may not represent the sectors to the degree contemplated by the
Investment Manager when it invested in the Underlying Fund.
As a result of the Fund's investment in the Underlying Funds, you may receive
taxable capital gains distributions to a greater extent than would be the case
if you invested directly in the Underlying Funds. See "Dividends, Distributions
and Taxes."
Investment decisions by the investment advisers of the Underlying Funds are made
independently of the Fund and the Investment Manager. Therefore, the investment
adviser of one Underlying Fund may be purchasing shares of the same issuer whose
shares are being sold by the investment adviser of another Underlying Fund. The
result of this would be an indirect expense to the Fund without accomplishing
any investment purpose.
The Investment Manager will select the Affiliated and Unaffiliated Funds in
which the Fund will invest based on a variety of factors including, but not
limited to, investment style and objective, total return performance, asset
size, industry rankings, operational data, various portfolio statistics and
other factors it believes are important.
PPR, which is an affiliated closed-end fund in which Strategic Income Fund may
be able to invest, invests primarily in Senior Loans and is subject to credit
and other risks. See "Senior Loans" below. PPR is traded in the New York Stock
Exchange. Shares of PPR may trade at a discount or at a premium to NAV. If PPR
is trading at a premium to NAV, PPR may issue more shares, which could put
downward pressure on the market price of PPR's shares. PPR may borrow to acquire
additional income-producing investments when the Investment Manager believes
that the use of borrowed proceeds will enhance PPR's yield. Borrowing for
investment purposes increases both investment opportunity and investment risk.
Capital raised through borrowings will be subject to interest and other costs.
There can be no assurance that PPR's income from borrowed proceeds will exceed
these costs. In the event of a default on one or more Senior Loans or other
interest-bearing instruments held by PPR, borrowing would exaggerate the loss to
PPR and may exaggerate the effect on PPR's NAV. PPR may borrow up to 33 1/3%, or
such other percentage permitted by law, of its total assets (including the
amount borrowed) less all liabilities other than borrowings.
Senior Loans. The Strategic Income Fund may invest in interests in variable or
floating rate loans ("Senior Loans"), which, in most circumstances, are fully
collateralized by assets of a corporation, partnership, limited liability
company, or other business entity. The Strategic Income Fund will invest only in
Senior Loans that are U.S. dollar-denominated. Senior Loans are considered loans
that hold a senior position in the capital structure of the borrower. These may
include loans that hold the most senior position, that hold an equal ranking
with other senior debt, or loans that are, in the judgment of the Investment
Manager, in the category of senior debt of the borrower. Senior Loans that the
Strategic Income Fund may acquire include participation interests in lease
financings ("Lease Participations").
Substantial increases in interest rates may cause an increase in loan defaults
as borrowers may lack resources to meet higher debt service requirements. Senior
Loans generally require the consent of the borrower prior to sale or assignment,
which may delay or impede the Strategic Income Fund's ability to sell the Senior
Loans. Senior Loans will be considered illiquid, and therefore, together with
other such securities, may not exceed 15% of the Fund's net assets.
Credit Risks. Although the Strategic Income Fund will generally invest in Senior
Loans that will be fully collateralized with assets whose market value, at the
time of acquisition, equals or exceeds the principal amount of the Senior Loan,
the collateral may decline in value, be relatively illiquid, or may lose all or
substantially all of its value subsequent to the Fund's investment in such
Senior Loan, causing the Senior Loan to be undercollateralized. Senior Loans are
also subject to the risk of nonpayment of scheduled interest or principal
payments. To the extent that the Strategic Income Fund's investment is in a
Senior Loan acquired from another lender, the Fund may be subject to certain
credit risks with respect to that lender.
Limited Secondary Market for Senior Loans. Although it is growing, the secondary
market for Senior Loans is currently limited. There is no organized exchange or
board of trade on which Senior Loans may be traded. Accordingly, some or many of
the Senior Loans in which the Strategic Income Fund invests will be relatively
illiquid. The Fund may have difficulty disposing of illiquid assets if it needs
cash to repay debt, to pay dividends, to pay expenses or to take advantage of
new investment opportunities. In addition, because the secondary market for
Senior Loans may be limited, it may be difficult to value Senior Loans.
Hybrid Loans. Hybrid Loans are similar to Senior Loans that generally offer less
covenant or other protections than traditional Senior Loans while still being
collateralized. The Strategic Income Fund may invest only in Hybrid Loans that
are secured debt of the borrower, although they may not in all instances be
considered senior debt of the borrower. Hybrid Loans may not include covenants
that are typical of Senior Loans. As a result, Hybrid Loans present additional
risks besides those associated with traditional Senior Loans. Because the
lenders in Hybrid Loans waive or forego certain loan covenants, their
negotiating power or voting rights in the event of a default may be diminished.
In addition, because the Fund's security interest in some of the collateral may
be subordinate to other creditors, the risk of nonpayment of interest or loss of
principal may be greater than would be the case with conventional Senior Loans.
Subordinated and Unsecured Loans. The Strategic Income Fund may also invest up
to ___% of its total assets, measured at the time of investment, in subordinated
and unsecured loans. The Fund may acquire a subordinated loan only if, at the
time of acquisition, it acquires or holds a Senior Loan from the same borrower.
The primary risk arising from a holder's subordination is the potential loss in
the event of default by the issuer of the loans. Unsecured loans are not secured
by any specific collateral of the borrower. They may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans. The Strategic
Income Fund will acquire unsecured loans only where the Investment Manager
believes, at the time of acquisition, that the Fund would have the right to
payment upon default that is not subordinate to any other creditor.
Restricted and Illiquid Securities. Each Fund may invest in restricted and
illiquid securities. A 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 at approximately the value at which it is carried.
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. Each Fund may only invest up to 15% of its
net assets in illiquid securities.
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.
Mortgage-Related Securities. Government Securities Income Fund, High Yield Fund
and Strategic Income Fund may invest up to 100% of their 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. Early prepayment may expose a Fund
to a lower rate of return upon reinvestment of the principal. Prepayment rates
vary widely and cannot be accurately predicted. They may be affected by changes
in market interest rates. Therefore, 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.
Like other fixed income securities, when interest rates rise, the value of a
mortgage-backed security generally will decline; however, when interest rates
are declining, the value of mortgage-backed securities with prepayment features
may not increase as much as other fixed income securities. The rate of
prepayments on underlying mortgages will affect the price and volatility of a
mortgage-related security, and may have the effect of shortening or extending
the effective maturity of the security beyond what was anticipated at the time
of the purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase. 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.
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.'
Investment Techniques
Borrowing. Bank and Thrift Fund may borrow money from banks to obtain short-term
credits as are necessary for the clearance of securities transactions, but not
in an amount exceeding 15% of its total assets. All Funds except Bank and Thrift
may borrow from banks solely for temporary or emergency purposes up to certain
amounts (10% of total assets in the case of Government Securities Income Fund,
5% of total assets in the case of MagnaCap Fund and High Yield Fund, and 33 1/3%
of total assets in the case of MidCap Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund and Strategic Income 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 of any increase or decrease in the value of portfolio securities or
the net asset value (NAV) of a Fund, and money borrowed will be subject to
interest costs.
