<PAGE>
As filed with the U.S. Securities and Exchange Commission on October 30, 1996
Securities Act File No. 33-91706
Investment Company Act File No. 811-9040
================================================================================
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. 2 |X|
and/or
Registration Statement Under The Investment Company Act Of 1940 |X|
Amendment No. 3 |X|
(Check appropriate box or boxes)
--------------------
Pilgrim America Masters Series, Inc.
(Exact Name of Registrant as Specified in Charter)
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(Address of Principal Executive Offices)
Registrant's Telephone number, including Area Code: (800) 334-3444
--------------------
James M. Hennessy, Esq.
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(Name and Address of Agent for Service)
--------------------
With copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective
(check appropriate box)
|X| Immediately upon filing pursuant to | | on (date) pursuant to paragraph
paragraph (b) (b)
[ | 60 days after filing pursuant to | | on (date) pursuant to paragraph
paragraph (a)(1) (a)(1)
| | 75 days after filing pursuant to | | on (date) pursuant to paragraph
paragraph (a)(2) (a)(2) of rule 485.
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Registrant has registered an indefinite number of shares of common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed its Rule 24f-2 Notice for the fiscal year
ended June 30, 1996 on August 29, 1996.
================================================================================
2
<PAGE>
PILGRIM AMERICA MASTERS SERIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item Location in Prospectus
- --------- ----------------------
(Caption)
<S> <C> <C>
Part A
Item 1. Cover Page..........................................................Cover Page
Item 2. Synopsis............................................................Pilgrim America Masters Series
at a Glance; Summary of
Expenses
Item 3. Condensed Financial Information.....................................Financial Highlights
Item 4. General Description of Registrant...................................The Fund's Investment
Objective and Policies;
Investment Practices and
Risk Considerations
Item 5. Management of the Registrant........................................The Managers;
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; Purchasing Shares
Item 8. Redemption or Repurchase............................................How to Redeem Shares
Item 9. Pending Legal Proceedings...........................................Not Applicable
Location in Statement of
Part B Additional Information
----------------------
(Caption)
Item 10. Cover Page..........................................................Cover Page
Item 11. Table of Contents...................................................Table of Contents
Item 12. General Information and History.....................................Organization of Pilgrim
America Masters Series,
Inc.; General Information
Item 13. Investment Objectives and Policies..................................Supplemental Description of
Investments; Supplemental
Investment Techniques;
Supplemental Discussion of
Risks Associated With the
Funds' Investment Policies
and Investment Techniques;
Investment Restrictions
Item 14. Management of the Fund..............................................Management of the Funds
Item 15. Control Persons and Principal Holders of Securities.................Management of the Funds;
General Information
Item 16. Investment Advisory and Other Services..............................Management of the Funds
Item 17. Brokerage Allocation and Other Practices............................Portfolio Transactions
Item 18. Capital Stock and Other Securities..................................Organization of Pilgrim
America Masters Series,
Inc.; 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 Funds
Item 22. Calculation of Performance Data.....................................Calculation of Performance Data
Item 23. Financial Statements................................................Financial Statements
</TABLE>
- ----------
* Contained in the Annual Report of the Registrant
<PAGE>
Prospectus
Pilgrim America Masters Series, Inc.
[LOGO] Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
TWO RENAISSANCE SQUARE, 40 NORTH CENTRAL AVENUE, SUITE 1200,
PHOENIX, ARIZONA 85004
(800) 331-1080
Pilgrim America Masters Series, Inc. (Masters Series) is an open-end management
investment company that currently offers three separate, diversified investment
portfolios (Funds), each with its own investment objectives and policies. The
Funds are designed to give investors access to private money managers (Portfolio
Managers) who typically manage similar portfolios only for high net worth
individuals and institutional investors.
------------------------
THE FUNDS
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND (Asia-Pacific Equity
Fund) seeks long-term capital appreciation. The Fund invests primarily in
the equity securities of companies based in the Asia-Pacific region. The
Portfolio Managers of the Fund are HSBC Asset Management Americas Inc. and
HSBC Asset Management Hong Kong Limited, both part of the global advisory
business of the financial institution that was founded as the Hong Kong
and Shanghai Banking Corporation.
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND (MidCap Value Fund) seeks
long-term capital appreciation. The Fund invests primarily in equity
securities of companies that have a market capitalization between $200
million and $5 billion and that the Portfolio Manager believes are
undervalued based on fundamental analysis and other factors. The Portfolio
Manager of the Fund is CRM Advisors, LLC, an affiliate of Cramer Rosenthal
McGlynn, Inc.
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND (LargeCap Value Fund) seeks
long-term capital appreciation. The Fund invests primarily in equity
securities of companies that have a market capitalization in excess of $5
billion and that the Portfolio Manager believes sell at reasonable prices
relative to their projected earnings. The Portfolio Manager of the Fund is
Ark Asset Management Co., Inc.
------------------------------
Each Fund offers three classes of shares, with varying types and amounts of
sales and distribution charges. These Pilgrim America Purchase OptionsTM
permit you to choose the method of purchasing shares that best suits your
investment strategy.
This Prospectus presents information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about
Masters Series, dated October 30, 1996 has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus (that
is, it is legally considered a part of this Prospectus). The Statement of
Additional Information is available free upon request by calling Pilgrim America
Group, Inc. (Shareholder Servicing Agent) at (800) 331-1080.
INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE 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.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 30, 1996.
<PAGE>
PILGRIM AMERICA MASTERS SERIES AT A GLANCE*
<TABLE>
<S> <C> <C> <C>
FUND OBJECTIVES AND POLICIES PORTFOLIO MANAGER STRATEGY
ASIA-PACIFIC EQUITY Long-term capital appreciation. HSBC Asset Management Americas A combination of macroeconomic
FUND Inc. and HSBC Asset Management overview of region, specific
Invests in equity securities of Hong Kong country analysis, setting
companies based in the Asia- Limited--subsidiaries of HSBC target country weightings,
Pacific region, which includes Holdings plc, which was industry analysis and stock
China, Hong Kong, Indonesia, founded as the Hong Kong and selection.
Korea, Malaysia, Philippines, Shanghai Banking Corporation Principal risk factors:
Singapore, Taiwan and Thailand, in 1865. exposure to financial and
but does not include Japan or Manages over $36 billion. market risks that accompany an
Australia. Clients include pension funds, investment in equities, and
Normally fully invested. institutional investors and exposure to changes in
high net worth individuals currency exchange rates and
throughout the world. Minimum other risks of foreign
investment for private investment. You can expect
accounts: $10 million. fluctuation in the value of
the Fund's portfolio
securities and the Fund's
shares.*
MIDCAP VALUE FUND Long-term capital appreciation. CRM Advisors, LLC--affiliate A 'value' manager that seeks
Invests in equity securities of of Cramer Rosenthal McGlynn, to identify middle
companies believed to be Inc., which was established in capitalization companies
undervalued that have a market 1973. having one or more of the
capitalization of between $200 Manages $2.4 billion. following characteristics:
million and $5 billion. Clients include high net worth they are undergoing
Normally fully invested. individuals, foundations, fundamental change; are
endowment funds, pension plans undervalued; and are
and others. misunderstood by the
Minimum investment for private investment community.
accounts: $5 million. Investment prospects are
viewed on a long-term basis
and not on market timing.
Principal risk factors:
exposure to financial and
market risks that accompany an
investment in equities. You
can expect fluctuation in the
value of the Fund's portfolio
securities and the Fund's
shares.*
LARGECAP VALUE FUND Long-term capital appreciation. Ark Asset Management Co., A 'value' manager that uses a
Invests in equity securities Inc., formerly the combination of 'top-down'
issued by companies believed to institutional investment macroeconomic analysis and
be undervalued that generally management division of Lehman 'bottom-up' fundamental
have a market capitalization of Brothers (established 1929). analysis; establishes specific
at least $5 billion. Manages $21.4 billion. upside price objectives and
Normally fully invested. Clients include pension plans, performs downside review to
endowment funds, private help temper losses in
foundations, other declining markets.
institutions and high net Principal risk factors:
worth individuals. exposure to financial and
Minimum investment for private market risks that accompany an
accounts: $50 million. investment in equities. You
can expect fluctuation in the
value of the Fund's portfolio
securities and the Fund's
shares.*
</TABLE>
* These summary descriptions should be read in conjunction with the more
complete descriptions of each Fund's investment objectives and policies and
the Portfolio Managers set forth elsewhere in this Prospectus. For
information regarding the purchase and redemption of shares of each Fund,
refer to the 'Shareholder Guide.' For information regarding the risk factors
of each Fund, refer to "Investment Practices and Risk Considerations" below.
2
<PAGE>
SUMMARY OF EXPENSES
Shares of the Funds are available through independent financial professionals,
national and regional brokerage firms and other financial institutions
(Authorized Dealers). You may select from three separate classes of shares:
Class A, Class B and Class M.
SHAREHOLDER TRANSACTION EXPENSES (ALL FUNDS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS M
-------- -------- --------
<S> <C> <C> <C>
Maximum initial sales charge imposed on purchases (as a percentage
of offering price).............................................. 5.75%(a) None 3.50%(a)
Maximum contingent deferred sales charge (CDSC) (at the lower of
original purchase price or the redemption proceeds)............. None(b) 5.00%(c) None
</TABLE>
The Funds have no redemption fees, exchange fees or sales charges on reinvested
dividends.
- ------------------------
(a) 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.'
(b) 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.'
(c) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
OTHER
EXPENSES
DISTRIBUTION (AFTER TOTAL FUND
ASIA-PACIFIC MANAGEMENT (12B-1) EXPENSE OPERATING
EQUITY FUND FEES FEES(1) REIMBURSEMENT) EXPENSES(2)
- ---------------------------------- ----------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Class A........................... 1.25% 0.25% 0.50% 2.00%
Class B........................... 1.25% 1.00% 0.50% 2.75%
Class M........................... 1.25% 0.75% 0.50% 2.50%
<CAPTION>
OTHER
EXPENSES
MIDCAP VALUE FUND DISTRIBUTION (AFTER TOTAL FUND
AND MANAGEMENT (12B-1) EXPENSE OPERATING
LARGECAP VALUE FUND FEES FEES(1) REIMBURSEMENT) EXPENSES(2)
- ---------------------------------- ----------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Class A........................... 1.00% 0.25% 0.50% 1.75%
Class B........................... 1.00% 1.00% 0.50% 2.50%
Class M........................... 1.00% 0.75% 0.50% 2.25%
</TABLE>
- ------------------
(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) The Investment Manager has voluntarily agreed to limit expenses excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses to
1.75%, 1.50% and 1.50% for all classes of shares of the Asia-Pacific Equity
Fund, MidCap Value Fund and LargeCap Value Fund, respectively. This expense
limitation will apply to each Fund individually only until June 30, 1997.
Prior to the waiver and reimbursement of Fund expenses, the total annualized
fund operating expenses, excluding interest, taxes, brokerage, and
extraordinary expenses, for the ten months ended June 30, 1996 were 3.47%,
4.10%, and 3.88% of the average net assets of the Class A, Class B, and
Class M shares, respectively, of Asia-Pacific Equity Fund; 4.91%, 5.32%,
and 4.72% of the average net assets of the Class A, Class B, and Class M
shares, respectively, of MidCap Value Fund, 5.44%, 5.79% and 5.90% of the
average net assets of the Class A, Class B and Class M shares, respectively,
of LargeCap Value Fund.
The purpose of the 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 appropriate sections of this Prospectus.
3
<PAGE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (i) 5%
annual return and (ii) redemption at the end of the period (unless otherwise
noted):
<TABLE>
<CAPTION>
ASIA-PACIFIC EQUITY FUND MIDCAP VALUE FUND LARGECAP VALUE FUND
---------------------------- ----------------------------- -----------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A.............. $ 77 $ 117 $ 159 $ 277 $74 $ 109 $ 147 $ 252 $74 $ 109 $ 147 $ 252
Class B.............. 78 115 165 308 75 108 153 284 75 108 153 284
Class B (assuming no
redemption)........ 28 85 145 308 25 78 133 284 25 78 133 284
Class M.............. 59 110 163 309 57 103 151 284 57 103 151 284
</TABLE>
Use of the assumed 5% return is required by the Securities and Exchange
Commission. The example is not an illustration of past or future investment
results. This example should not be considered a representation of past or
future expenses; actual expenses may be more or less than those shown.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR THE PERIOD SEPTEMBER 1, 1995* THROUGH JUNE 30, 1996
The following table presents condensed financial information about each Fund.
This information has been derived from the financial statements that are in the
Annual Report dated June 30, 1996. The information in the table below has been
audited by KPMG Peat Marwick LLP, independent auditors. Further information
about each Fund's performance is contained in the Annual Report, which may be
obtained free of charge.
<TABLE>
<CAPTION>
ASIA-PACIFIC EQUITY FUND MIDCAP VALUE FUND LARGECAP VALUE FUND
---------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS M CLASS A CLASS B CLASS M CLASS A CLASS B CLASS M
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income (loss) from investment
operations:
Net investment income (loss)..... 0.03 (0.01) 0.00 0.13 0.07 0.06 0.07 0.06 0.06
Net realized and unrealized gain
on investments and foreign
currency transactions.......... 0.34 0.32 0.33 1.91 1.90 1.91 1.87 1.81 1.83
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations................... 0.37 0.31 0.33 2.04 1.97 1.97 1.94 1.87 1.89
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Net investment income............ -- -- -- 0.05 0.03 0.04 0.07 0.06 0.06
In excess of net investment
income......................... 0.02 -- 0.01 -- -- -- 0.01 0.01 0.01
Realized gains on investments.... -- -- -- -- -- -- 0.09 0.09 0.09
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions............ 0.02 -- 0.01 0.05 0.03 0.04 0.17 0.16 0.16
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period..... $ 10.35 $ 10.31 $ 10.32 $ 11.99 $ 11.94 $ 11.93 $ 11.77 $ 11.71 $ 11.73
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(B).................... 3.76% 3.19% 3.32% 20.48% 19.80% 19.82% 19.56% 18.85% 19.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)....................... $18,371 $17,789 $ 6,476 $ 2,389 $ 2,123 $ 1,731 $ 2,530 $ 1,424 $ 1,240
Ratios to average net assets:
Expenses(a)(c)................... 2.00% 2.75% 2.50% 1.75% 2.50% 2.25% 1.75% 2.50% 2.25%
Net investment income
(loss)(a)(c)................... 0.33% (0.38)% (0.16)% 2.00% 1.27% 1.16% 0.65% (0.25)% 0.06%
Portfolio turnover rate............ 15% 15% 15% 60% 60% 60% 59% 59% 59%
</TABLE>
- ------------------
* Commencement of operations.