Foreign Currency Transactions. Substantially all of the assets of the
Asia-Pacific Equity Fund will be invested in securities denominated in foreign
currencies and a corresponding portion of the Fund's revenues will be received
in such currencies. Unfavorable changes in the relationship between the U.S.
dollar and the relevant foreign currencies, therefore, will adversely affect the
value of the Fund's shares. The Asia-Pacific Equity Fund ordinarily will not
engage in hedging transactions to guard against the risk of currency
fluctuation. However, the Fund reserves the right to do so, and, toward this
end, may enter into forward foreign currency contracts. This investment
technique is described in the Statement of Additional Information.
Dollar Roll Transactions. Government Securities Income Fund and Strategic 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 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, MagnaCap
Fund, High Yield Fund, Strategic Income Fund and Government Securities Income
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 and Strategic 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 and Strategic
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. In the case of MidCap Value Fund, LargeCap Value Fund and
Asia-Pacific Equity Fund, it is expected that derivatives will not ordinarily be
used for any of the Funds, but a Fund may make occasional use of certain
derivatives for hedging. For example, MidCap Value Fund, LargeCap Value Fund and
Asia-Pacific Equity Fund may purchase put options, which give the Fund the right
to sell a security it holds at a specified price. A Fund would purchase an
option to attempt to preserve the value of securities that it holds, which it
could do by exercising the option if the price of the security falls below the
'strike price' for the option. The Funds will not engage in any other type of
options transactions.
Another use of derivatives that only may be employed by the Asia-Pacific Equity
Fund is to enter into forward currency contracts and foreign exchange futures
('futures') contracts, which provide for delivery of a certain amount of foreign
currency to the Fund on a specified date. The Fund would enter into a forward
currency or futures contract when it intends to purchase or sell a security
denominated in a foreign currency and it desires to 'lock in' the U.S. dollar
price of the security. The Funds will not engage in any other type of forward
contracts or futures contracts. For additional information on options and
foreign currency contracts, see 'Supplemental Discussion of Risks Associated
with the Funds' Use of Investment Policies and Investment Techniques--Options on
Securities' and '--Foreign Currency Exchange Transactions' in the Statement of
Additional Information.
Government Securities Income Fund, Strategic 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.
Other uses of derivatives that may be employed only by High Yield Fund and
Strategic Income 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 or
Strategic Income Fund; however, the Fund may make occasional use of these
techniques. When a 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. A 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. A 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 and Strategic Income Fund also may use financial futures
contracts and related options for 'hedging' purposes. A 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 a 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.
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. Unless otherwise
specified, other investment policies of any of the Funds may be changed by the
Board of Directors of that Fund without shareholder approval. 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.
YEAR 2000 COMPLIANCE
Like other financial organizations, the Funds could be adversely affected if the
computer systems used by the Investment Manager and the Funds' other service
providers do not properly process and calculate date-related information after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Year
2000 Problem could have a negative impact on handling securities trades, payment
of interest and dividends, pricing, and account services. The Investment Manager
is taking steps that it believes are reasonably designed to address the Year
2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Funds nor can
there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Funds or on global
markets or economies, generally.
<PAGE>
SHAREHOLDER GUIDE
Pilgrim America Purchase OptionsTM
Depending upon the Fund, you may select from two or 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(1)
<S> <C> <C> <C>
Maximum Initial Sales Charge on Purchases
Bank and Thrift Fund...................................... 5.75% (2) None N/A
MagnaCap Fund, MidCap Value Fund, LargeCapValue Fund,
Asia-Pacific Equity Fund................................. 5.75% (2) None 3.50%
Strategic Income Fund 4.75%(2) None N/A
High Yield Fund and Government Securities Income Fund..... 4.75% (2) None 3.25%
CDSC.......................................................... None (3) 5.00% (4) None
Annual Distribution Fees (5).................................. 0.25% (6) 1.00% 0.75%
Maximum Purchase.............................................. Unlimited $250,000 $1,000,000
Automatic Conversion to Class A............................... N/A 8 Years N/A
<FN>
(1) Bank and Thrift Fund and Strategic Income Fund do not offer Class M
shares.
(2) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(3) 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.
(4) Imposed upon redemption within 6 years from purchase. Fee has
scheduled reductions after the first year. See 'Class B Shares:
Deferred Sales Charge Alternative.
(5) Annual asset-based distribution charge.
(6) MagnaCap Fund imposes an annual distribution fee of 0.30%.
</FN>
</TABLE>
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.'
Bank and Thrift Fund, MagnaCap Fund, MidCap Value Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as 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>
High Yield Fund, Strategic Income Fund
and Government Securities Income Fund
<TABLE>
<CAPTION>
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>
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 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:
Year of
Redemption
After Purchase CDSC
First........................................................... 5%
Second.......................................................... 4%
Third........................................................... 3%
Fourth.......................................................... 3%
Fifth........................................................... 2%
Sixth........................................................... 1%
Seventh and following........................................... 0%
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 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 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:
MagnaCap Fund, MidCap Value Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as 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>
High Yield Fund and Government Securities Income Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as 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 are not offered by Bank and Thrift Fund and Strategic Income Fund and 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) 992-0180
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) 992-0180 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
following cases. 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.
1) 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 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.
2) 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.
3) 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 unaffiliated mutual fund on which a sales charge
was paid or which were subject at any time to a CDSC, and which
unaffiliated fund was: with respect to purchases of Bank and
Thrift Fund, a fund invested primarily in financial services
entities; with respect to purchases of MagnaCap Fund, a domestic
growth fund; with respect to purchases of the MidCap Value Fund,
a mid-cap fund; with respect to purchases of the LargeCap Value
Fund, a large-cap fund; with respect to purchases of the
Asia-Pacific Equity Fund, a fund investing in companies based in
the Asia-Pacific region; with respect to purchases of High Yield
Fund, a high yield bond fund; with respect to Strategic Income
Fund, a strategic income fund; and with respect to purchases of
Government Securities Income Fund, a government securities fund.
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, and their families
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
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').
11) Any registered investment company for which PAII serves as
investment manager.
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) 992-0180, 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) 0.30%
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 the
Fund's Class A, Class B and Class M shares.
Distribution and Servicing Fees As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of
shares of the Funds and in connection with services rendered to
shareholders of each Fund, each Fund pays the Distributor servicing fees
and distribution fees up to the annual rates set forth below (calculated
as a percentage of each Fund's average daily net assets attributable to
that class):
Class A Shares
Servicing Distribution
Fund Fee Fee
Bank and Thrift Fund, MidCap
Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund 0.25% n/a*
MagnaCap Fund 0.25% 0.05%
High Yield Fund,
Strategic Income Fund and
Government Securities Income Fund 0.25% n/a
*Subject to increase by action of the Fund's Directors to a rate not
exceeding .10% per annum.
Class B Shares
Servicing Distribution
Funds Fee Fee
All Funds 0.25% 0.75%
Class M Shares
Servicing Distribution
Fund Fee Fee
All Funds except Bank and Thrift
Fund and Strategic Income Fund 0.25% 0.50%*
*Subject to increase by action of the Fund's Directors to a rate not
exceeding 0.75% per annum.
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 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. With respect to Class A shares of MagnaCap Fund, High Yield Fund
and Government Securities Income Fund, the Distributor will be reimbursed for
its actual expenses incurred under the 12b-1 Plan. The Distributor has incurred
costs and expenses with respect to Class A shares that may be reimbursable in
future months or years in the amounts of $ __________ for MagnaCap Fund (0. __%
of its net assets), $ _________ for High Yield Fund (0.%__ of its net assets),
and $ _________ for Government Securities Income Fund ( ___% of its net assets)
as of June 30, 1998. With respect to Class A shares of all other Funds and the
Class B and Class M shares of each Fund, 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.
Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for distribution and shareholder servicing as set forth
below.
Class A and B Shares
Servicing
Fund Fee
All Funds .25%
Class M Shares
Servicing Distribution
Fund Fee Fee
Magna Cap Fund, MidCap
Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund .25% .40%
High Yield Fund and Government
Securities Income Fund .25% .15%
Payments are calculated as a percentage of the Fund's average daily NAV
attributed to each class of shares 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.
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.
By Mail Visit or consult an Authorized Dealer. Visit or consult your Authorized Dealer.
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 Operations Department Call the Pilgrim America Operations Dept.
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 #751-8315; 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 Funds.
P.O. Box 419368
Kansas City, MO 64141-6368
</TABLE>
The Funds and the Distributor reserve the right to reject any purchase order.
Please note third party checks, money orders and checks drawn on non-US banks
(even if payment may be effected through a US bank) will not be accepted. The
Investment Manager reserves the right to waive minimum investment amounts.
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 set forth above under "Purchase of Shares" have been completed.
In the case of an investment by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
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 regular trading on the New York Stock Exchange, (normally 4:00 p.m.
Eastern 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 regular 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) 992-1080.
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) 992-1080.
IFTC currently receives a $12 custodian fee annually for the maintenance of such
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 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
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption
Authorized Dealer orders by wire or telephone to the Distributor. These
firms may charge for their services in connection with your redemption
request, but neither the Funds nor the Distributor imposes any such charge.
Redemption By Mail A written request for redemption must be received by the Transfer Agent in order
to constitute a valid tender. If certificated shares have been issued, the
certificate must accompany the written request. The Transfer Agent may also
require a signature guarantee by an eligible guarantor. It will also be necessary
for corporate investors and other associations to have an appropriate
certification on file authorizing redemptions by a corporation or an association
before a redemption request will be considered in proper form. A suggested form
of such certification is provided on the New Account Application. If you are
entitled to a CDSC waiver, you must complete the CDSC waiver form in the New
Account Application. To determine whether a signature guarantee or other
documentation is required, shareholders may call the Shareholder Servicing Agent
at (800) 992-1080.
Expedited Redemption The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (maximum $100,000) mailed to an
address which has been on record with the Pilgrim America Funds for at least 30
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>
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. Bank and Thrift Fund is the single series of Pilgrim
America Bank and Thrift Fund, Inc., which is a registered investment company
that was incorporated in Maryland in November, 1985 as a closed-end, diversified
management investment company. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund.
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.
MidCap Value Fund, LargeCap Value Fund, Asia-Pacific Equity Fund and Strategic
Income Fund are series of Pilgrim America Advisory Funds, Inc., which is a
registered investment company that was organized as a Maryland corporation in
April, 1995.
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 has overall responsibility for the
management of the Funds. Each Fund and the Investment Manager have entered into
an agreement that requires the Investment Manager to provide or oversee all
investment advisory and portfolio management services for the Fund. Each
agreement 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. Each 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 (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. Bank and Thrift Fund pays the Investment Manager a fee at an annual rate
of 1.00% of the first $30,000,000 of average daily net assets, 0.75% of the next
$95,000,000 of average daily net assets, and 0.70% of average daily net assets
in excess of $125,000,000. These fees are computed and accrued daily and paid
monthly.
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.
High Yield Fund and Strategic Income Fund each pay the Investment Manager a fee
at an annual rate of 0.60% of the average daily net assets of the Fund. LargeCap
Value Fund and MidCap Value Fund each pay the Investment Manager a fee at an
annual rate of 1.00% of the Fund's average daily net assets, and the
Asia-Pacific Fund pay the Investment Manager a fee at an annual rate of 1.25% of
the Fund's average daily net assets.
Government Securities Income Fund pays the Investment Manager a fee at an annual
rate of 0.50% of the average daily net assets of the Fund up to $500 million;
0.45% of the average daily net assets above $500 million to $1 billion; and
0.40% of the average daily net assets in excess of $1 billion. The agreement
with the Investment Manager for the Government Securities Income Fund provides
that the Investment Manager will reimburse the Government Securities Income Fund
to the extent that the gross operating costs and expenses of that Fund,
excluding any interest, taxes, brokerage commissions, amortization of
organizational expenses, extraordinary expenses, and distribution (Rule 12b-1)
fees on Class B and Class M shares in excess of an annual rate of 0.25% of the
average daily net assets of these classes, exceed 1.50% of the Fund's average
daily net asset value for the first $40 million of net assets and 1.00% of
average daily net assets in excess of $40 million for any one fiscal year. This
reimbursement policy cannot be changed unless the agreement is amended, which
would require shareholder approval.
The Investment Manager has entered into expense limitation agreements with
respect to certain of the Funds, pursuant to which the Investment Manager has
agreed to waive or limit its fees and to assume other expenses so that the total
annual ordinary operating expenses of these Funds (which excludes interest,
taxes, brokerage commissions, extraordinary expenses such as litigation, other
expenses not incurred in the ordinary course of such Fund's business, expenses
of any counsel or other persons or services retained by the Company's directors
who are not "interested persons" (as defined in the 1940 Act) of the Investment
Manager, and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act) do not exceed: 0.75% for High Yield Fund and Strategic
Income Fund; 1.50% for LargeCap Value Fund and MidCap Value Fund; and 1.75% for
Asia-Pacific Equity Fund.
The expense limitation agreements provide that these expense limitations shall
continue until December 31, 1998 for High Yield Fund, LargeCap Value Fund,
MidCap Value Fund and Asia-Pacific Equity Fund, and until December 31, 1999 for
Strategic Income Fund. The Investment Manager may extend, but may not shorten,
the period of these limitations without the consent of the Funds, so long as the
extension is at the same expense limitation amount discussed above. Each Fund
described above will at a later date reimburse the Investment Manager for
management fees waived and other expenses assumed by the Investment Manager
during the previous 36 months, but only if, after such reimbursement, the Fund's
expense ratio does not exceed the percentage described above. The Investment
Manager will only be reimbursed for fees waived or expenses assumed after the
effective date of the expense limitation agreements. Each expense limitation
agreement will terminate automatically upon termination of the respective
investment management agreement with the Investment Manager, and may be
terminated by the Investment Manager or the Fund upon 90 days written notice.