(a) Annualized.
(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, the annualized ratio of
expenses to average net assets was 3.47%, 4.10% and 3.88% for Asia-Pacific
Equity Fund Class A, B and M, respectively; 4.91%, 5.32% and 4.72% for
MidCap Value Fund Class A, B and M, respectively; and 5.44%, 5.79% and 5.90%
for LargeCap Value Fund Class A, B and M, respectively. Prior to the waiver
and reimbursement of expenses, the annualized ratio of net investment income
(loss) to average net assets was (1.14)%, (1.73)% and (1.53)% for
Asia-Pacific Equity Fund Class A, B and M, respectively; (1.17)%, (1.56)%
and (1.32%) for MidCap Value Fund Class A, B and M, respectively; and
(3.04)%, (3.53)% and (3.59)% for LargeCap Value Fund Class A, B and M,
respectively.
4
<PAGE>
THE MANAGERS
MASTERS SERIES: ACCESS TO PRIVATE MONEY MANAGERS
Masters Series is intended to provide investors with access to some of the most
respected institutional investment advisers in the world. For portfolios similar
to the 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. Portfolio
Managers for the Masters Series 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.
THE INVESTMENT MANAGER
Pilgrim America Investments, Inc. (Investment Manager) serves as Investment
Manager to each Fund. The Investment Manager has screened the Portfolio
Managers, recommended them to Masters Series' Board of Directors and monitors
their performance. The Investment Manager is responsible for managing the
general day-to-day operations of the Masters Series. For more information, see
'Management of the Funds.'
The Investment Manager and Pilgrim America Securities, Inc. (Distributor), the
Funds' principal underwriter, are indirect, wholly-owned subsidiaries of Express
America Holdings Corporation (Express America) (NASDAQ: EXAM). Through its
subsidiaries, Express America engages in the financial services business,
focusing primarily on providing investment advisory, administrative and
distribution services to open-end and closed-end investment companies. For
more information on Express America, please see the Statement of Additional
Information. The investment companies managed or administered by the Investment
Manager are collectively referred to as the Pilgrim America Group.
THE PORTFOLIO MANAGERS
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 $36 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.
MIDCAP VALUE FUND. CRM Advisors, LLC ('CRM'), an affiliate of Cramer
Rosenthal McGlynn, Inc. (Cramer Rosenthal), serves as Portfolio Manager to the
MidCap Value Fund. CRM was organized as a New York limited liability company in
June 1995. Although a newly-formed organization, the principal shareholders and
investment personnel of CRM have significant experience in money management
through its affiliate, Cramer Rosenthal. That firm 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 manages
approximately $2.4 billion for more than 170 individual and institutional
clients, with a minimum investment size for private accounts of $5 million. The
three founding principals of Cramer Rosenthal have spent an average of 33 years
in the investment business. The firm has managed investments in small and middle
capitalization companies for 22 years. Accounts managed by Cramer Rosenthal own
in the aggregate approximately 13.9% of the outstanding voting securities of
Express America.
LARGECAP VALUE FUND. Ark Asset Management Co., Inc. ('Ark') serves as
Portfolio Manager to the LargeCap Value Fund. Located in New York, Ark's
predecessor was established in 1929 as the private money management division of
Lehman Brothers. In 1989, the division became an independent company when the
employees purchased the institutional money management business from Lehman
Brothers. Ark manages approximately $21.4 billion, including $11.3 billion in
large capitalization value portfolios, for more than 200 institutional and
individual clients, with a minimum investment size for private accounts of $50
million.
5
<PAGE>
INVESTMENT PERSONNEL. Investment personnel with HSBC, CRM and Ark who are
primarily responsible for portfolio management of the Funds are shown in the
chart below.
<TABLE>
<CAPTION>
YEARS EXPERIENCE
--------------------------------------
FUND/PORTFOLIO INVESTMENT RECENT
MANAGER INDIVIDUAL/TITLE EDUCATION EXPERIENCE EXPERIENCE
<S> <C> <C> <C> <C>
ASIA-PACIFIC EQUITY James B. McHugh B.S., Montclair State 12 HSBC Americas--2
FUND/HSBC Director, University
Client Investment M.B.A., Seton Hall
Services, University
HSBC Americas
Stella S.M. Yiu B.A., Cambridge University 11 HSBC Hong Kong--6
Dir., HSBC Hong Kong
MIDCAP VALUE Gerald B. Cramer B.S., Syracuse University 38 Cramer Rosenthal--22
FUND/CRM Chairman, Founder Attended Wharton Graduate
School
Edward J. Rosenthal B.A., Cornell University 32 Cramer Rosenthal--22
Vice Chairman, M.B.A., Columbia University
Founder
Ronald H. McGlynn B.A., Williams College 29 Cramer Rosenthal--22
Pres., CEO, Founder M.B.A., Columbia University
Jay B. Abramson B.S.E., Wharton School 10 Cramer Rosenthal--10
EVP J.D., University of
Pennsylvania Law School
LARGECAP C. Charles Hetzel B.S., University of Utah 30 Ark--30
VALUE FUND/ARK Vice Chairman M.B.A., Columbia Business
School
John E. Bailey B.A., University of 15 Ark--2
Managing Director Pennsylvania Loomis, Sayles--9
M.B.A., Harvard Business
School
Steven M. Steiner B.S., Penn State University 26 Ark--5
Managing Director M.B.A., Northwestern Equitable Life--9
Graduate School
Wm. G. Steuernagel B.S., M.B.A. 23 Ark--10
Managing Director Boston University
</TABLE>
6
<PAGE>
PAST PERFORMANCE OF THE PORTFOLIO MANAGERS
The tables and line graphs that follow present performance data for each of the
Portfolio Managers. Information presented is based on performance data provided
by each Portfolio Manager for accounts (Accounts) it manages that have
investment objectives, policies, styles and strategies substantially similar to
the ones that will be employed in the pertinent Masters Series Fund. The
Accounts are primarily managed for tax-exempt investors, and are not subject to
diversification and other requirements that apply to mutual funds under
applicable securities, tax and other laws. As a result, portfolio management
strategies used on the Accounts and those used on the Funds may vary in some
respects. The information should not be considered a prediction of the future
performance of any of the Funds. The actual performance may be higher or lower
than that shown.
The tables show the total returns for various periods ended June 30, 1996 of the
Accounts managed by each Portfolio Manager. The line graphs depict the
cumulative value of an initial investment of $10,000 held for ten years or other
periods, as indicated, through June 30, 1996 as compared to a relevant unmanaged
market index. The performance shown below is adjusted to give effect to the
annual expenses for a Fund's Class A shares during its initial fiscal period.
The following information has not been adjusted to reflect deduction of the
initial sales charge payable on a Fund's Class A shares, nor does it give effect
to the higher expense levels or any CDSC of a Fund's Class B or Class M shares.
Performance would be lower if adjusted for these charges and expenses.
7
<PAGE>
HSBC Asia-Pacific Advisory Accounts with Similar Policies
Growth of an initial investment
of $10,000, with reinvestment (1)
[LINE GRAPH]
MSCI
Calendar Far East HSBC
------------ ex Japan Asia-Pacific
Year Quarter (Free) Index Composite
---- ------- ------------ ------------
1987 4 $10,000 $10,000
1988 1 11,218 11,305
2 12,689 13,619
3 11,952 13,241
4 13,000 14,392
1989 1 14,770 17,465
2 13,976 17,685
3 15,984 21,884
4 17,177 22,144
1990 1 17,955 21,980
2 19,367 23,666
3 14,936 18,041
4 16,053 18,905
1991 1 19,912 22,440
2 19,449 22,512
3 19,113 22,262
4 21,026 23,268
1992 1 23,133 25,041
2 26,121 27,901
3 25,124 26,258
4 25,612 27,187
1993 1 28,013 29,713
2 31,447 32,702
3 35,627 36,574
4 52,092 53,756
1994 1 40,770 42,118
2 42,532 42,459
3 47,783 47,737
4 42,984 42,605
1995 1 42,455 42,218
2 46,467 46,921
3 45,735 46,653
4 46,787 47,875
1996 1 51,312 51,461
2 51,183 50,535
Average Annualized Returns One Three Five Inception Date Ten
Ended 6/30/96: Year Years Years of Index (3) Years
-------------------------- ------ ------ ------ -------------- ------
HSBC Asia-Pacific 7.70% 15.61% 17.55% 20.99% 21.81%
Composite (2)
MSCI Far East ex Japan 10.14% 17.61% 21.32% 21.18% n/a (3)
(Free) Index
(1) The line graph shows the value of $10,000 invested on January 1, 1988 (the
first year of the MSCI Far East ex Japan (Free) Index), and held through
June 30, 1996, compared to the MSCI Far East ex Japan (Free) Index.
(2) Represents the composite returns of the accounts managed by HSBC with
substantially similar investment objectives, policies, styles, and
strategies as the Asia-Pacific Equity Fund, as adjusted for Total Fund
Operating Expenses for Class A shares, excluding applicable sales charges.
(3) The unamanaged MSCI Far East ex Japan (Free) Index was created in January,
1988, and thus is not available for a ten year comparison.
8
<PAGE>
CRM MidCap Value Advisory Accounts with Similar Policies
Growth of an initial investment
of $10,000, with reinvestment (1)
[LINE GRAPH]
Calendar Russell CRM MidCap
------------ MidCap(tm) Value
Year Quarter Index Composite
---- ------- ---------- ----------
1986 2 $10,000 $10,000
3 9,292 9,056
4 9,569 9,189
1987 1 11,498 11,106
2 11,706 11,457
3 12,398 11,934
4 9,591 8,827
1988 1 10,762 10,050
2 11,542 10,971
3 11,435 11,088
4 11,490 11,494
1989 1 12,348 12,447
2 13,477 13,631
3 14,762 15,094
4 14,509 14,433
1990 1 13,947 13,388
2 14,463 14,339
3 11,595 11,452
4 12,841 12,344
1991 1 15,470 14,514
2 15,550 14,505
3 16,702 15,645
4 18,171 16,576
1992 1 18,454 17,684
2 18,415 17,423
3 19,132 17,582
4 21,140 19,898
1993 1 22,289 21,854
2 22,641 22,167
3 23,853 23,753
4 24,164 24,673
1994 1 23,449 23,600
2 22,942 23,258
3 24,247 25,024
4 23,658 24,109
1995 1 26,120 25,732
2 28,306 27,753
3 30,815 28,988
4 31,807 29,644
1996 1 33,722 32,097
2 34,673 34,312
Average Annualized Returns One Three Five Ten
Ended 6/30/96: Year Years Years Years
------------------------------ ------ ------ ------ ------
CRM MidCap Value Composite (2) 23.63% 15.68% 18.79% 13.18%
Russell MidCap(tm) Index 22.49% 15.26% 17.39% 13.24%
(1) The line graph shows the value of $10,000 invested on June 30, 1986, and
held through June 30, 1996 compared to the unmanaged Russell MidCap(tm)
Index.
(2) Represents the composite returns of the accounts managed by CRM with
substantially similar investment objectives, policies, styles, and
strategies as the MidCap Value Fund, as adjusted for Total Fund Operating
Expenses for Class A shares, excluding applicable sales charges.
9
<PAGE>
Ark LargeCap Value Advisory Accounts with Similar Policies
Growth of an initial investment
of $10,000, with reinvestment (1)
[LINE GRAPH]
Calendar Standard Ark LargeCap
------------ & Poor's Value
Year Quarter 500 Index Composite
---- ------- --------- ------------
1986 2 $10,000 $10,000
3 9,305 9,410
4 9,806 10,000
1987 1 11,895 11,951
2 12,509 12,564
3 13,335 13,351
4 10,313 10,512
1988 1 10,906 11,265
2 11,619 11,982
3 11,662 12,249
4 12,015 12,512
1989 1 12,858 13,184
2 13,989 14,184
3 15,479 15,304
4 15,791 15,423
1990 1 15,308 15,279
2 16,273 16,124
3 14,027 13,883
4 15,287 15,441
1991 1 17,513 17,563
2 17,477 17,014
3 18,416 17,863
4 19,956 18,025
1992 1 19,447 18,355
2 19,829 18,956
3 20,444 19,559
4 21,489 20,940
1993 1 22,416 21,981
2 22,526 22,439
3 23,104 23,079
4 23,638 24,174
1994 1 22,738 23,621
2 22,827 24,254
3 23,949 25,029
4 23,952 24,421
1995 1 26,282 27,164
2 28,793 29,156
3 31,082 31,766
4 32,954 33,273
1996 1 34,723 36,438
2 36,282 37,215
Average Annualized Returns One Three Five Ten
Ended 6/30/96: Year Years Years Years
-------------------------------- ------ ------ ------ ------
Ark LargeCap Value Composite (2) 27.64% 18.37% 16.95% 14.10%
Standard & Poor's 500 Index 26.00% 17.21% 15.73% 13.79%
(1) The line graph shows the value of $10,000 invested on June 30, 1986, and
held through June 30, 1996 compared to the unmanaged Standard & Poor's 500
Index.
(2) Represents the composite returns of the accounts managed by ARK with
substantially similar investment objectives, policies, styles, and
strategies as the LargeCap Value Fund, as adjusted for Total Fund Operating
Expenses for Class A shares, excluding applicable sales charges.
10
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Pilgrim America Masters 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, employs 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.
Pilgrim America Masters 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, CRM, and its affiliate employ 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.
11
<PAGE>
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.
Pilgrim America Masters 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.'
The Fund will be managed in accordance with the investment philosophy that the
Portfolio Manager, Ark, has employed for more than ten years in managing large
capitalization, value-oriented accounts. As a value adviser, Ark seeks large
capitalization issues that sell at attractive prices relative to their projected
earnings. Ark believes this approach will permit the Fund to participate in
rising markets and help temper losses in declining markets. In managing the
Fund, Ark seeks to outperform the S&P 500 Index over a full market cycle with
particular emphasis on minimizing losses during declining markets.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The following pages contain information about certain types of securities in
which one or more of the Funds may invest and strategies the Funds may employ in
pursuit of their investment objective. See the Statement of Additional
Information for more detailed information on these investment techniques and
information on certain types of securities in which a Fund may invest, including
U.S. Government securities, convertible securities, ADRs, forward foreign
currency contracts, options and others.
RISK CONSIDERATIONS
The investment objective and policies of each Fund described above should be
carefully considered before investing. There is no assurance that any Fund will
achieve its investment objective. 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.
Foreign Investments. The Asia-Pacific Equity Fund will invest in securities of
foreign issuers based in the Asia-Pacific region. There are certain risks in
owning foreign securities, including those resulting from: (i) fluctuations in
currency exchange rates; (ii) devaluation of currencies; (iii) future political
or economic developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions; (iv) reduced
availability of public information concerning issuers; (v) accounting, auditing
and financial reporting standards or other regulatory practices and requirements
that are not uniform when compared to those applicable to domestic companies;
(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. The Fund will not invest more than 15% of its net assets in illiquid
securities. With certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory and other taxation and limitations
on the use or removal of funds or other assets of the Funds, including the
withholding of taxes on 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
12
<PAGE>
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.
Midcap Company Equity Securities. The MidCap Value Fund will invest
substantially all of its assets 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.
INVESTMENT TECHNIQUES
Borrowing. A Fund may borrow from banks solely for temporary or emergency
purposes, but not in an amount exceeding 33 1/3% of its total assets. Borrowing
may exaggerate the effect on net asset value (NAV) of any increase or decrease
in the NAV of a Fund, and money borrowed will be subject to interest costs.
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.
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 derivatives that
are highly volatile in response to changes in interest rates. 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, any of
the Funds 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.
Temporary Defensive and Other Short-Term Positions. Each Fund's assets may be
invested in U.S. Government securities and in certain short-term, high-quality
debt instruments for the following purposes: (i) to meet anticipated day-to-day
operating expenses; (ii) pending the Portfolio Manager's ability to invest cash
inflows; (iii) to invest in if Fund assets are insufficient for effective
investment in equities; (iv) to permit the Fund to meet redemption requests; and
(v) for temporary defensive purposes. The Funds will normally invest in
short-term debt instruments that do not have a maturity of greater than one
year. The short-term instruments in which a Fund may invest include: (i)
short-term obligations of the U.S. Government and its agencies,
instrumentalities, authorities or political subdivisions; (ii) other
high-quality short-term debt securities; (iii) commercial paper, including
master notes; (iv) bank obligations, including certificates of deposit, time
deposits and bankers' acceptances; (v) money market funds; and (vi) repurchase
agreements. The Asia-Pacific Equity Fund may also invest in short-term
obligations of foreign governments and their agencies, instrumentalities,
authorities, or political subdivisions.
ALL FUNDS: DIVERSIFICATION AND CHANGES IN POLICIES
Each Fund is diversified, so that with respect to 75% of the assets of each
Fund, 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.' Fundamental policies may only be
changed with the approval of a majority of shareholders of the pertinent Fund.
Other investment policies of any of the Funds may be changed by the Board of
Directors. Each Fund
13
<PAGE>
is subject to investment restrictions that are described in the 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.
SHAREHOLDER GUIDE
PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)
You may select from three separate classes of shares: Class A, Class B and Class
M, each of which represents an identical interest in a Fund's investment
portfolio, but are offered with different sales charges and distribution fee
(Rule 12b-1) arrangements. These sales charges and fees are shown and contrasted
in the chart below.
<TABLE>
<CAPTION>
ANNUAL AUTOMATIC
MAXIMUM SALES DISTRIBUTION MAXIMUM CONVERSION
CLASS CHARGE ON PURCHASES (A) CDSC FEES(D) PURCHASE TO CLASS A
- ------ ------------------------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
A 5.75% None (b ) 0.25% Unlimited N/A
B None 5.00% (c ) 1.00% $ 250,000 8 Years
M 3.50% None 0.75% $1,000,000 N/A
</TABLE>
- ------------------
(a) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(b) 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.'
(c) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
(d) Annual asset-based distribution charge.
When choosing between classes, investors should carefully consider the ongoing
annual expenses along with the initial sales charge or CDSC. The relative impact
of the initial sales charges and ongoing annual expenses will depend on the
length of time a share is held. Orders for Class B shares and Class M shares in
excess of $250,000 and $1,000,000, respectively, will be accepted as orders for
Class A shares or declined. You should discuss which Class of shares is right
for you with your Authorized Dealer.
Class A Shares: Initial Sales Charge Alternative. Class A shares of the Funds
are sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see 'Special Purchases without a Sales Charge' and 'Reduced Sales Charges.'
<TABLE>
<CAPTION>
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- -------------------------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000....................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.......................... 4.50% 4.71% 3.75%
$100,000 but less than $250,000......................... 3.50% 3.63% 2.75%
$250,000 but less than $500,000......................... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000....................... 2.00% 2.04% 1.75%
</TABLE>
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 purchase payments 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 each Fund
are subject to a distribution fee at
14
<PAGE>
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 for Class A
shares or declined.
The amount of the CDSC charge is determined as a percentage of the lesser of the
NAV of the Class B shares at the time of purchase or redemption. No charge will
be imposed for any net increase in the value of shares purchased during the
preceding six years in excess of the purchase price of such shares or for shares
acquired either by reinvestment of net investment income dividends or capital
gain distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- ------------------------------------------------------------------ ----
<S> <C>
First........................................................... 5%
Second.......................................................... 4%
Third........................................................... 3%
Fourth.......................................................... 3%
Fifth........................................................... 2%
Sixth........................................................... 1%
Seventh and following........................................... 0%
</TABLE>
To determine the CDSC payable on redemptions of Class B shares, a Fund will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible CDSC rate.
Class B shares will automatically convert into Class A shares approximately
eight years after purchase. For additional information on the CDSC and the
conversion of Class B shares, see the Statement of Additional Information.
Class M Shares: Lower Initial Sales Charge Alternative. An investor who
purchases Class M shares pays a sales charge at the time of purchase that is
lower than the sales charge applicable to Class A shares and does not pay any
CDSC upon redemption. Class M shares have a higher annual distribution fee than
Class A shares, but lower than Class B. The higher distribution fees mean a
higher expense ratio than Class A but lower than Class B. Class M shares pay
correspondingly lower dividends and may have a lower NAV per share than Class A
shares, but generally pay higher dividends and have a higher NAV per share than
Class B shares. Orders for Class M shares in excess of $1,000,000 will be
accepted as an order for Class A shares or declined. The public offering price
of Class M shares is the NAV of the Fund plus a sales charge, which, as set
forth below, varies based on the size of the purchase:
<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....................................... 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>
Class M shares do not convert to Class A.
Reduced Sales Charges. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A or Class M shares for any of the Funds or for
other funds in the Pilgrim America Group which offer Class A shares, Class M
shares or shares with front-end sales charges ('Participating Funds') by
completing the Letter of Intent section of the New Account 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
15
<PAGE>
qualify for a reduced sales charge. An amount equal to the Letter amount
multiplied by the maximum sales charge imposed on purchases of the applicable
fund and class will be restricted within your account to cover additional sales
charges that may be due if your actual total investment fails to qualify for the
reduced sales charges. See the New Account Application or the Statement of
Additional Information for details on the Letter of Intent option or contact the
Shareholder Servicing Agent at (800) 331-1080 for more information.
The sales charge for your investment may also be reduced by taking into account
the current value of your existing holdings in the Fund or any other funds in
the Pilgrim America Group (excluding Pilgrim America Money Market shares)
('Rights of Accumulation'). The reduced sales charges apply to quantity
purchases made at one time or on a cumulative basis over any period of time by:
(i) an investor; (ii) the investor's spouse and children under the age of
majority; (iii) the investor's custodian account(s) for the benefit of a child
under the Uniform Gifts to Minors Act; (iv) a trustee or other fiduciary of a
single trust estate or a single fiduciary account (including a pension,
profit-sharing and other employee benefit plans qualified under Section 401 of
the Internal Revenue Code); and (v) trust companies, registered investment
advisers, banks and bank trust departments for accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. See the New Account Application
or the Statement of Additional Information for details or contact the
Shareholder Servicing Agent at (800) 331-1080 for more information.
For purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the Pilgrim America Group of Funds which impose a
CDSC may be combined with Class A or Class M shares for a reduced sales charge
but will not affect any CDSC which may be imposed upon the redemption of shares
of a Fund which imposes a CDSC.
Waivers of CDSCs. The CDSC on Class A or Class B shares will be waived in the
case of a 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 a Fund owned by an individual or an individual in joint tenancy
(with rights of survivorship), but only for those shares held at the time of
death or initial determination of permanent disability. The CDSC also may be
waived for Class B Shares redeemed pursuant to a Systematic Withdrawal Plan, up
to a maximum of 12% per year of a shareholder's account value based on the value
of the account at the time the plan is established and annually thereafter,
provided all dividends and distributions are reinvested and the total
redemptions do not exceed 12% annually. In determining whether a CDSC is
applicable, it will be assumed that shares held in the shareholder's account
that are not subject to such charge are redeemed first.
The CDSC also will be waived in the case of a total or partial redemption of
shares of a Fund in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The shareholder must have attained the
age of 70 1/2 to qualify for the CDSC waiver relating to mandatory
distributions. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation of service. The
shareholder must notify the Transfer Agent either directly or through the
Distributor, at the time of redemption, that the shareholder is entitled to a
waiver of the CDSC. The CDSC Waiver Form included in the New Account Application
must be completed and provided to the Transfer Agent at the time of the
redemption request. The waiver will be granted subject to confirmation of the
grounds for the waiver. The foregoing waivers may be changed at any time.
Reinstatement Privilege. Class B shareholders who have redeemed their shares in
any Pilgrim America Group mutual fund within the previous 90 days may repurchase
Class B shares at NAV (at the time of reinstatement) in an amount up to the
redemption proceeds. Reinstated Class B shares will retain their original cost
and purchase date for purposes of the CDSC. The amount of any CDSC also will be
reinstated.
To exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent or be postmarked within 90 days after the date of
redemption. This privilege can be used only once per calendar year. If a loss is
incurred on the redemption and the reinstatement privilege is used, some or all
of the loss may not be allowed as a tax deduction. See 'Tax Considerations' in
the Statement of Additional Information.
Special Purchases without a Sales Charge. Class A or Class M shares may be
purchased at NAV without a sales charge by:
1) Class A or Class M shareholders who have redeemed their shares in any
Pilgrim America Group mutual fund within the previous 90 days. These
shareholders may repurchase shares at NAV in an
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<PAGE>
amount equal to their net redemption proceeds. Authorized Dealers who
handle these purchases may charge fees for this service.
2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of shares
from any unrelated mutual fund on which a sales charge was paid or which
were subject at any time to a CDSC.
3) Any charitable organization or governmental entity that has determined
that the Fund is a legally permissible investment and which is
prohibited by applicable law from paying a sales charge or commission in
connection with the purchase of shares of any mutual fund.
4) Officers, directors and full-time employees of Express America 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 Participating Fund 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) Accounts as to which a banker or broker-dealer charges an account
management fee ('wrap accounts').
Masters Series may terminate or amend the terms of offering shares of the Funds
at NAV to these investors at any time. For additional information, contact the
Shareholder Servicing Agent at (800) 331-1080, or see the Statement of
Additional Information.
Incentives. The Distributor, at its expense, will provide additional
promotional incentives to Authorized Dealers in connection with sales of shares
of the Funds and other mutual funds in the Pilgrim America Group. In some
instances, additional compensation or promotional incentives will be offered to
Authorized Dealers that have sold or may sell significant amounts of shares
during specified periods of time. Such compensation and incentives may include,
but are not limited to, cash, merchandise, trips and financial assistance in
connection with pre-approved conferences or seminars, sales or training programs
for invited sales personnel, 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 one or more of the Funds or other mutual funds in the Pilgrim America
Group and/or other events sponsored by Authorized Dealers.
In addition, the Distributor may, at its own expense, pay concessions in
addition to those described above to dealers that safisfy certain criteria
established from time to time by the Distributor. These conditions relate to
increasing sales of shares of the Funds over specified periods and to certain
other factors. These payments may, depending on the dealer's satisfaction of the
required conditions, be periodic and may be up to (1) 0.25% of the value of the
Funds' shares sold by the dealer during a particular period, and (2) 0.10% of
the value of the Funds' shares held by the dealer's customers for more than one
year, calculated on an annual basis.
Rule 12b-1 Plan. Masters Series has a distribution plan pursuant to Rule 12b-1
under the 1940 Act applicable to each class of shares of each Fund (Rule 12b-1
Plan). Under the Rule 12b-1 Plan, the Distributor may receive from each Fund an
annual fee in connection with the offering, sale and shareholder servicing of
Class A, Class B and Class M shares at an annual rate of up to 0.35%, 1.00%, and
1.00%, respectively, of the average daily net assets of each of the Funds.
Currently, the Board of Directors has approved annual fees of 0.25%, 1.00%, and
0.75%, respectively, which are accrued daily and paid monthly. Of these amounts,
fees equal to an annual rate of 0.25% of the average daily net assets of each of
the Funds is for shareholder servicing for each of the classes. Fees paid under
the Rule 12b-1 Plan may be used to cover the expenses of the Distributor from
the sale of Class A, Class B or Class M shares of the Funds, including payments
to Authorized Dealers, and for shareholder servicing. These fees may be used to
pay the costs of the following: payments to Authorized Dealers; promotional
activities; preparation and distribution of advertising materials and sales
literature; expenses of organizing and conducting sales seminars; personnel
costs and overhead of the Distributor; printing of prospectuses and statements
of additional information (and supplements thereto) and reports for other than
existing shareholders; supplemental payments to Authorized Dealers that provide
shareholder services; interest on accrued distribution expenses; and costs of
administering the Rule 12b-1 Plan. No more than 0.75% per annum of
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<PAGE>
a Fund's average net assets may be used to finance distribution expenses,
exclusive of shareholder servicing payments, and no Authorized Dealer may
receive shareholder servicing payments in excess of 0.25% per annum of a Fund's
average net assets held by the Authorized Dealer's clients or customers. The
Distributor will receive payment under the Rule 12b-1 Plans 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 that Fund as well as the other Funds
of Masters Series.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at the
annual rate of 0.25%, 0.25%, and 0.65% of a Fund's average daily NAV of Class A,
Class B, and Class M shares, respectively, that are registered in the name of
that Authorized Dealer as nominee or held in a shareholder account that
designates that Authorized Dealer as the dealer of record. Rights to these
ongoing payments begin to accrue in the 13th month following a purchase of Class
A or B shares and on the anniversary date in the 1st month following the date of
purchase of Class M shares, and they cease upon exchange (or purchase) into
Pilgrim America Money Market Shares. The payments are also subject to the
continuation of the relevant distribution plan, the terms of 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 each of the classes of each Fund.