The Portfolio Managers. For Asia-Pacific Equity Fund and MidCap Value Fund, the
Investment Manager has engaged two of the most respected institutional
investment advisers in the world. For portfolios similar to these Funds, these
firms usually require large investment minimums to open an account, and their
services for these types of portfolios are typically available only to wealthy
individuals and large institutional clients. The Portfolio Managers have been
selected primarily on the basis of their successful application of a consistent,
well-defined, long-term investment approach over a period of several market
cycles.
Asia-Pacific Equity Fund. HSBC Asset Management Americas Inc. and HSBC Asset
Management Hong Kong Limited (collectively, HSBC) serve jointly as Portfolio
Manager to the Asia-Pacific Equity Fund. The firms are part of HSBC Asset
Management, the global investment advisory and fund management business unit of
HSBC Holdings plc (founded as the Hong Kong and Shanghai Banking Corporation in
1865) which, with headquarters in London, is one of the world's largest banking
and financial organizations. HSBC Asset Management manages over approximately
$49 billion of assets worldwide for a wide variety of institutional, retail and
private clients, with a minimum investment size for private accounts of $10
million for Asia-Pacific investors. HSBC Asset Management has advisory
operations in Hong Kong and Singapore, among other locations. Its parent company
has over a century of operations in local economies throughout the Asia-Pacific
region.
Fredric Lutcher III, Managing Director, Chief Financial Officer, HSBC Americas,
Ian Burden, Chief Investment Officer, HSBC Hong Kong, and Man Wing Chung,
Director, HSBC Hong Kong, are primarily responsible for portfolio management of
Asia-Pacific Equity Fund. Mr. Lutcher joined HSBC in 1997, and has over 20 years
of investment experience. Prior to joining HSBC, Mr. Lutcher was with Merrill
Lynch Asset Management. Mr. Burden has been with HSBC for 17 years, and has 24
years investment experience. Mr. Chung has been with HSBC for 5 years, and has
10 years investment experience.
MidCap Value Fund. Cramer Rosenthal McGlynn, LLC. (CRM) serves as Portfolio
Manager to the MidCap Value Fund. CRM's predecessor was founded in 1973 to
manage portfolios for a select number of high net worth individuals and their
related foundations, endowment funds, pension plans and other entities, and CRM
currently manages approximately $4 billion for more than 200 individual and
institutional clients, with a minimum investment size for private accounts of $5
million. The three founding principals of CRM have each spent over 35 years in
the investment business. The firm has managed investments in small and middle
capitalization companies for __ years. Accounts managed by Cramer Rosenthal own
in the aggregate approximately ____% of the outstanding voting securities of
Pilgrim America.
Gerald B. Cramer, Chairman of CRM, Edward D. Rosenthal, Vice Chairman of CRM,
Ronald H. McGlynn, Manager, President and Chief Executive Officer of CRM, Jay B.
Abramson, Executive Vice President and Director of Research of CRM, and Michael
Prober, Portfolio Manager and Research Analyst, are primarily responsible for
portfolio management of MidCap Value Fund. Messrs. Cramer, Rosenthal and McGlynn
founded CRM's predecessor in 1973. Mr. Abramson has been with CRM or its
predecessor for 13 years. Mr. Prober has been with CRM for 6 years.
Each Portfolio Manager serves the pertinent Fund under an agreement with the
Investment Manager. Each Portfolio Manager has discretion to purchase and sell
securities for the portfolio of its respective Fund in accordance with that
Fund's objectives, policies and restrictions. Although the Portfolio Managers
are subject to the general supervision by the Board of Directors and the
Investment Manager, the Board and/or the Investment Manager do not evaluate the
investment merits of specific securities transactions. The agreement with each
Portfolio Manager may be terminated by the Board of Directors of the Funds, by
the Investment Manager or by the Portfolio Manager. Thus, it is possible that in
the future, one or more of the current Portfolio Managers would no longer be
engaged for a Fund. It is not anticipated that Portfolio Managers will be
replaced in the ordinary course of operations.
As compensation for their services to the Funds, the Investment Manager (and not
the Fund) pays HSBC and CRM fees at annual rates of 0.50% of the average daily
net assets of the Asia-Pacific Equity and MidCap Value Funds, respectively.
Investment Personnel.
Howard N. Kornblue, Senior 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, C.F.A., Senior Vice President and Senior Portfolio Manager of Bank
and Thrift Fund has been managing the Fund's portfolio since January 1991, when
he joined the Investment Manager's predecessor. Mr. Dorf is also a Senior Vice
President of the Investment Manager. Prior to joining the Investment Manager's
predecessor, 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 Management 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 BBA/Finance and Investments and MBA/Finance and Investments 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 and
Portfolio Manager of LargeCap Value 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 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.
Jeffery B. Cross, Vice President of the Investment Manager, is a co-manager of
MagnaCap Fund. Mr. Cross joined Pilgrim America in August 1997 from Delta
Ventures Financial Council, Inc., where he was in charge of equity analysis.
Prior to joining Delta Ventures in 1991, he was executive vice president of a
manufacturing engineer consulting firm. Mr. Cross began his business career in
the 1970's working as a junior equity analyst for John Cross & Associates, an
SEC-registered investment advisor in Cincinnati, Ohio. He is an advisory
director of the CAD Institute. Mr. Cross has three Magna Cum Laude Bachelor of
Science degrees from Miami University, Oxford, Ohio, in Chemistry, Physics, and
Mathematics. He has a masters degree from Stanford University and has done
post-graduate work in business and chemical engineering at Arizona State
University.
Howard Tiffen, Senior Vice President and Senior Portfolio Manager of the
Investment Manager, serves as a co-manager of Strategic Income Fund. He is also
the President, Chief Operating Officer and Senior Portfolio Manager of Pilgrim
America Prime Rate Trust, another fund managed by the Investment Manager. He has
had primary responsibility for investment management of various divisions of
Bank of America (and its predecessor, Continental Bank).
Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager of the
Investment Manager, has served as Portfolio Manager of High Yield Fund since
June 1995 serves as the Allocation Manager for Strategic Income Fund 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
a Vice President and Senior Portfolio Manager with 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, Vice President of the Investment Manager, 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. Mr. Ullerich also serves as co-manager of Strategic Income Fund. 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, or Portfolio Manager in the case
of MidCap Value Fund and Asia-Pacific Equity Fund, will place orders to execute
securities transactions that are designed to implement each Fund's investment
objectives and policies. The Investment Manager, or Portfolio 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, or Portfolio
Managers, may consider brokerage and research services provided by a broker to
Portfolio Manager or the Investment Manager or their affiliates, 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 or Portfolio
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. Consistent with this policy, portfolio transactions may be executed by
brokers affiliated with a Portfolio Manager or the Investment Manager, so long
as the commission paid to the affiliated broker is reasonable and fair compared
to the commission that would be charged by an unaffiliated broker in a
comparable transaction. In addition, the Investment Manager or Portfolio Manager
may place securities transactions with brokers that provide certain services to
a Fund. The Investment Manager or Portfolio 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. In the case of Bank and Thrift Fund, MidCap Value
Fund, LargeCap Value Fund, and Asia-Pacific Equity Fund, dividends and
distributions from net investment income and capital gains, if any, will be paid
at least annually. 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, Strategic Income 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.