However, the Rule 12b-1 Plans' fees for each class of shares are charged
proportionately only to the outstanding shares of that class.
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<PAGE>
PURCHASING SHARES
Your Authorized Dealer can help you establish and maintain your account, and the
Shareholder Servicing Agent is available to assist you with any questions you
may have.
The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for IRA's).
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENT
<S> <C> <C>
By contacting your The minimum initial investment in a Fund is The minimum for additional investment in a
Authorized Dealer $1,000 ($250 for IRAs). Fund is $100.
Visit or consult an Authorized Dealer. Visit or consult your Authorized Dealer.
By mail Make your check payable to the Fund and Fill out the account additions form
mail it, along with a completed New Account included on the bottom of your account
Application, to the address indicated on statement along with your check payable to
the New Account Application. Please the Fund and mail them in the envelope
indicate an Authorized Dealer on the provided with the account statement.
application. Remember to write your account number on
the check.
By wire Call the Pilgrim America Order Department Call the Pilgrim America Order Department
at (800) 336-3436 to obtain an account at (800) 336-3436 to obtain a wire
number and indicate an Authorized Dealer on reference number. Give that number to your
the account. Instruct your bank to wire bank and have them wire the funds in the
funds to the Fund in care of: same manner described under 'Initial
Investors Fiduciary Trust Co. Investment.'
ABA #101003621
Kansas City, MO
credit to:
Pilgrim America Masters Series, Inc.
------------------------------------------
(Name of Fund)
A/C #752-4854; for further credit to:
Shareholder A/C
# -----------------------------------------
(A/C # you received over the telephone)
Shareholder Name:
------------------------------------------
(Your Name Here)
After wiring funds you must complete the
New Account Application and send it to:
Pilgrim America Order Dept.
P.O. Box 419368
Kansas City, MO 64141-6368
The Funds and the Distributor reserve the right to reject any purchase order.
Please note third party checks will not be accepted.
The Manager reserves the right to waive the minimum investment amounts.
</TABLE>
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<PAGE>
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 the Fund's Public
Offering Price determined after a purchase order has been received in proper
form. A purchase order will be deemed to be in proper form when all of the
required steps have been completed. In the case of an investment by wire,
however, the order will be deemed to be in proper form after the telephone
notification and the federal funds wire have been received. A shareholder who
purchases by wire must submit an application form in a timely fashion. If an
order or payment by wire is received after the close of the New York Stock
Exchange, 4:00 p.m. Eastern Time (1:00 p.m., Pacific Time), the shares will not
be credited until the next business day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued
unless you request them in writing.
Determination of Net Asset Value. The NAV of each class of a Fund's shares
will be determined daily as of the close of trading on the New York Stock
Exchange (usually at 4:00 p.m. New York City time) on each day that it is open
for business. Each class' NAV represents that class' pro rata share of the
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 net asset values per share of
each class of a 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 of
Masters Series, although the actual calculations will be made by persons acting
under the supervision of the Board.
The value of the foreign securities traded on exchanges outside the United
States is based upon the price on the exchange as of the close of business of
the exchange preceding the time of valuation (or, if earlier, at the time of a
Fund's valuation). Quotations of foreign securities in foreign currency are
converted to U.S. dollar equivalents using the foreign quotation in effect at
the time NAV is computed. The calculation of NAV for Masters Series may not take
place contemporareously with the determination of the prices of certain
portfolio securities of foreign issuers used in such calculation. Further, the
prices of foreign securities are determined using information derived from
pricing services and other sources. Information that becomes known to Masters
Series or its agents after the time that NAV is calculated on any business day
may be assessed in determining NAV per share after the time of receipt of the
information, but will not be used to retroactively adjust the price of the
security so determined earlier or on a prior day. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the time when a Fund's NAV is determined may not be reflected in the calculation
of NAV. If events materially affecting the value of such securities occur during
such period, then these securities may be valued at fair value as determined by
the management and approved in good faith by the Board of Directors.
Pre-Authorized Investment Plan. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, see the New Account Application
or contact the Shareholder Servicing Agent at (800) 331-1080.
Retirement Plans. Master Series has available prototype qualified retirement
plans for both corporations and for self-employed individuals. It also has
available prototype IRA plans (for both individuals and employers), Simplified
Employee Pension Plans, Pension and Profit Sharing Plans and Tax Sheltered
Retirement Plans for employees of public educational institutions and certain
non-profit, tax-exempt
20
<PAGE>
organizations. Investors Fiduciary Trust Company ('IFTC') acts as the custodian
under these plans. For further information, contact the Shareholder Servicing
Agent at (800) 331-1080. IFTC currently receives a $12.00 custodian fee annually
for maintenance of IRA accounts.
Telephone Orders. Masters Series and its 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. Master Series and its 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 Master Series and its Transfer Agent do not employ these
procedures, they may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Telephone redemptions may be executed on all accounts
other than retirement accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in writing to
the Transfer Agent or by calling the Transfer Agent at (800) 992-0180. There is
no specific limit on exchange frequency; however, the Funds are intended for
long term investment and not as a trading vehicle. The Investment Manager
reserves the right to prohibit excessive exchanges (more than four per year).
The Investment Manager reserves the right, upon 60 days' prior notice, to
restrict the frequency of, otherwise modify, or impose charges of up to $5.00
upon exchanges. The total value of shares being exchanged must at least equal
the minimum investment requirement of the fund into which they are being
exchanged.
Shares of one class of a Fund may be exchanged for shares of that same class of
any other Pilgrim America Group mutual fund other than Pilgrim America Money
Market Shares ('Money Market'), at NAV without payment of any additional sales
charge. If you exchange and subsequently redeem your shares, any applicable CDSC
will be based on the full period of the share ownership. Shares of a Fund that
are not subject to a CDSC may be exchanged for shares of Money Market, and
shares of Money Market acquired in the exchange may subsequently be exchanged
for shares of a mutual fund in the Pilgrim America Group of the same class as
the original shares acquired. Shares of a Fund that are subject to a CDSC may be
redeemed to purchase shares of Money Market upon payment of the CDSC.
Shareholders exercising the exchange privilege with any of Pilgrim America
Group's other funds should carefully review the prospectus of that fund.
Exchanges of shares are sales and may result in a gain or loss for federal and
state income tax purposes. You will automatically be assigned the telephone
exchange privilege unless you mark the box on the New Account Application that
signifies that you do not wish to have this privilege. The exchange privilege is
only available in states where shares of the Fund being acquired may be legally
sold.
SYSTEMATIC EXCHANGE PRIVILEGE
Subject to the information and limitations outlined above, you may elect to have
a specified dollar amount of shares systematically exchanged, monthly,
quarterly, semi-annually or annually (on or about the 10th of the applicable
month), from your account to an identically registered account in the same class
of any other Pilgrim America Fund. The exchange privilege may be modified at any
time or terminated upon 60 days written notice to shareholders.
HOW TO REDEEM SHARES
Shares of each Fund will be redeemed at the NAV (less any applicable CDSC and/or
federal income tax withholding) next determined after receipt of a redemption
request in good form on any day the New York Stock Exchange is open for
business.
21
<PAGE>
<TABLE>
<CAPTION>
METHOD PROCEDURES
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption orders by wire or telephone to the
Authorized Dealer Distributor. These firms may charge for their services in connection with your
redemption request but neither the Funds nor the Distributor imposes any such
charge.
Redemption By Mail A written request for redemption must be received by the Transfer Agent in order
to constitute a valid tender. If certificated shares have been issued, the
certificate must accompany the written request. The Transfer Agent may also
require a signature guarantee by an eligible guarantor. It will also be necessary
for corporate investors and other associations to have an appropriate
certification on file authorizing redemptions by a corporation or an association
before a redemption request will be considered in proper form. A suggested form
of such certification is provided on the New Account Application. If you are
entitled to a CDSC waiver, you must complete the CDSC waiver form in the New
Account Application. To determine whether a signature guarantee or other
documentation is required, shareholders may call the Shareholder Servicing Agent
at (800) 331-1080.
Expedited Redemption The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (maximum $50,000) mailed to an
address which has been on record with Pilgrim America for at least 60 days. This
privilege is automatically assigned to you unless you check the box on the New
Account Application which signifies that you do not wish to utilize such option.
The Expedited Redemption Privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. But, this aspect of the Expedited Redemption
privilege will NOT automatically be assigned to you. If you want to take
advantage of this aspect of the privilege, please check the appropriate box and
attach a voided check to the New Account Application. Under normal circumstances,
proceeds will be transmitted to your bank on the second business day following
receipt of your instructions, provided redemptions may be made. To effect an
Expedited Redemption, please call the Transfer Agent at (800) 992-0180. In the
event that share certificates have been issued, you may not request a wire
redemption by telephone or wire. This option is not available for retirement
accounts.
</TABLE>
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
22
<PAGE>
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 of 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, Master Series reserves 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
Management of Masters Series. Masters Series is a registered investment company
that was organized as a Maryland corporation in April, 1995. It is governed by a
Board of Directors, which oversees the operations of the Funds. The majority of
Directors are not affiliated with the Investment Manager or any Portfolio
Manager.
Investment Manager. The Investment Manager has overall responsibility for the
management of the Funds. Masters Series 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 Funds. It also
requires the Investment Manager to assist in managing and supervising all
aspects of the general day-to-day business activities and operations of Masters
Series, including custodial, transfer agency, dividend disbursing, accounting,
auditing, compliance and related services. Organized in December 1994, the
Investment Manager is registered as an investment adviser with the Securities
and Exchange Commission.
The Investment Manager also monitors the Portfolio Managers' investment
programs and results and coordinates the activities of the various service
providers to the Funds and oversees compliance with regulatory requirements. In
addition, the Investment Manager provides the Masters Series with the office
space, equipment and personnel necessary to administer the Funds. The Portfolio
Managers, subject to the supervision of the Board of Directors and the
Investment Manager, are responsible for determining the investment program for
the Funds, including the portfolio securities to purchase and sell for the
Funds, and for placing the Fund's portfolio transactions. The agreement with the
Investment Manager can be canceled by the Board of Directors of Masters Series
upon 60 days' written notice.
The Investment Manager bears its expenses of providing the services
described above and pays the fees of each Fund's Portfolio Manager. The Funds
pay the Investment Manager a fee at an annual rate of 1.00% of the Fund's
average daily net assets for the MidCap Value Fund and the LargeCap Value Fund,
and 1.25% of the Fund's average daily net assets for the Asia-Pacific Equity
Fund. These fees are computed and accrued daily and paid monthly.
The Portfolio Managers. 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 Masters Series, 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, CRM, and Ark fees at annual rates of 0.50% of the
average daily net assets of the Asia-Pacific Equity, MidCap Value and Large Cap
Value Funds, respectively.
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<PAGE>
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
Fund's shares. The Distributor will, from time to time, pay to Authorized
Dealers in connection with the sale or distribution of shares of a Fund material
compensation in the form of merchandise or trips. Salespersons and any other
person entitled to receive any compensation for selling or servicing Fund shares
may receive different compensation with respect to one particular class of
shares over another in a Fund.
Portfolio Transactions. Each Portfolio Manager will place its own orders to
execute the securities transactions that are designed to implement the
applicable investment objectives and policies. The Portfolio Manager will use
its reasonable efforts to place all purchase and sale orders with brokers,
dealers and banks ('brokers') that provide 'best execution' of these orders. In
placing purchase and sale transactions, a Portfolio Manager may consider
brokerage and research services provided by a broker to the 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 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, 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 may
direct a Portfolio Manager to place securities transactions with brokers that
provide certain services to the Funds. A Portfolio Manager also may consider a
broker's sale of Fund shares if the Portfolio Manager is satisfied that the Fund
would receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS & TAXES
Dividends and Distributions. Dividends and distributions from net investment
income and capital gains, if any, will be determined on a class basis for each
Fund and paid at least annually.
Any dividends and distributions paid by a Fund will be automatically reinvested
in additional shares of the respective class of that Fund, unless you elect to
receive distributions in cash. When a dividend or distribution is paid, the NAV
per share is reduced by the amount of the payment.
You may, upon written request or by completing the appropriate section of the
New Account Application in this Prospectus, elect to have all dividends and
other distributions paid on a Class A, B or M account in a Fund invested into a
Pilgrim America Fund which offers Class A, B or M shares. Both accounts must be
of the same class. If you are a shareholder of Pilgrim America Prime Rate Trust,
whose shares are not held in a broker or nominee account, you may, upon written
request, elect to have all dividends invested into a pre-existing Class A
account of any Pilgrim America Fund which offers Class A, B, or M Shares.
Distributions are invested into the selected funds at the net asset value as of
the payable date of the distribution only if shares of such selected funds have
been registered for sale in the investor's state.
Federal Taxes. Each Fund intends to operate as a 'regulated investment company'
under the Internal Revenue Code. In any fiscal year in which a Fund so qualifies
and distributes to shareholders all of its net investment income and net capital
gains, the Fund itself is relieved of federal income tax.
All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been 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.
24
<PAGE>
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. 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). Total returns and current yield are
based on past results and are not necessarily a prediction of future
performance.
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 Masters Series. Masters Series' Articles of Incorporation permit the
Directors to authorize the creation of additional funds, each of which may issue
separate classes of shares. A Fund may be terminated and liquidated under
certain circumstances.
Voting Rights. Shareholders have certain voting rights. Each share of each Fund
is given one vote. Matters to be acted upon that affect a particular Fund,
including approval of new investment advisory agreements and changes in
fundamental policies of a Fund will require the affirmative vote of the
shareholders of such Fund. Matters affecting a certain class of a Fund will only
be voted on by shareholders of that particular class and Fund. As a Maryland
Corporation, Masters Series is not required to hold annual shareholder meetings,
although special shareholder meetings may be held from time to time.
25
<PAGE>
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26
<PAGE>
[LOGO]
NEW ACCOUNT APPLICATION
SEND COMPLETED APPLICATION TO: PILGRIM AMERICA FUNDS, P.O. BOX 419368, KANSAS
CITY, MISSOURI 64141-6368
SECTIONS 1 THROUGH 6 MUST BE COMPLETED FOR YOUR ACCOUNT TO BE ESTABLISHED.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
TYPE OF ACCOUNT
(Check one only)
/ / INDIVIDUAL
<TABLE>
<S> <C> <C> <C>
- ------------------------- ---------- ---------------------------------- ---------------------------------------
First Name Middle Last Name Social Security Number*
Initial (first individual only)
/ / JOINT TENANT
- ------------------------- ---------- ---------------------------------- ---------------------------------------
Joint Tenant's First Name Middle Last Name
Initial
/ / GIFT/TRANSFER TO MINOR
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------- -------------------------------------------
Custodian's Name (one only) Minor's Name (one only)
</TABLE>
/ / GUARDIANSHIP/CONSERVATORSHIP
<TABLE>
<S> <C>
- ------------------------------------------------------------------------- -------------------------------------------
Under Uniform Gift/Transfers to Minors Act of (State) Minor's Social Security Number*
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------- --------------------------- ----------------------------------------
Guardian/Conservator Ward/Incompetent or Minor's Ward/Incompetent or Minor's
Name (one only) Social Security Number*
</TABLE>
/ / CORPORATION, PARTNERSHIP, TRUST OR OTHER ORGANIZATION
<TABLE>
<S> <C>
- -------------------------------------------------------------------- ------------------------------------------
Exact Name of Corporation, Partnership or other Organization Tax Identification Number*
- --------------------------------------------------------------------------------
Trustee Accounts Only: Name of all Trustees required by trust agreement to
sell/purchase shares
</TABLE>
<TABLE>
<S> <C> <C>
- -------------------------- --------------------------------------------------- ----------------------------------------
Date of Trust Agreement Name of Trust Tax Identification Number*
</TABLE>
/ / OTHER
<TABLE>
<S> <C>
/ / CHECK HERE IF YOU ARE SUBJECT TO BACKUP WITHHOLDING.
- -------------------------------------------- / / CHECK HERE IF YOU ARE AWAITING THE ISSUANCE OF
SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER.
</TABLE>
* Pilgrim America reserves the right to reject any application which does not
include a certified Social Security Number or Taxpayer Identification Number,
or does not indicate that such number has been applied for by checking the
'awaiting Social Security or Taxpayer Identification Number' box.
- --------------------------------------------------------------------------------
2. MAILING ADDRESS
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------- ----------- ----------- ---------- ---------------------------
Street Address Apartment City State Zip Code
Number
</TABLE>
( ) ( )
- ------------------------------ -----------------------------
Business Phone Home Phone
27
<PAGE>
- --------------------------------------------------------------------------------
3. INVESTMENT INFORMATION
PLEASE INDICATE DOLLAR AMOUNT AND FUND IN SPACES PROVIDED. $1,000 MINIMUM FOR
EACH FUND. IF MORE THAN ONE FUND IS SELECTED, ACCOUNT MUST HAVE IDENTICAL
REGISTRATIONS, CLASS OF SHARES AND OPTIONS. IF NO CLASS OF SHARES IS SELECTED,
CLASS A SHARES WILL BE AUTOMATICALLY SELECTED.
<TABLE>
<CAPTION>
FUND NAME AMOUNT CLASS OF SHARES (CHECK ONE)
<S> <C> <C>
1. $ A / / B / / M / /
------------------------------------------ -----------
2. $ A / / B / / M / /
------------------------------------------ -----------
3. $ A / / B / / M / /
------------------------------------------ -----------
4. $ A / / B / / M / /
------------------------------------------ -----------
5. $ A / / B / / M / /
------------------------------------------ -----------
6. $ A / / B / / M / /
------------------------------------------ -----------
</TABLE>
/ / A check payable to the Pilgrim America Group is included for $____________.
/ / Payment has been made by Dealer purchase on
____________ $_____________ _______________________________________________
(Date) (Amount) (Order Number)
/ / Payment has been made by Federal funds wire _____________ on ____________
(Reference No.) (Date)
_________________ $_______________
(Account No.) (Amount)
- -------------------------------------------------------------------------------
4. DIVIDEND AND DISTRIBUTION OPTIONS
(Check one only) -- If no option is selected, all distributions will be
reinvested.
/ / Reinvest all dividends and capital gains.
/ / Reinvest all dividends and capital gains into an existing account in
another Pilgrim America Account using the Dividend Transfer Option.
_________________________________ ________________________________
Fund Name Account Number
<TABLE>
<S> <C>
/ / Pay all dividends and reinvest capital I request the payable distributions be: (Check one.)
gains.
/ / Pay all capital gains in cash and
reinvest dividends. / / Sent to the address in Section 2.
/ / Pay all dividends and capital gains. / / Directly deposited in my bank account. (Please attach a
(IF ANY PAY OPTION IS SELECTED, voided check to Section 6). If voided check is not enclosed,
COMPLETE INFORMATION AT RIGHT) will be sent to address in Section 2.
/ / Sent to a special payee listed in Section 9.
</TABLE>
- --------------------------------------------------------------------------------
5. AUTHORIZED DEALER INFORMATION
<TABLE>
<S> <C>
- ---------------------------------------- ------------------------------------------
Authorized Dealer Name Registered Representative's Name
- ---------------------------------------- ------------------------------------------
Branch Office Address Registered Representative's Number
- ---------------------------------------- ---------------- --------------
City State Zip Code
- ---------------------------------------- ------------------------------------------
Registered Representative's Phone Authorized Signature of Authorized Dealer
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
6. SIGNATURES
I have read the prospectus and application for the Fund in which I am investing
and agree to its terms. I am also aware that a Telephone Exchange and Redemption
Privileges exist and that these privileges are automatically available unless
affirmatively declined. I also understand that if Pilgrim America, the Fund, the
Transfer Agent or the Sub-Transfer Agent fail to follow the procedures outlined
in the prospectus and in the Telephone Transaction Authorization hereto, such
entity may be liable for losses due to unauthorized or fraudulent instructions.
I further understand that I must carefully review each account confirmation
statement or other documentation of transaction that I receive to ensure that my
instructions have been properly acted upon. If any discrepancies are noted, I
agree to notify Pilgrim America, the Fund, the Transfer Agent or the
Sub-Transfer Agent in a timely manner, but in no event more than 15 days from
receipt of such confirmation statement or documentation of transaction. Failure
to notify one of the above entities on a timely basis will relieve such entities
of any liability with respect to the transaction and any discrepancy. See the
Exchange Privileges and Restrictions and How to Redeem Shares sections in the
Prospectus for procedures. I am of legal age. Sign below exactly as printed in
Section 1. For joint registration, all must sign. Under penalty of perjury, I
certify with my signature below that the number shown in Section 1 is my correct
taxpayer identification number. Also, I have not been notified by the Internal
Revenue Service that I am currently subject to backup withholding unless
otherwise indicated.
ATTACH VOIDED CHECK HERE ----->
(IF APPROPRIATE)
For Corporations, Trusts, or Partnerships: We hereby certify that each of the
persons listed below have been duly elected, and are now legally holding the
offices set forth opposite his/her name and have the authority to make this
authorization. Please print titles below if signing on behalf of a business or
trust to establish this account.
<TABLE>
<S> <C>
- ---------------------------------------- ----------------------------------------------------------
Signature Date President, Trustee, General Partner or Title
- ---------------------------------------- ----------------------------------------------------------
Signature Date Co-owner, Secretary of Corporation, Co-Trustee, etc.
</TABLE>
CHECK THE APPROPRIATE BOXES BELOW AND PROVIDE THE REQUESTED INFORMATION
/ / I am a United States Citizen
/ / I am a non-resident alien* (a Form W-8 will be provided to you by Pilgrim
America. Please complete it as requested as soon as possible).
/ / I am a resident alien and a social security number has been supplied on page
one of this New Account application (a Form 1078 will be provided to you by
Pilgrim America. Please complete it and return it as requested).
/ / If not a United Citizen, please indicate what country you are a permanent
tax resident of:
____________________________________________________________________________
* If the Pilgrim America account will be registered in joint registration with
another individual or individuals, each non-resident alien must complete and
return a Form W-8.
- --------------------------------------------------------------------------------
7. PURCHASE OPTIONS
REDUCED SALES CHARGE
/ / I qualify for Reduced Sales Charge with the account(s) listed below.
Included are the account numbers of all classes of shares of Pilgrim America
Funds that I or my immediate family (spouse and children under age 21) already
own.
<TABLE>
<S> <C>
- ---------------------------------------- ----------------------------------------------------------
Fund Name Account Number
- ---------------------------------------- ----------------------------------------------------------
Fund Name Account Number
- ---------------------------------------- ----------------------------------------------------------
Fund Name Account Number
</TABLE>
29
<PAGE>
LETTER OF INTENT (Check one only)
/ / I wish to establish a new Letter of Intent. (If Reduced Sales Charge or
90-day backdate privilege is applicable, provide the amount and
account(s) information below.) I agree to the terms of the Letter of
Intent as set forth in the Prospectus and Statement of Additional
Information, and grant Pilgrim America Securities, Inc. a security
interest in the escrowed shares as set forth in the Statement of
Additional Information. I understand that I am not obligated to invest
an aggregate amount equal to the amount checked below, but if I do not,
Pilgrim America Securities, Inc. may deduct the amount of any sales
charge owed from the escrowed shares.
/ / Please apply this purchase to an existing Letter of Intent with the
account(s) listed below.
/ / Please amend my existing Letter of Intent with the new amount indicated
below.
If establishing a Letter of Intent, you will need to purchase over a
thirteen-month period in accordance with the provisions of the Prospectus
and Statement of Additional Information. The aggregate amount of these
purchases will be at least equal to the amount listed below:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
<TABLE>
<S> <C>
- ---------------------------------------- --------------------------------------------
Fund Name Account Number
- ---------------------------------------- --------------------------------------------
Fund Name Account Number
</TABLE>
- --------------------------------------------------------------------------------
PRE-AUTHORIZED INVESTMENT PLAN -- AUTOMATIC INVESTING
/ / I wish to invest on a monthly, quarterly, semi-annual or annual basis,
directly from my checking account into the following fund(s).
(PLEASE COMPLETE THE PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT HEREIN AND
ATTACH A VOIDED CHECK TO SECTION 6.)
<TABLE>
<S> <C> <C>
- ----------------------------------- ----------------------------------- -----------------------------
Fund Name Fund Name Fund Name
</TABLE>
Amount $________________________, to start / / 5th or
Minimum $100
/ / 20th of
_______________, ___________________
Month Year
/ / monthly / / quarterly / / semi-annual / / annual
- --------------------------------------------------------------------------------
SPECIAL PURCHASE WITHOUT A SALES CHARGE
/ / I (We) declare that the investment referenced herein is exempt from the
imposition of the normal front-end sales charge for the reason(s)
listed below (please refer to the 'Special Purchases Without a Sales
Charge' section of the prospectus):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The privilege will only be granted upon confirmation of your entitlement.
- --------------------------------------------------------------------------------
8. ADDITIONAL OPTIONS
TELEPHONE EXCHANGE PRIVILEGE -- IF ACCEPTED ACCOUNTS MUST HAVE THE SAME
ACCOUNT INFORMATION, OPTIONS AND CLASS OF SHARES. Unless you decline this
privilege by checking the box below, you will automatically be assigned
it.*
/ / I decline telephone exchange, and do not want this privilege. (See
Exchange Privileges and Restrictions section for procedures.)
EXPEDITED REDEMPTION PRIVILEGE -- AVAILABLE ON ALL NON-RETIREMENT ACCOUNTS.
UNLESS YOU DECLINE THIS PRIVILEGE, YOU WILL AUTOMATICALLY BE ASSIGNED THE
ABILITY TO REQUEST, VIA THE TELEPHONE, REDEMPTION PROCEEDS TO BE SENT TO THE
ADDRESS IN SECTION 2.*
/ / I wish to redeem shares by telephone and request that the proceeds be
directly deposited into my bank account. (Please attach a voided check
to Section 6.) (If voided check is not enclosed, will be sent to address
in Section 2.)
/ / I decline telephone redemption, and do not want this privilege.
See Expedited Redemption section for procedures.
* Pilgrim America is authorized to act upon instructions received from you or
anyone other than yourself representing himself as acting as your
representative who can provide personal identification information as it
appears in Pilgrim America's records.
Pilgrim America will employ reasonable procedures to confirm that instructions
communicated over the telephone are genuine. The Funds and their agents will
not be liable for any loss, injury, damage, or expense incurred as a result of
instructions communicated by telephone reasonably believed to be genuine. By
accepting this privilege, you agree to hold the Funds and
30
<PAGE>
their agents harmless from any loss, claims, or liability arising from their
compliance with such instructions. Telephone exchange and expedited
redemption privileges are subject to the terms and conditions set
forth in the Prospectus and each Funds' Statement of Additional Information.
SYSTEMATIC EXCHANGE PRIVILEGE
/ / I have at least $5,000 in my Pilgrim America________________Fund account,
for which no certificates have been issued and I would like to exchange:
$________(min. of $50) into the __________ Fund, Account #_______________
$________(min. of $50) into the __________ Fund, Account #_______________
$________(min. of $50) into the __________ Fund, Account #_______________
on a / / monthly or / / quarterly basis starting in the month of
_____________
(Systematic Exchange Privilege is only available within the same Class of
Shares)
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (SWP)
(Minimum account balance for a SWP is $10,000.)
(Class B SWP's are processed free of contingent deferred sales charge if 12%
or less of account value is redeemed on an annual basis.)
/ / I wish to automatically withdraw $_____________________ from this account.
Minimum $100
/ / Monthly / / Quarterly / / Semi-Annually / / Annually
I request this distribution be: (Check One)
/ / Sent to the address listed in Section 2. To begin
_____________of_________. (Withdrawal will occur about 5 business days
prior to the end of the month.)