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 open-end 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, but the rate of tax will depend on
the Fund's holding period for the assets whose sale results in the gain.
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.
Asia-Pacific Equity Fund may be required to pay withholding and other taxes
imposed by various countries in connection with its investments outside the U.S.
generally at rates from 10% to 40%, which would reduce a Fund's investment
income.
This is a brief summary of some of the tax laws that affect your investment in a
Fund. Please see the Statement of Additional Information and your tax adviser
for further information.
PERFORMANCE INFORMATION
From time to time, a Fund may advertise its average annual total return over
various periods of time as well as the Fund's current yield. The total return
figures show the average percentage change in value of an investment in the Fund
from the beginning date of the measuring period. The figures reflect changes in
the price of the Fund's shares and assume that any income dividends and/or
capital gains distributions made by the Fund during the period were reinvested
in shares of the Fund. Figures will be given for one, five and ten year periods
(if applicable) and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). Total
returns and current yield are based on past results and are not necessarily a
prediction of future performance. The Fund will compute its yield by dividing
its net investment income per share during a 30-day base period by the maximum
offering price on the last day of the base period. This 30-day yield is then
compounded over six monthly periods and multiplied by two to provide an
annualized yield.
A 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 a Fund is the annualization of the Fund's distribution per share
divided by the maximum offering price per share of a Fund at the respective
month-end. 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. Each Fund's Articles of Incorporation permit the Directors
to authorize the creation of additional series, each of which may issue separate
classes of shares. A Fund may be terminated and liquidated under certain
circumstances.
Shareholders have certain voting rights. Each share of each Fund is given one
vote. Matters such as approval of new investment advisory agreements and changes
in fundamental policies of a Fund will require the affirmative vote of the
shareholders of that Fund. Matters affecting a certain class of a Fund will only
be voted on by shareholders of that particular class and Fund. The Funds are not
required to hold annual shareholder meetings, although special shareholder
meetings may be held from time to time.
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND.
PILGRIM AMERICA MAGNACAP FUND
PILGRIM AMERICA MIDCAP VALUE FUND
PILGRIM AMERICA LARGECAP VALUE FUND
PILGRIM AMERICA ASIA-PACIFIC EQUITY FUND
PILGRIM AMERICA HIGH YIELD FUND
PILGRIM AMERICA STRATEGIC INCOME FUND
PILGRIM GOVERNMENT SECURITIES INCOME FUND
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004
1-800-992-0180
Table of Contents
Page
THE FUNDS.............................................................
THE FUNDS AT A GLANCE.................................................
SUMMARY OF EXPENSES...................................................
FINANCIAL HIGHLIGHTS..................................................
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................
INVESTMENT PRACTICES AND RISK CONSIDERATIONS..........................
All Funds: Diversification and Changes in Policies................
SHAREHOLDER GUIDE.....................................................
Pilgrim America Purchase OptionsTM................................
Purchasing Shares.................................................
Exchange Privileges and Restrictions..............................
Systematic Exchange Privilege.....................................
How to Redeem Shares..............................................
MANAGEMENT OF THE FUNDS...............................................
DIVIDENDS, DISTRIBUTIONS AND TAXES....................................
PERFORMANCE INFORMATION...............................................
ADDITIONAL INFORMATION................................................
NEW ACCOUNT APPLICATION...............................................
Investment Manager
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408
Distributor
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408
Shareholder Servicing Agent
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408
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
1775 Eye Street, N.W.
Washington, D.C. 20006
Independent Auditors
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
PROSPECTUS
November 1, 1998
<PAGE>
PILGRIM GOVERNMENT SECURITIES INCOME FUND
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
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, 1998, which may be obtained
without charge upon written request to the address above or by calling (800)
992-0180.
TABLE OF CONTENTS
Page
Management of the Fund.......................................................2
Distribution Plan............................................................6
Supplemental Description of Investments and Techniques.......................9
Investment Restrictions.....................................................15
Portfolio Transactions......................................................16
Additional Purchase and Redemption Information..............................18
Determination of Share Price................................................23
Shareholder Services and Privileges.........................................23
Distributions...............................................................26
Tax Considerations..........................................................26
Performance Information.....................................................29
General Information.........................................................32
Financial Statements........................................................32
<PAGE>
MANAGEMENT OF THE FUND
Board of Directors. The Fund is managed by its Board of Directors. The Directors
and Officers of the Fund are listed below. An asterisk (*) has been placed next
to the name of each Director who is an "interested person," as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"), by virtue of
that person's affiliation with the Fund or Pilgrim America Investments, Inc.,
the Fund's investment manager (the "Investment Manager" or "PAII").
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 59.) 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
66.) Director. Commissioner of Banking, State of Connecticut (January 1995
- Present). Mr. Burke was formerly President of Bristol Savings Bank
(August 1992 - January 1995) and President of Security Savings and Loan
(November 1989 - August 1992). Mr. Burke is also a director and/or trustee
of each of the funds managed by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age
70.) 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.
Jock Patton, 40 North Central Avenue, Phoenix, Arizona 85004. (Age 52.)
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 49.) Chairman, Chief Executive Officer, and President.
Chairman, Chief Executive Officer and President of Pilgrim America Group,
Inc. (since December 1994); Chairman, PAII (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., Pilgrim America
Advisory Funds, Inc. (formerly, Pilgrim America Masters Series, 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).
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) $500 per
special telephonic meeting; and (v) out of pocket expenses. During the fiscal
year ended June 30, 1998, the Fund paid an aggregate of $_____ 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, 1998. 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.
Compensation Table
Fiscal Year Ended June 30, 1998
<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).......................... $ N/A N/A $
(5 boards)
John P. Burke, Director(2)(4) .......................... $ N/A N/A $
(5 boards)
Al Burton, Director (3)(4)............................... $ N/A N/A $
(5 boards)
Bruce S. Foerster, Director (4)(5)....................... $ N/A N/A $
(5 boards)
Jock Patton (4)(6)....................................... $ N/A N/A $
(5 boards)
Robert W. Stallings, Director and $0 $0
Chairman (1)(7)........................................ N/A N/A (5 boards)
<FN>
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 Mr. Foerster resigned as a Director of the Fund effective September 30, 1998.
6 Current Board member, term commencing August 28, 1995.
7 "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.
</FN>
</TABLE>
Officers
James R. Reis, Executive Vice President, and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 40.)
Director, Vice Chairman (since December 1994) and Executive Vice
President (since April 1995), 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 and Assistant Secretary of each 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).
Stanley D. Vyner, Executive Vice President
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 48.)
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.
James M. Hennessy, Executive Vice President and Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 49.)
Executive Vice President (since April 1998) and Secretary (since April
1995), Pilgrim America (formerly, Express America Holdings
Corporation), Pilgrim America Group, Inc., PAII, and PASI; Executive
Vice President and Secretary of each of the funds in the Pilgrim
America Group of funds. Presently serves or has served as an officer
or director of other affiliates of Pilgrim America. Formerly, Senior
Vice President, Pilgrim America, Pilgrim America Group, Inc., PAII and
PASI (April 1995 - April 1998); Senior Vice President, Express America
Mortgage Corporation (June 1992 - August 1994) and President, Beverly
Hills Securities Corp. (January 1990 - June 1992).