/ / Sent to the payee listed in Section 9. To begin
_____________of_________. (Withdrawal will occur about 5 business days
prior to the end of the month.)
/ / Directly deposited in my bank account. (Please attach a voided check to
Section 6.)
To begin _____________of_________. (Withdrawal will occur about 5
business days prior to the end of the month.)
- --------------------------------------------------------------------------------
9. INTERESTED PARTY MAIL/DIVIDEND MAIL
/ / I wish to have my distributions sent to the address listed below.
/ / I wish to have duplicate confirmation statements sent to the interested
party listed below.
- --------------------------------------------------------------------------------
Name of Individual
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
THIS APPLICATION IS NOT A PART OF THE PROSPECTUS.
31
<PAGE>
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32
<PAGE>
AUTHORIZED DEALER AGREEMENT
Under these plans, the Authorized Dealer signing the application acts as
principal in all purchases of Fund shares and appoints Pilgrim America as its
agent to execute the purchases and to confirm each purchase to the Investor.
PilgrimAmerica remits semi-monthly to the Authorized Dealer the amount of its
commissions. The Authorized Dealer hereby guarantees the genuineness of the
signature(s) on the application and represents that he is a duly licensed
Authorized Dealer and may lawfully sell Fund shares in the state designated by
the Investor's mailing address, and that he has entered into a Selling Group
Agreement with the Distributor with respect to the sale of fund shares. The
Authorized Dealer signature on the Application, signifies acceptance of the
concession terms, and acceptance of responsibility for obtaining additional
sales charges if specified purchases are not completed.
Cut on perforated line
-------------------------------------------------------------------------------
DETACH HERE AND RETURN THIS TO YOUR BANK IF YOU ARE
ESTABLISHING A PRE-AUTHORIZED INVESTMENT PLAN
(AUTHORIZATION TO HONOR CHECKS OR DEBIT INSTRUCTIONS DRAWN BY DST SYSTEMS, INC.,
ON BEHALF OF THE PILGRIM AMERICA FUNDS, FOR AUTOMATIC PURCHASE PLAN)
PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT
As a convenience, I (we) hereby request and authorize you to pay and charge
to my (our) account checks or debit instructions drawn on my (our) account by
DST Systems, Inc., the Fund's Agent and payable to the order of the Fund
provided there are sufficient collected funds in said account to pay the same
upon presentation: I (we) agree that your rights with respect to each such check
or debit instruction shall be the same as if it were a check or debit
instructions drawn on you and signed personally by me (us). This authority is to
remain in effect until revoked in writing and until you actually receive such
notice. I (we) agree that you shall be fully protected in honoring any such
checks or debit instructions.
I (we) further agree that if any such check or debit instruction is
dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
Signature(s) of Depositor(s) (signed exactly as shown on bank records)
X_______________________________________________________________________________
X_______________________________________________________________________________
________________________________________________________________ 19 ____________
Date Signed
(PLEASE PRINT)
Name of Depositor (as shown on bank records)____________________________________
Bank Account Number_____________________________________________________________
Name of Bank____________________________________________________________________
Address of Bank_________________________________________________________________
City/State/Zip of Bank__________________________________________________________
33
<PAGE>
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34
<PAGE>
[LOGO]
INSTRUCTIONS FOR COMPLETING THE NEW ACCOUNT APPLICATION
This New Account Application can be used to open a new Pilgrim America Account,
establish Shareholder privileges on existing accounts and be used in providing
documentation for certain transactions. The completed Application should be
forwarded along with your investment check payable to the Pilgrim America Group,
or other appropriate documentation to: PILGRIM AMERICA FUNDS, P.O. BOX 419368,
KANSAS CITY, MISSOURI 64141-6368.
This New Account Application may not be used to open a qualified retirement plan
account for which Investors Fiduciary Trust Company acts as custodian.
1 ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
Check the appropriate box and provide the information requested. Unless
specified, accounts with more than one owner will be assumed to be 'Joint
Tenants With Rights of Survivorship'.
All investors must sign the Account Application, and authorize the requested
privileges.
For a child who is under the age of majority in your state of residence,
'Gift/transfer to minor' registration must be utilized.
2 MAILING ADDRESS
- -------------------------------------------------------------------------------
This is the address of record for your account. All account confirmation
statements will be forwarded to this address.
3 INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
State the fund(s) in which you are investing and the dollar amount of the
investment. (Minimum initial investment is $1,000).
4 DIVIDEND AND DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
Pilgrim America offers several options for the treatment of dividends and
capital gains distributions, if any, from your Pilgrim America investment.
You can have these payments distributed to you, or any other recipient you
choose, in cash; in additional shares of the Fund which is paying the
distribution or; in shares of another Pilgrim America Fund, at NAV without sales
charge, via the Dividends Transfer Option. The Dividend Transfer Option is
available only for open-end funds within the Pilgrim America Group.
5 AUTHORIZED DEALER INFORMATION
- --------------------------------------------------------------------------------
Your financial professional can complete this section.
6 SIGNATURES
- --------------------------------------------------------------------------------
All investors and authorized signers should sign in order to process the New
Account Application and to certify your Social Security, Tax identification
Number or if applicable, your foreign status.
35
<PAGE>
7 PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)
- --------------------------------------------------------------------------------
You can qualify for reduced sales charges via the Letter of Intent or Cumulative
Discount privileges.
The Letter of Intent allows you to qualify for reduced sales charges
immediately.
Cumulative Discount allows you to use the total of all of your Pilgrim America
open-end fund investments in determining the sales charge of a current
investment.
The Pre-Authorized Investment Plan provides a systematic method of investing
periodically in the Pilgrim America Fund(s) of your choice. Minimum investments
of at least $100 can be automatically debited from your bank account
periodically for investment purposes.
8 ADDITIONAL OPTIONS
- --------------------------------------------------------------------------------
The Telephone Exchange privilege will automatically be assigned to you unless
you check the box in Section 8 which states that you do not wish to have this
privilege.
The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (Maximum of $50,000) mailed
to your address of record. This privilege is automatically assigned to you
unless you check the box in this section which states you do not want to take
advantage of this privilege.
The Expedited Redemption privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. This privilege is NOT automatically assigned
to you. If you want to take advantage of this privilege, please check the
appropriate box and attach a voided check to section 6 of the New Account
Application.
The Systematic Exchange Privilege allows you to automatically exchange shares of
one fund for shares of the same class of another fund in regular pre-determined
amounts and at regular pre-determined intervals.
The Systematic Withdrawal Plan allows you to automatically have a specific share
or dollar amount ($100 minimum) liquidated from your account monthly, quarterly,
semi-annually, or annually and forwarded to you or the payee of your choosing as
long as the account has a current value of at least $10,000. Amounts designated
for deposit to your bank account can be forwarded via the Automated Clearing
House system by attaching a voided check for such basic account to Section 6 of
the New Account Application.
9 INTERESTED PARTY MAIL/DIVIDEND MAIL
- --------------------------------------------------------------------------------
You may authorize an additional party to receive copies of your confirmation
statements (your Authorized Dealer will automatically receive such copies). If
you wish to have additional copies of your confirmation statements mailed to an
address other than your address of record, check the appropriate box in Section
9 and indicate such address.
You may have your cash dividend payments forwarded to an address other than your
address of record by so indicating in Section 9. (If you wish your cash
dividends to be forwarded to a bank for deposit to an account, refer to Section
4 of the New Account Application).
36
<PAGE>
PILGRIM AMERICA FUNDS CLASS A AND B
CONTINGENT DEFERRED SALES CHARGE WAIVER FORM
(TO BE COMPLETED ONLY IF THE UNDERSIGNED BELIEVES THAT HE IS ENTITLED
TO A WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE.)
If you believe you are entitled to a waiver of the Contingent Deferred
Sales Charge in accordance with the terms set forth in the prospectus, you must
complete this Contingent Deferred Sales Charge Waiver Form and send it the
Fund's Transfer Agent at its address given below. The waiver will only be
granted upon confirmation of your entitlement.
Check the item below which the undersigned is relying upon for a waiver of
the Contingent Deferred Sales Charge and send any required documents specified
therein:
/ / Redemption is made upon the death or permanent disability of
shareholder. (Enclose either a certified death certificate or
certification of permanent disability (see below), whichever is
appropriate).
/ / Redemption is made in connection with mandatory distributions (upon
attainment of age 70 1/2) from and IRA or other qualified retirement
plan. (Enclose a certified birth certificate. Please contact Pilgrim
America for a Distribution Request Form for IRA or other qualified
retirement plan accounts where IFTC acts as custodian which must
accompany this Contingent Deferred Sales Charge Waiver Form).
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Signature ______________________________________________________________
(Exactly as on Account Registration)
DATE ___________________________________________________________________
Name(s) ________________________________________________________________
________________________________________________________________________
(Please Print)
MAIL THE COMPLETED WAIVER FORM TO:
PILGRIM AMERICA FUNDS, P.O. BOX 419368, KANSAS CITY, MO 64141-6368
DEFINITION OF DISABILITY
An individual will be considered disabled if he meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code, which in pertinent
part defines a person as disabled if such peron is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long
continued and indefinite duration.
CERTIFICATION OF DISABILITY
I _____________________________________ certify that I am a licensed physician
Licensed Physician Name
in the State of _______________________________________________________________,
License # ____________ and that _________________ is under my care and is unable
to perform the material duties of his or her regular occupation or employment;
or is unable to engage in any substantial gainful activity by reason of a
physical or mental impairment which may result in death or be of continued and
indefinite duration. Date of determination of disability _______________________
Physician Signature _______________________ Date ______________________________
37
<PAGE>
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38
<PAGE>
IMPORTANT INFORMATION REGARDING COMPLETION OF THE APPLICATION
Effective in 1989, the Fund, and other payers, must, according to IRS
regulations, withhold 31% of reportable dividends (whether paid or accrued) and
redemption payments if a shareholder fails to provide a taxpayer identification
number, and a certification that he is not subject to backup withholding in the
SHAREHOLDER CERTIFICATION section of the Account Application form.
(Section references are to the Internal Revenue Code, as amended).
BACKUP WITHHOLDING
You are subject to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the Fund in
the manner required, OR
(2) The Internal Revenue Service notifies the Fund that you furnished an
incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding under
section 3406(a)(1)(C), OR
(4) For an interest or dividend account opened after December 31, 1983, you
fail to certify to the payer that you are not subject to backup withholding
under (3) above, or fail to certify your taxpayer identification number.
For payments other than interest or dividends, you are subject to backup
withholding only if (1) or (2) above applies.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS 5, application for a Social Security Number Card, or Form
SS 4, application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write 'applied for' in the space provided for a taxpayer identification
number on the application. Circle paragraph 3(b) of the Shareholder
Certification section.
WHAT NUMBER TO GIVE
Give the social security number or employer identification number of the record
owner of the account. If the account belongs to you as an individual, give your
social security number. If the account is in more than one name or is not in the
name of the actual owner, see the chart below for guidelines on which number to
report in completing the account registration section:
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are specifically exempted from backup withholding on ALL
payments. Write 'exempt payee' after paragraph (3) of the Shareholder
Certification and Signature Certification section if your account falls into one
of the following categories. We will still need your taxpayer identification
number.
o A corporation
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
Payments of DIVIDENDS not generally subject to backup withholding include the
following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships NOT engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1984, payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
<TABLE>
<CAPTION>
- ---------------------------------- ----------------------------
GUIDELINES FOR DETERMINING GIVE THE
PROPER NUMBER SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------- ----------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account to a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor The adult or if the minor is
the only contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor or
incompetent person
7. a. The usual revocable The grantor-trustee(5)
savings trust account
(grantor is also trustee)
b. So called trust account
that is not a legal or valid The actual owner(1)
trust under state law
8. Sole proprietorship account The owner(1)
- ---------------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------- ----------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------- ----------------------------
<S> <C> <C>
9. A valid trust, estate or Legal entity (Do not furnish
pension trust the identifying number of
the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club or other The organization
tax exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a state or local government,
school district, or prison)
that receives agricultural
program payments
- ---------------------------------- ----------------------------
</TABLE>
39
<PAGE>
[LOGO]
PILGRIM AMERICA MASTERS
SERIES, INC.
PILGRIM AMERICA MASTERS ASIA-PACIFIC
EQUITY FUND
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
TWO RENAISSANCE SQUARE, 40 NORTH CENTRAL AVENUE, SUITE 1200,
PHOENIX, ARIZONA 85004
1-800-331-1080
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUNDS............................................... 1
PILGRIM AMERICA MASTERS SERIES
AT A GLANCE........................................... 2
SUMMARY OF EXPENSES..................................... 3
FINANCIAL HIGHLIGHTS.................................... 4
THE MANAGERS............................................ 5
Masters Series: Access to Private Money Managers...... 5
The Investment Manager................................ 5
The Portfolio Managers................................ 5
PAST PERFORMANCE OF THE PORTFOLIO
MANAGERS.............................................. 7
THE FUNDS' INVESTMENT OBJECTIVES
AND POLICIES.......................................... 11
INVESTMENT PRACTICES AND RISK CONSIDERATIONS............ 12
Risk Considerations................................... 12
Investment Techniques................................. 13
All Funds: Diversification and Changes in Policies.... 13
SHAREHOLDER GUIDE....................................... 14
Pilgrim America Purchase Options(Trademark)........... 14
Purchasing Shares..................................... 19
Exchange Privileges and Restrictions.................. 21
How to Redeem Shares.................................. 21
MANAGEMENT OF THE FUNDS................................. 23
DIVIDENDS, DISTRIBUTIONS AND TAXES...................... 24
PERFORMANCE INFORMATION................................. 25
ADDITIONAL INFORMATION.................................. 25
NEW ACCOUNT APPLICATION................................. 27
</TABLE>
[LOGO]
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
DISTRIBUTOR
Pilgrim America Securities, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-334-3444
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-331-1080
TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIAN
Investors Fiduciary Trust Company
127 W. 10th Street/14th Floor
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
PROSPECTUS
OCTOBER 30 , 1996
<PAGE>
PILGRIM AMERICA MASTERS SERIES, INC.
Pilgrim America Masters Asia-Pacific Equity Fund
Pilgrim America Masters MidCap Value Fund
Pilgrim America Masters LargeCap Value Fund
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Statement of Additional Information
dated October 30, 1996
Pilgrim America Masters Series, Inc. ("Masters Series") is an open-end
management investment company commonly known as a mutual fund. Masters Series
currently consists of three separate diversified investment funds, Pilgrim
America Masters Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"), Pilgrim
America Masters MidCap Value Fund ("MidCap Value Fund") and Pilgrim America
Masters LargeCap Value Fund ("LargeCap Value Fund") each with its own investment
objective and policies.
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the Masters Series Prospectus, dated October 30, 1996,
as supplemented February 29, 1996 ("Prospectus"), which has been filed with
the Securities and Exchange Commission ("SEC"). Copies of the Prospectus may
be obtained at no charge by calling (800) 331-1080.
The Funds involve investment risk, including the risk of loss of principal, and
their shares are not obligations, deposits or accounts of a bank and are not
guaranteed by a bank. In addition, shares of the Funds are not insured by the
Federal Deposit Insurance Corporation (the "FDIC"), the Federal Reserve Board,
or any other agency.
<PAGE>
TABLE OF CONTENTS
Page
----
Organization of Pilgrim America Masters Series, Inc................... 1
Management of the Funds............................................... 1
Supplemental Description of Investments............................... 9
Supplemental Investment Techniques.................................... 10
Supplemental Discussion of Risks Associated With the
Funds' Investment Policies and Investment Techniques................ 11
Investment Restrictions............................................... 16
Portfolio Transactions................................................ 18
Additional Purchase and Redemption Information........................ 19
Determination of Share Price.......................................... 23
Shareholder Services and Privileges................................... 24
Distributions......................................................... 25
Tax Considerations.................................................... 25
Shareholder Information............................................... 30
Calculation of Performance Data....................................... 30
General Information................................................... 32
Financial Statements.................................................. 33
-2-
<PAGE>
ORGANIZATION OF PILGRIM AMERICA MASTERS SERIES, INC.
Pilgrim America Masters Series, Inc. is an open-end management investment
company commonly known as a mutual fund. Masters Series currently consists of
three separate diversified investment funds, Asia-Pacific Equity Fund, MidCap
Value Fund and LargeCap Value Fund (each a "Fund" and collectively the "Funds"),
each with its own investment objective and policies. The Funds are designed to
give investors access to private money managers who typically manage only the
portfolios of high net worth individuals and institutional investors.
The authorized capital stock of Masters Series consists of 1,000,000,000 shares
having par value of $.01 per share. Holders of shares of a Fund have one vote
for each share held, and a proportionate fraction of a vote for each fraction of
a share held. All shares issued and outstanding are fully paid and
non-assessable, transferrable, and redeemable at the option of the shareholder.
Shares have no preemptive 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.
The Board of Directors may classify or reclassify any unissued shares into
shares of any series by setting or changing in any one or more respects, from
time to time, prior to the issuance of such shares, the 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 Investment Company Act of 1940 (the "1940
Act").
MANAGEMENT OF THE FUNDS
Board of Directors. Masters Series is managed by its Board of Directors. The
Directors and Officers of Masters Series 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 1940 Act, by virtue of that person's affiliation
with Masters Series or Pilgrim America Investments, Inc., Masters Series'
investment manager (the "Investment Manager").
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 55.) Director. Realtor, The Prudential Arizona Realty, for more than
the last five years. Ms. Baldwin is also Treasurer, United States Olympic
Committee, and formerly was on the teaching staff at Arizona State University.
Ms. Baldwin also is 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 67.)
Director. President of Al Burton Productions, for more than the last five years,
and Executive Producer, Castle Rock Entertainment. Mr. Burton also is a director
and/or trustee of each of the funds managed by the Investment Manager.
Bruce S. Foerster, 4045 Sheridan Avenue, Suite 432, Miami Beach, Florida 33140.
(Age 55.) Director. President, South Beach Capital Markets Advisory Corporation
(since January 1995). Mr. Foerster was formerly Managing Director, U.S. Equity
Syndicates Desk, Lehman Brothers (June 1992 - December 1994) and Managing
Director, Equity Transactions Group/Equity Syndicate, PaineWebber Incorporated
(September 1984 - May 1992). Mr. Foerster also is a director and/or trustee of
each of the funds managed by the Investment Manager.
Jock Patton, 100 West Clarendon, Phoenix, Arizona 85013. (Age 49.) Director.
President, StockVal, Inc. (1992 - present); director and co-owner, StockVal,
Inc. (1982 - present); director of Artisoft, Inc. Mr. Patton was formerly a
partner and director of the law firm of Streich, Lang, P.A. (1972 - 1992). Mr.
Patton is also a director or trustee of each of the funds managed by the
Investment Manager.
<PAGE>
*Robert W. Stallings, Two Renaissance Square, 12th Floor, 40 North Central
Avenue, Phoenix, AZ 85004. (Age 47.) Director and President. Chairman, Chief
Executive Officer and President of Pilgrim America Group, Inc. ("Pilgrim America
Group") and a director of Pilgrim America Securities, Inc. and Pilgrim America
Investments, 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 Investment Funds, Inc. and Pilgrim
America Prime Rate Trust (since April 1995). Chairman and Chief Executive
Officer of Express America Holdings Corporation (since August 1990) and Express
America Mortgage Corporation (since May 1991) and President of Express America
Holdings Corporation and Express America Mortgage Corporation (since December
1993). Mr. Stallings formerly was Chairman and Chief Executive Officer of First
Western Partners, Inc., a consulting and management services firm to financial
institutions and private investors (February 1990 - December 1991) and Chairman
and Chief Executive Officer of Western Savings & Loan Assoc. (April 1989 -
February 1990).
Each Fund pays each Director who is not an interested person a pro rata share,
as described below, of (i) an annual retainer of $20,000; (ii) $1,500 per
quarterly and special Board meeting; (iii) $500 per committee meeting; (iv) $100
per special telephonic meeting; and (v) out-of-pocket expenses. The pro rata
share paid by the Funds is based on the Funds' 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 Masters Series and other funds managed by the Investment Manager for the
ten months ended June 30, 1996. Officers of the Masters Series and Directors who
are interested persons of the Masters Series do not receive any compensation
from the Fund or any other funds managed by the Investment Manager. In the
column headed "Total Compensation From Registrant and Fund Complex Paid to
Directors," the number in parentheses indicates the total number of boards in
the fund complex on which the Director serves.
Compensation Table
<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................. $252 N/A N/A $23,800
(5 boards)
- --------------------------------------------------------------------------------------------------
Al Burton*, Director...................... $252 N/A N/A $23,800
(5 boards)
- --------------------------------------------------------------------------------------------------
Bruce S. Foerster*, Director............. $252 N/A N/A $23,900
(5 boards)
- --------------------------------------------------------------------------------------------------
Jock Patton*, Director ................. $252 N/A N/A $22,400
(5 boards)
- --------------------------------------------------------------------------------------------------
Robert W. Stallings**, Director and Chairman $0 N/A N/A $0
(5 boards)
==================================================================================================
</TABLE>
- ----------
* Member of the Audit Committee.
** "Interested person," as defined in the Investment Company Act of 1940, of
the Masters Series because of the affiliation with the Investment Manager.
-2-
<PAGE>
Officers.
James R. Reis, Executive Vice President
Two Renaissance Square, 12th Floor, 40 North Central Avenue, Phoenix, AZ 85004.
(Age 39.) Vice Chairman (since December 1994) and Executive Vice President
(since April 1995) of Pilgrim America Group and Pilgrim America Investments,
Inc. and a director (since December 1994) and Assistant Secretary (since January
1995) of Pilgrim America Securities, Inc. Executive Vice President of Pilgrim
Government Securities Income Fund, Inc., Pilgrim America Investment Funds, Inc.,
Pilgrim America Prime Rate Trust, and Pilgrim America Bank and Thrift Fund Inc.
Vice Chairman and Chief Financial Officer of Express America Holdings
Corporation (since December 1993) and President and Chief Financial Officer of
Express America Holdings Corporation (May 1991 - December 1993). Mr. Reis is
also Vice Chairman (since December 1993) of Express America Mortgage Corporation
and formerly was President (May 1991 - December 1993), and he was also the
President and Chief Financial Officer of First Western Partners, Inc. (February
1990 - December 1991).
Stanley Vyner, Executive Vice President
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004. (Age 47.) Mr. Vyner has served as President and Chief Executive Officer
for Pilgrim America Investments, Inc. since August, 1996, Executive Vice
President of Pilgrim America Group since August, 1996, and as Executive Vice
President of Pilgrim America Bank and Thrift Fund, Inc., Pilgrim America
Investment Funds, Inc., and Pilgrim Government Securities Income Fund, Inc.
since July, 1996. He served as Chief Executive Officer of HSBC Asset Management
Americas, Inc. until December, 1995, and prior to that was the Chief Executive
Officer of HSBC Life Assurance Co., the largest provider of retirement services
in Hong Kong, where Mr. Vyner worked for nearly 11 years. An actuary by
profession, Mr. Vyner earned his Honors Degree in Economics from Edinburgh
University, UK. He is a Fellow of the Faculty of Actuaries.
James M. Hennessy, Senior Vice President and Secretary
Two Renaissance Square, 12th Floor, 40 North Central Avenue, Phoenix, AZ 85004.
(Age 47.) Senior Vice President and Secretary, Express America Holdings
Corporation, Pilgrim America Group, Pilgrim America Investments, Inc. and
Pilgrim America Securities, Inc. (since April 1995). Senior Vice President and
Secretary of Pilgrim Government Securities Income Fund, Inc., Pilgrim America
Investment Funds, Inc., Pilgrim America Prime Rate Trust, and Pilgrim America
Bank and Thrift Fund Inc. Senior Vice President, Express America Mortgage
Corporation (June 1992 - August 1994). Mr. Hennessy was also the President of
Beverly Hills Securities (January 1990 - June 1992).
Michael J. Roland, CPA, Senior Vice President, Treasurer and Principal
Accounting Officer.
Two Renaissance Square, 12th Floor, 40 North Central Avenue, Phoenix, AZ 85004.
(Age 38.) Senior Vice President and Chief Financial Officer of Pilgrim America
Group, Inc., Pilgrim America Investments, Inc. and Pilgrim America Securities,
Inc. (since April 1995). Senior Vice President and Treasurer of Pilgrim
Government Securities Income Fund, Inc., Pilgrim America Bank and Thrift Fund,
Inc., Pilgrim America Investment Funds, Inc. and Pilgrim America Prime Rate
Trust (since April 1995). From July 1994 through December 1994, Partner at the
consulting firm of Corporate Savings Group in Newport Beach, California. From
1992 to June 1994, Vice President of Pacific Financial Asset Management Corp.
Funds in Newport Beach, California. From 1988 to 1992, Director of Financial
Reporting for Pacific Mutual Life Insurance Company in Newport Beach,
California.
Principal Shareholders. As of September 30, 1996, the Directors and officers of
Masters Series as a group owned 2.73% of the outstanding Class A shares
of MidCap Value Fund and 2.33% of the outstanding Class A shares of LargeCap
Value Fund.
-3-
<PAGE>
As of September 30, 1996, to the knowledge of management, no person owned
beneficially or of record more than 5% of the outstanding shares of any class of
the Funds, except as follows. With respect to Asia-Pacific Equity Fund,
Continental Grain Company, 277 Park Avenue, New York, New York 10172- 0003,
owned 12.15% of the Class A shares. With respect to MidCap Value Fund, Express
America Holdings Corporation ("Express America"), Two Renaissance Square, Suite
1200, 40 North Central Avenue, Phoenix, Arizona 85004-4424, owned 13.99% of the
Class A shares; Merrill Lynch Pierce Fenner & Smith Inc. ("Merrill Lynch"), P.O.
Box 45288, Jacksonville, Florida 32232-5295, owned 5.67% of the Class B shares;
and Painewebber, P.O. Box 3321, Weehawken, New Jersey 07087-9154, owned 5.11% of
the Class M shares. With respect to LargeCap Value Fund, Express America owned
25.73% of the Class A shares; Merrill Lynch, P.O. Box 45288, Jacksonville,
Florida 32232-5296, owned of record 12.84% of the Class B shares; and
Painewebber, P.O. Box 5371, Weehawken, New Jersey 07087-5154, owned 6.12% of the
Class M shares.
Investment Manager. The Investment Manager serves as investment manager to the
Funds and has overall responsibility for the management of the Funds. The
Investment Management Agreement between Masters Series and the Investment
Manager requires the Investment Manager to oversee the provision of all
investment advisory and portfolio management services for the Funds. The
Investment Manager, which was organized in December 1994, is registered as an
investment adviser with the SEC and serves as investment adviser to five other
registered investment companies (or series thereof). As of October 30, 1996,
the Investment Manager had assets under management of approximately $1.8
billion. The Investment Manager, with the approval of Masters Series' Board of
Directors, selects and employs investment advisers to serve as portfolio manager
for each Fund ("Portfolio Manager"), monitors the Portfolio Managers' investment
programs and results, and coordinates the investment activities of the Portfolio
Managers to ensure compliance with regulatory restrictions.
The Investment Manager is a wholly-owned subsidiary of Pilgrim America Group,
which itself is a wholly-owned subsidiary of Express America, a Delaware
corporation, the shares of which are traded on the NASDAQ National Market System
and which is a holding company that through its subsidiaries engages in the
financial services business. On May 16, 1991, Express America acquired a now
discontinued mortgage banking operation from the Resolution Trust Corporation
("RTC") following a competitive bidding process. On December 8, 1995, the RTC
filed a complaint in the United States District Court of Arizona against Express
America, its Chief Executive Officer, who is also Chairman and an officer of the
Funds, its Chief Financial Officer, who is also an officer of the Funds, and
others, including Smith Barney, Harris Upham & Co., Incorporated and Rauscher
Pierce Refsnes, Inc. The RTC's complaint alleges various irregularities in the
bidding process and the closing of the aquisition. The RTC has asked for at
least $20 million in actual damages and at least $60 million in punitive damages
from all defendants. Express America and the officers have advised the Funds
that they believe they have meritorious defenses to the claims brought by the
RTC, and that the litigation is unlikely to have a material adverse effect on
the operations of the Investment Manager.