Michael J. Roland, Senior Vice President and Principal Financial
Officer 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
(Age 40.) Senior Vice President and Chief Financial Officer, PAGI,
PAII, PASI (since June 1998) and Pilgrim America Financial (since
August, 1998). He served in same capacity from January, 1995 - April,
1997. Chief Financial Officer of Endeaver Group (April, 1997 to June,
1998).
Charles G. Ullerich, Vice President and Portfolio Manager.
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 33.) Vice
President, PAII (since February 1998). Formerly Assistant Portfolio
Manager of Pilgrim Government Securities Income Fund, Inc. (August
1995 - September 1996) and Vice President, First Liberty Bank (April
1991 August 1995).
Robert S. Naka, Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 35.)
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).
Robyn L. Ichilov, Vice President and Treasurer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 30)
Vice President, PAII (since August 1997) and Pilgrim America Financial
(since May 1998), Accounting Manager (since November 1995). Formerly
Assistant Vice President and Accounting Supervisor for Paine Webber
(June, 1993 - April, 1995).
Principal Shareholders. As of _____________,1998, the Directors and Officers of
the Fund owned less than 1% of any class of the Fund's outstanding shares. As of
_____________,1998, 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 [TO BE PROVIDED BY AMENDMENT].
Investment Manager. The Investment Manager serves as investment manager to the
Fund and has overall responsibility for the management of the Fund. The
Investment Management Agreement between the Fund and the Investment Manager
requires the Investment Manager to oversee the provision of all investment
advisory and portfolio management services for the Fund. The Investment Manager,
which was organized in December 1994, is registered as an investment adviser
with the SEC and serves as investment adviser to four other registered
investment companies (or series thereof) as well as privately managed accounts.
As of , the Investment Manager had assets under management of approximately $___
billion.
The Investment Manager is a wholly-owned subsidiary of Pilgrim America Group,
Inc., which itself is a wholly-owned subsidiary of Pilgrim America, a Delaware
corporation, the shares of which are traded on the NASDAQ National Market System
(NASDAQ: PACC) and which is a holding company that through its subsidiaries
engages in the financial services business.
The Investment Manager pays all of its expenses arising from the performance of
its obligations under the Investment Management Agreement, including all
executive salaries and expenses of the Directors and Officers of the Fund who
are employees of the Investment Manager or its affiliates and office rent for
the Fund. Other expenses incurred in the operation of the Fund are borne by it,
including, without limitation, investment advisory fees; brokerage commissions;
interest; legal fees and expenses of attorneys; fees of independent auditors,
transfer agents and dividend disbursing agents, accounting agents, and
custodians; the expense of obtaining quotations for calculating the Fund's net
asset value; taxes, if any, and the preparation of the Fund's tax returns; cost
of stock certificates and any other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares; expenses of registering and
qualifying shares of the Fund under federal and state laws and regulations;
expenses of printing and distributing reports, notices and proxy materials to
existing shareholders; expenses of printing and filing reports and other
documents filed with governmental agencies; expenses of annual and special
shareholder meetings; expenses of printing and distributing prospectuses and
statements of additional information to existing shareholders; fees and expenses
of Directors of the Fund who are not employees of the Investment Manager or its
affiliates; membership dues in the Investment Company Institute; insurance
premiums; and extraordinary expenses such as litigation expenses.
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, 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. For
the fiscal years ended June 30, 1998, 1997 and 1996, the Fund paid management
fees to the current Investment Manager of approximately $______, $170,619 and
$208,689, respectively.
The Investment Management Agreement will continue in effect from year to year so
long as such continuance is specifically approved at least annually by (a) the
Board of Directors or (b) the vote of a "majority" (as defined in the 1940 Act)
of the Fund's outstanding shares voting as a single class; provided, that in
either event the continuance is also approved by at least a majority of the
Board of Directors who are not "interested persons" (as defined in the 1940 Act)
of the Investment Manager by vote cast in person at a meeting called for the
purpose of voting on such approval.
The Investment Management Agreement is terminable without penalty with not less
than 60 days' notice by the Board of Directors or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
less than 60 days' notice by the Investment Manager. The Investment Management
Agreement will terminate automatically in the event of its "assignment" (as
defined in the 1940 Act).
Distributor. Shares of the Fund are distributed by Pilgrim America Securities,
Inc. (the "Distributor") pursuant to an Underwriting Agreement between the Fund
and the Distributor. The Underwriting 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"). If 90% or
more of the sales commission is reallowed, such Authorized Dealer may be deemed
to be an "underwriter" as that term is defined under the Securities Act of 1933,
as amended. The Underwriting 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. The Distributor, like the Investment Manager, is a wholly-owned
subsidiary of Pilgrim America Group, Inc., which is a wholly-owned subsidiary of
Pilgrim America Capital Corporation.
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 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. 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) 0.30% 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.
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 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
shareholders 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, 1998 were $____, including expenses for: advertising - $____;
salaries and commissions - $____; printing, postage, and handling - $____;
brokers' servicing fees - $____; and miscellaneous and other promotional
activities - $____. 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, 1998 were $____, including expenses for: advertising
- -- $____; salaries and commissions -- $____; printing, postage, and handling --
$____; brokers' servicing fees -- $____; and miscellaneous and other promotional
activities -- $____. 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, 1998 were $____, including expenses for: advertising
- -- $____; salaries and commissions -- $____; printing, postage, and handling --
$____; brokers' servicing fees -- $____; and miscellaneous and other promotional
activities -- $____. Of the total amount incurred by the Distributor during the
last year, $____ was for the costs of personnel of the Distributor and its
affiliates involved in the promotion and distribution of the Fund's shares.
The sales 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. For the fiscal years ended June 30, 1996, 1997 and 1998,
total commissions allowed to other dealers under the Fund's underwriting
arrangements were approximately $128,009, $107,900 and $_____, respectively. For
the fiscal years ended June 30, 1998, 1997 and 1996, the current Distributor
retained approximately $_____, $1,965, and $56 or approximately ____%, 1.82% and
0.04%, respectively, of the total commissions assessed on shares of the Fund.
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.
SUPPLEMENTAL DESCRIPTION OF INVESTMENTS AND TECHNIQUES
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 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. In addition, FHLMC Mortgage Securities
may include any obligations of, or instruments issued by or fully guaranteed as
to principal and interest by, FHLMC.
Portfolio Turnover Rate
The annual rate of the Fund's portfolio turnover during the fiscal years ended
June 30, 1997 and 1998 was 172% and %, 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 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 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 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.)
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.
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, 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 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, DST Systems, Inc. ("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 Class M shares of the Fund may also be purchased at net asset value
by any charitable organization or any state, county, or city, or any
instrumentality, department, authority or agency thereof that has determined
that the Fund is a legally permissible investment and that is prohibited by
applicable investment law from paying a sales charge or commission in connection
with the purchase of shares of any registered management investment company (an
"eligible authority"). If an investment by an eligible authority at net asset
value is made though a dealer who has executed a selling group agreement with
respect to the Fund (or the other Pilgrim America Funds), the Distributor may
pay the selling firm 0.25% of the amount invested.
Shareholders of Pilgrim America General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
or Class M shares of the Fund or other open-end Pilgrim America Funds may
reinvest such amount plus any shares acquired through dividend reinvestment in
Class A or Class M shares of the Fund at its current net asset value, without a
sales charge.
Officers, directors and bona fide full-time employees of the Fund and officers,
directors and full-time employees of the Investment Manager, the Distributor,
the Fund's service providers or affiliated corporations thereof or any trust,
pension, profit-sharing or other benefit plan for such persons, broker-dealers,
for their own accounts or for members of their families (defined as current
spouse, children, parents, grandparents, uncles, aunts, siblings, nephews,
nieces, step-relations, relations at-law, and cousins) employees of such
broker-dealers (including their immediate families) and discretionary advisory
accounts of the Investment Manager may purchase Class A or Class M shares of the
Fund at net asset value without a sales charge. Such purchaser may be required
to sign a letter stating that the purchase is for his own investment purposes
only and that the securities will not be resold 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 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.
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.
Certain purchases of Class A shares and most Class B shares may be subject to a
CDSC or redemption fee. For purchase payments subject to such CDSC, the
Distributor may pay out of its own assets a commission from 0.25% to 1.00% of
the amount invested for Class A purchases over $1 million and 4% of the amount
invested for Class B shares.
Shareholders will be charged a CDSC or redemption fee if certain of those shares
are redeemed within the applicable time periods as stated in the Prospectus.
No CDSC or redemption fee is imposed on any shares subject to a CDSC or
redemption fee to the extent that those shares (i) are no longer subject to the
applicable holding period, (ii) resulted from reinvestment of distributions on
CDSC or redemption fee shares or (iii) were exchanged for shares of another fund
managed by the Investment Manager, provided that the shares acquired in such
exchange and subsequent exchanges will continue to remain subject to the CDSC,
if applicable, until the applicable holding period expires.
The CDSC or redemption fee will be waived for certain redemptions of shares upon
(i) the death or permanent disability of a shareholder, or (ii) in connection
with mandatory distributions from an Individual Retirement Account ("IRA") or
other qualified retirement plan. The CDSC or redemption fee will be waived in
the case of a redemption of shares following the death or permanent disability
of a shareholder if the redemption is made within one year of death or initial
determination of permanent disability. The waiver is available for total or
partial redemptions of shares owned by an individual or an individual in joint
tenancy (with rights of survivorship), but only for redemptions of shares held
at the time of death or initial determination of permanent disability. The CDSC
or redemption fee will also be waived in the case of a total or partial
redemption of shares in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The waiver does not apply in the case of
a tax-free rollover or transfer of assets, other than one following a separation
from services. The shareholder must notify the Fund either directly or through
the Distributor at the time of redemption that the shareholder is entitled to a
waiver of CDSC or redemption fee. The waiver will then be granted subject to
confirmation of the shareholder's entitlement. The CDSC or redemption fee, which
may be imposed on Class A shares purchased in excess of $1 million, will also be
waived for registered investment advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients.
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 regular trading on the
New York Stock Exchange (normally 4:00 p.m. New York time) during each day on
which that Exchange is open for trading. As of the date of this Statement of
Additional Information, the New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the last reported bid price on the
valuation day. In cases in which securities are traded on more than one
exchange, the securities are valued on the exchange designated by or under the
authority of the Board of Directors as the primary market. 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 regular trading on the New York
Stock Exchange will be confirmed at the offering price computed as of the close
of regular trading on the Exchange provided the order is received by the
Distributor prior to its close of business that same day (normally 4:00 P.M.
Pacific time). It is the responsibility of the dealer to insure that all orders
are transmitted timely to the Fund. Orders received by dealers after the close
of trading on the New York Stock Exchange will be confirmed at the next computed
offering price as described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Fund provides a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of the Fund
on a regular basis. Such a Program may be started with an initial investment
($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no
obligation to continue. The Program may be terminated without penalty at any
time by the investor or the Fund. The minimum investment requirements may be
waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.
For investors purchasing shares of the Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of the Fund on
a periodic basis, the Fund may, in lieu of furnishing confirmations following
each purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and the rules thereunder. Such quarterly statements, which would be sent to the
investor or to the person designated by the group for distribution to its
members, will be made within five business days after the end of each quarterly
period and shall reflect all transactions in the investor's account during the
preceding quarter.
All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. Shareholders may rely on these statements in lieu
of certificates. Certificates representing shares of the Fund will not be issued
unless the shareholder requests them in writing.
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 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. Simple IRA
plans which employers may establish on behalf of their employees are also
available. Roth IRA plans which enable employed and self-employed individuals to
make non-deductible contributions, and, under certain circumstances, effect
tax-free withdrawals, are also available. Copies of model Custodial Account
Agreements are available from the Distributor. Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as the Custodian under these model
Agreements, 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 and Simple IRA are contained in IRS
required disclosure statements, and the Custodian will not open an IRA until
seven (7) days after the investor has received such statement from the Fund. An
IRA using shares of the Fund may also be used by employers who have adopted a
Simplified Employee Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. Section 403(b) plans are arrangements by a public school organization
or a charitable, educational, or scientific organization that is described in
Section 501(c)(3) of the Internal Revenue Code under which employees are
permitted to take advantage of the federal income tax deferral benefits provided
for in Section 403(b) of the Code.
It is advisable for an investor considering the funding of any retirement plan
to consult with an attorney or to obtain advice from a competent retirement plan
consultant.
Telephone Redemption and Exchange Privileges
As discussed in the Prospectus, the telephone redemption and exchange privileges
are available for all shareholder accounts; however, retirement accounts may not
utilize the telephone redemption privilege. The telephone privileges may be
modified or terminated at any time. The privileges are subject to the conditions
and provisions set forth below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in good order
before the pricing of a Fund on any day on which the New York Stock
Exchange is open for business (a "Business Day"), but not later than 4:00
p.m. eastern time, will be processed at that day's closing net asset value.
For each exchange, the shareholder's account may be charged an exchange
fee. There is no fee for telephone redemption; however, redemptions of
Class A and Class B shares may be subject to a contingent deferred sales
charge (See "Redemption of Shares" in the Prospectus).
2. Telephone redemption and/or exchange instructions should be made by dialing
1-800-992-0180.
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 thirty (30) 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 $100,000.
(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 at P.O. Box 419368, Kansas City, MO 64141
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.
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) 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 (c) 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 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
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:
P(1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis).
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 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, 1998 was ___%, ___%, and ___%,
respectively. The average annual total return for the Class B shares for the one
year period ended June 30, 1998 and for the period from July 17, 1995
(commencement of operations) through June 30, 1998, was ___% and ___%,
respectively. The average annual total return for the Class M shares for the one
year period ended June 30, 1998 and for the period from July 17, 1995
(commencement of operations) through June 30, 1998, was ___% and ___%,
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;
(xi) NASDAQ symbols for each class of shares of the Fund; and (xii) descriptions
of the benefits of working with investment professionals in selecting
investments.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, Pilgrim America, Pilgrim America Group, Inc.
or affiliates of the Fund, the Investment Manager, Pilgrim America or Pilgrim
America Group, Inc. including (i) performance rankings of other funds managed by
the Investment Manager, or the individuals employed by the Investment Manager
who exercise responsibility for the day-to-day management of the Fund, including
rankings of mutual funds published by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., or other rating services, companies,
publications or other persons who rank mutual funds or other investment products
on overall performance or other criteria; (ii) lists of clients, the number of
clients, or assets under management; (iii) information regarding the acquisition
of the Pilgrim America Funds by Pilgrim America, (iv) the past performance of
Pilgrim America and Pilgrim America Group, Inc.; (v) the past performance of
other funds managed by the Investment Manager; and (vi) information regarding
rights offerings conducted by closed-end funds managed by the Investment
Manager.
GENERAL INFORMATION
Capitalization and Voting Rights. 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. Shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and in such
event the holders of the remaining shares voting for the election of Directors
will not be able to elect any person or persons to the Board of Directors.
Generally, there will not be annual meetings of shareholders.
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. Any
such classification or reclassification will comply with the provisions of the
1940 Act.
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, 1775 Eye Street, N.W., Washington, D.C. 20006.
FINANCIAL STATEMENTS
The Financial Statements for the year ended June 30, 1998 are incorporated
herein by reference from the Fund's Annual Report to Shareholders. Copies of the
Fund's Annual Report may be obtained without charge by contacting the Fund at
Suite 1200, 40 North Central Avenue, Phoenix, Arizona 85004, (800) 992-0180.
<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, 1998 (audited).
(b) Exhibits
(1) (A) Articles of Incorporation(1)
(B) Certificate of Amendment to Articles of
Incorporation(1)
(C) Certificate of Determination(1)
(2) Bylaws(1)
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Management Agreement(1)
(6) (A) Form of Underwriting Agreement(1)
(B) Form of Selling Group Agreement(1)
(7) Not Applicable
(8) (A) Form of Custody Agreement(1)
(B) Form of Recordkeeping Agreement(1)
(9) Form of Shareholder Servicing Agreement(1)
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors*
(12) Not Applicable
(13) Form of Investment Letter(2)
(14) Not Applicable
(15) (A) Form of Service and Distribution Plan for
Class A Shares(1)
(B) Form of Service and Distribution Plan for
Class B Shares(1)
(C) Form of Service and Distribution Plan for
Class M Shares(1)
(16) Not Applicable
(17) Not Applicable
(18) Form of Multiple Class Plan Adopted Pursuant to Rule
18f-3(1)
(27) Financial Data Schedules
_______________________
* To be filed by amendment.
(1) Incorporated by reference to Post-Effective Amendment No. 20
to the Registration Statement on Form N-1A as filed on
October 30, 1997.
(2) Previously filed as an exhibit to 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 July 31, 1998
Common Stock (No Par Value)
Class A 1,766
Class B 251
Class M 38
ITEM 27. Indemnification
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
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant 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 26th day of August, 1998.
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.
Signature Title Date
/s/ Robert W. Stallings Director and President August 26, 1998
Robert W. Stallings (Principal Executive Officer)
Director August 26, 1998
Mary A. Baldwin *
Director August 26, 1998
John P. Burke *
Director August 26, 1998
Al Burton *
Director August 26, 1998
Bruce S. Foerster *
Director August 26, 1998
Jock Patton *
Senior Vice President and August 26, 1998
Michael J. Roland * Principal Financial Officer
* By: /s/ Robert W. Stallings
Robert W. Stallings
Attorney-in-Fact**
** Powers of Attorney for the Directors are incorporated by reference to
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A
as filed on October 30, 1997. The Power of Attorney for Michael J. Roland
is included herein.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
duly elected Principal Financial 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 26, 1998
/s/ Michael J. Roland
Michael J. Roland
<PAGE>
EXHIBIT LIST
Exhibit Number Name of Exhibit
(10) Opinion and Consent of Dechert Price & Rhoads
(27) Financial Data Schedules
DECHERT PRICE & RHOADS
1775 Eye Street, N.W.
Washington, D.C.
Telephone: 202-261-3300
Fax: 202-261-3333
August 26, 1998
Pilgrim Government Securities Income Fund, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
Re: Pilgrim Government Securities Income Fund, Inc.
(File No. 811-4031)
Dear Sirs:
In connection with the registration under the Securities Act of 1933,
as amended, of an indefinite number of shares of common stock of Pilgrim
Government Securities Income Fund, Inc. (the "Fund"), we have examined such
matters as we have deemed necessary to give this opinion.
On the basis of the foregoing, it is our opinion that the shares of the
Fund have been duly authorized and, when paid for as contemplated by the Fund's
Registration Statement, will be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to all references to our firm therein.
Very truly yours,
/s/ Dechert Price & Rhoads
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<NAME> Pilgrim Government Securities Income Fund
<SERIES>
<NUMBER> 02
<NAME> Class B
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 28,531
<INVESTMENTS-AT-VALUE> 29,093
<RECEIVABLES> 527
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,686
<PAYABLE-FOR-SECURITIES> 651
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<OTHER-ITEMS-LIABILITIES> 86
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<PAID-IN-CAPITAL-COMMON> 36,603
<SHARES-COMMON-STOCK> 197
<SHARES-COMMON-PRIOR> 121
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 181
<ACCUMULATED-NET-GAINS> 8,036
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 562
<NET-ASSETS> 2,542
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,062
<OTHER-INCOME> 0
<EXPENSES-NET> 259
<NET-INVESTMENT-INCOME> 803
<REALIZED-GAINS-CURRENT> 237
<APPREC-INCREASE-CURRENT> 379
<NET-CHANGE-FROM-OPS> 1,419
<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 127
<NUMBER-OF-SHARES-REDEEMED> 52
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (2,545)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 76
<OVERDIST-NET-GAINS-PRIOR> 8,273
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<GROSS-EXPENSE> 259
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<PER-SHARE-NAV-BEGIN> 12.68
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<EXPENSE-RATIO> 2.16
<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> 03
<NAME> Class M
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 28,531
<INVESTMENTS-AT-VALUE> 29,093
<RECEIVABLES> 527
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,686
<PAYABLE-FOR-SECURITIES> 651
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<OTHER-ITEMS-LIABILITIES> 86
<TOTAL-LIABILITIES> 737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,603
<SHARES-COMMON-STOCK> 13
<SHARES-COMMON-PRIOR> 5
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 181
<ACCUMULATED-NET-GAINS> 8,036
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 562
<NET-ASSETS> 172
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,062
<OTHER-INCOME> 0
<EXPENSES-NET> 259
<NET-INVESTMENT-INCOME> 803
<REALIZED-GAINS-CURRENT> 237
<APPREC-INCREASE-CURRENT> 379
<NET-CHANGE-FROM-OPS> 1,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,545)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 8,273
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<PER-SHARE-NAV-BEGIN> 12.72
<PER-SHARE-NII> 0.34
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<AVG-DEBT-OUTSTANDING> 0
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</TABLE>