The Investment Manager pays all of its expenses arising from the performance of
its obligations under the Investment Management Agreement, including all fees
payable to the Portfolio Managers, executive salaries and expenses of the
Directors and Officers of Masters Series who are employees of the Investment
Manager or its affiliates and office rent of Masters Series. The Portfolio
Managers pay all of their expenses arising from the performance of their
obligations under the Portfolio Management Agreements. Subject to the expense
reimbursement provisions described in the Prospectus, other expenses incurred in
the operation of Masters Series are borne by the Funds, 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 each Fund's net asset value; taxes, if
any, and the preparation of each 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
Funds under federal and state laws and regulations; salary
-4-
<PAGE>
and other expenses of the employees of Investment Manager engaged in registering
and qualifying shares of the Funds 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 Masters Series who are not employees of the Investment Manager
or any Portfolio Manager, or their affiliates; membership dues in the Investment
Company Institute; insurance premiums; and extraordinary expenses such as
litigation expenses. Expenses directly attributable to a Fund are charged to
that Fund and other expenses are allocated proportionately among all the Funds
in relation to the net assets of each Fund.
The Investment Manager bears the expense of providing its services, and pays the
fees of each Fund's Portfolio Manager. For its services, the MidCap Value Fund
and LargeCap Value Fund pay the Investment Manager a monthly fee in arrears
equal to 1/12 of 1.00% of the Fund's average daily net assets during the month
(approximately 1.00% on an annual basis) and the Asia-Pacific Equity Fund pays
the Investment Manager a monthly fee in arrears equal to 1/12 of 1.25% of the
Fund's average daily net assets during the month (approximately 1.25% on an
annual basis). The fee paid by each Fund is higher than that charged by many
other registered investment companies. For the fiscal period of September 1,
1995 (commencement of operations) to June 30, 1996, Asia-Pacific Equity Fund,
MidCap Value Fund, and LargeCap Value Fund paid management fees to the
Investment Manager of $169,861, $19,762, and $18,405, respectively.
The Investment Manager will reduce its aggregate fees for any fiscal year, or
reimburse a Fund, to the extent required so that the Fund's expenses do not
exceed the expense limitations applicable to the Fund under the securities laws
or regulations of those states or jurisdictions in which the Fund's shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require the Investment Manager to reduce its fees or
to reimburse a Fund, to the extent required so that the Fund's expenses, as
described above, for any fiscal year do not exceed 2.50% of the first $30
million of the Fund's average daily net assets, 2.00% of the next $70 million of
the Fund's average net assets and 1.50% of the Fund's remaining average net
assets. Expenses for purposes of this expense limitation include the investment
management fee, but exclude distribution expenses, brokerage commissions and
fees, taxes, interest and extraordinary expenses, such as litigation, paid or
incurred by a Fund. The Fund's expense limitation may change to reflect changes
in the expense limitations of the state having the most restrictive limitation
in which shares of a Fund may be registered or qualified for sale. For the
fiscal period of September 1, 1995 (commencement of operations) to June 30,
1996, Asia-Pacific Equity Fund, MidCap Value Fund, and LargeCap Value Fund paid
management fees to the Investment Manager of approximately $41,900, $4,700, and
$3,600, respectively.
Portfolio Managers. The Investment Manager has entered into a Portfolio
Management Agreement with each Portfolio Manager to provide investment advisory
services to the Funds. The Investment Manager recommends Portfolio Managers to
the Board of Directors of Masters Series primarily on the basis of their
successful application of a consistent, well-defined, long-term investment
approach over a period of several market cycles. Each Portfolio Manager has
discretion to purchase and sell securities for its Fund in accordance with that
Fund's investment objective, policies and restrictions. Although the Portfolio
Managers are subject to general supervision by the Investment Manager, the
Investment Manager does not evaluate the investment merits of specific
securities transactions.
HSBC Asset Management -- HSBC Asset Management Americas Inc. and HSBC Asset
Management Hong Kong Limited (collectively "HSBC") serve collectively as
Portfolio Managers to the Asia-Pacific Equity Fund. HSBC is part of HSBC Asset
Management, the global investment advisory and fund management business of the
HSBC Group, which, with headquarters in London, is one of the world's largest
banking and financial organizations. HSBC Asset Management currently manages
approximately $36 billion of assets globally for a wide variety of
institutional, retail and private clients, with a minimum account size of $10
million for Asia-Pacific investors. As compensation for its services to the
Asia-Pacific Equity Fund, the Investment Manager pays HSBC a monthly fee in
arrears equal to 1/12 of 0.50% of the Fund's average daily net assets managed
during the month. For the fiscal period of September 1, 1995 (commencement of
operations) to June 30, 1996, the Investment Manager paid portfolio management
fees to HSBC of $62,403.
CRM Advisors, LLC -- CRM Advisors, LLC (CRM), an affiliate of Cramer Rosenthal
McGlynn, Inc., serves as Portfolio Manager to the MidCap Value Fund. Organized
as a New York limited liability company in June 1995, CRM Advisors is registered
as an investment adviser under the Investment Advisers Act of 1940. Although as
a new entity CRM has no previous experience managing a registered investment
company, the principal shareholders and portfolio managers of CRM have
significant experience in managing the money of pension plans, endowment funds,
other institutions and individuals through its affiliate Cramer Rosenthal
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McGlynn, Inc. Cramer Rosenthal McGlynn, Inc. was founded in 1973 to manage
portfolios for a select number of wealthy individuals and their related
foundations, pension plans and other entities. The three founding principals of
the firm have each spent an average of 22 years in the investment business.
Cramer Rosenthal McGlynn, Inc. manages approximately $2.4 billion for more than
170 individual and institutional clients, with a minimum account size of $5
million. As compensation for its services to the MidCap Value Fund, the
Investment Manager pays CRM a monthly fee in arrears equal to 1/12 of 0.50% of
the Fund's average daily net assets managed during the month. For the fiscal
period of September 1, 1995 (commencement of operations) to June 30, 1996, the
Investment Manager paid portfolio management fees to CRM of $125,000. Accounts
managed by Cramer Rosenthal McGlynn, Inc. own in the aggregate approximately
13.9% of the outstanding voting securities of Express America.
Ark Asset Management Co., Inc. -- Ark Asset Management Co., Inc. (Ark) serves
as Portfolio Manager to the LargeCap Value Fund. Located in New York, Ark was
established in 1929 as the private money management division of Lehman Brothers.
In 1989, the division became independent when the employees purchased the
institutional business from Lehman Brothers and changed its name to Ark in 1992.
Ark manages approximately $21.4 billion, including $11.3 billion in largecap
value portfolios, for more than 200 individual and institutional clients, with a
minimum account size of $50 million. As compensation for its services to the
LargeCap Value Fund, the Investment Manager pays Ark a monthly fee in arrears
equal to 1/12 of 0.50% of the Fund's average daily net assets managed during the
month. For the fiscal period of September 1, 1995 (commencement of operations)
to June 30, 1996, the Investment Manager paid portfolio management fees to Ark
of $4,996.
The Investment Management and Portfolio Management Agreements will remain in
effect for two years following their date of execution, and thereafter will
automatically continue for successive annual periods as 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 a 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 or
the Portfolio Managers by vote cast in person at a meeting called for the
purpose of voting on such approval.
The Investment Management and Portfolio Management Agreements are 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 relevant Fund's outstanding shares
voting as a single class, or upon not less than 60 days notice by the Investment
Manager. Each of the Investment Management and Portfolio Management Agreements
will terminate automatically in the event of its "assignment" (as defined in the
1940 Act).
Distributor. Shares of the Funds are distributed by Pilgrim America Securities,
Inc. (the "Distributor") pursuant to a Distribution Agreement between Masters
Series and the Distributor. The Distribution Agreement requires the Distributor
to use its best efforts on a continuing basis to solicit purchases of shares of
the Funds. Masters Series 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
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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 Distribution
Agreement will remain in effect for two years and from year to year thereafter
only if its continuance is approved annually by a majority of the Board of
Directors who are not parties to such agreement or "interested persons" of any
such party and must be approved either by votes of a majority of the Directors
or a majority of the outstanding voting securities of Masters Series. See the
Prospectus of Masters Series for information on how to purchase and sell shares
of the Funds, and the charges and expenses associated with an investment.
For the fiscal period of September 1, 1995 (commencement of operations) to June
30, 1996, total commissions allowed to other dealers under the Funds'
underwriting arrangements were approximately $836,554 for Asia-Pacific Equity
Fund, $90,542 for MidCap Value Fund, and $70,285 for Large Cap Value Fund. For
that same period, the Distributor retained approximately $28,873 or
approximately 3.3% of the total commissions assessed on shares of Asia-Pacific
Equity Fund, approximately $27,485 or approximately 23.3% of total commissions
assessed on shares of MidCap Value Fund, and approximately $70,285 or
approximately 27.8% of total commissions assessed on shares of LargeCap Value
Fund.
Rule 12b-1 Plans. Masters Series has a distribution plan pursuant to Rule 12b-1
under the 1940 Act applicable to each class of shares of each Fund ("Rule 12b-1
Plan"). Masters Series intends to operate the Rule 12b-1 Plan in accordance with
its terms and the National Association of Securities Dealers, Inc. rules
concerning sales charges. Under the Rule 12b-1 Plan, the Distributor may be
entitled to payment each month in connection with the offering, sale, and
shareholder servicing of Class A, Class B, and Class M shares in amounts not to
exceed the following: with respect to Class A shares at an annual rate of up to
0.35% of the average daily net assets of the Class A shares of the Fund; with
respect to Class B shares at an annual rate of up to 1.00% of the average daily
net assets of the Class B shares of the Fund; and with respect to Class M shares
at an annual rate of up to 1.00% of the average daily net assets of the Class M
shares of the Fund. The Board of Directors has approved under the Rule 12b-1
Plan payments of the following amounts to the Distributor 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 a 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 a 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 a Fund. Of these amounts, fees equal to an
annual rate of 0.25% of the average daily net assets of each of the Funds is for
shareholder servicing for each of the classes.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at the
annual rate of 0.25%, 0.25% and 0.65% of a 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 Funds,
including payments to Authorized Dealers for selling shares of the Funds and for
servicing shareholders of these classes of the Funds. 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 a Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to
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make any payments for expenses incurred after the date the Plan terminates. The
Distributor will receive payment under the Rule 12b-1 Plan 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 Funds' 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 one or more of the
Funds or other funds managed by the Investment Manager and/or other events
sponsored by dealers.
The Rule 12b-1 Plan has been approved by the Board of Directors, including all
of the Directors who are not interested persons of Masters Series as defined in
the 1940 Act, and by the Funds' 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 Masters Series 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 dealer or other firm may also
terminate their 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
a 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 Masters Series, 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 each Fund, will benefit such Funds and their
respective shareholders.
Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
a Fund without approval by a majority of the Fund's outstanding shares, and all
material amendments to a Plan or any distribution or service agreement shall be
approved by the Directors who are not interested persons of Masters Series, 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 be
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 each Fund's Class A, B, and M shares for the
fiscal period September 1, 1995 to June 30, 1996 were as follows:
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- --------------------------------------------------------------------------------
Asia-Pacific Equity Fund Class A Class B Class M
- --------------------------------------------------------------------------------
Advertising...................... $ 32,993 $ 23,061 $ 11,141
Printing......................... 116,974 81,763 39,500
Salaries & Commissions........... 282,053 197,150 95,243
Broker Servicing................. 140,951 98,522 47,596
Miscellaneous.................... 70,666 49,394 23,862
- --------------------------------------------------------------------------------
MidCap Value Fund
Advertising...................... $ 19,419 $ 9,901 $ 4,277
Printing......................... 68,850 35,104 15,164
Salaries & Commissions........... 164,875 84,063 36,312
Broker Servicing................. 82,961 42,299 18,272
Miscellaneous.................... 34,955 17,822 7,698
- --------------------------------------------------------------------------------
LargeCap Value Fund
Advertising...................... $ 24,943 $ 3,235 $ 5,419
Printing......................... 88,433 11,471 19,214
Salaries & Commissions........... 212,091 27,511 46,081
Broker Servicing................. 106,558 13,822 23,152
Miscellaneous.................... 43,329 5,620 9,414
- --------------------------------------------------------------------------------
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
Some of the different types of securities in which the Funds may invest, subject
to their respective investment objectives, policies and restrictions, are
described in the Prospectus under "The Funds' Investment Objectives and
Policies" and "Investment Practices and Risk Considerations." Additional
information concerning the characteristics of certain of the Funds' investments
are set forth below.
Common Stock, Convertible Securities and Other Equity Securities. The Funds will
invest in common stocks, which represent an equity (ownership) interest in a
company. This ownership interest generally gives a Fund the right to vote on
issues affecting the company's organization and operations.
The Funds may also buy other types of equity securities such as convertible
securities, preferred stock, and warrants or other securities that are
exchangeable for shares of common stock. A convertible security is a security
that may be converted either at a stated price or rate within a specified period
of time into a specified number of shares of common stock. By investing in
convertible securities, a Fund seeks the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the
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securities are convertible, while investing at a better price than may be
available on the common stock or obtaining a higher fixed rate of return than is
available on common stocks.
U.S. Government Securities. U.S. Government securities include instruments
issued by the U.S. Treasury, such as bills, notes and bonds. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
full faith and credit of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances. In addition, U.S. Government securities include securities issued by
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, which are also backed by the full faith and credit of the
United States. Also included in the category of U.S. Government securities are
instruments issued by instrumentalities established or sponsored by the U.S.
Government, such as the Student Loan Marketing Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. While these
securities are issued, in general, under the authority of an Act of Congress,
the U.S. Government is not obligated to provide financial support to the issuing
instrumentalities, although under certain conditions certain of these
authorities may borrow from the U.S. Treasury. In the case of securities not
backed by the full faith and credit of the U.S., the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the U.S. itself in the event the agency or instrumentality does not meet its
commitment. Each Fund will invest in securities of such agencies or
instrumentalities only when the Portfolio Manager is satisfied that the credit
risk with respect to any instrumentality is comparable to the credit risk of
U.S. government securities backed by the full faith and credit of the United
States.
Banking Industry Obligations. The Funds may invest in banking industry
obligations, including certificates of deposit, bankers' acceptances, and fixed
time deposits. A Fund will not invest in obligations issued by a bank unless (i)
the bank is a U.S. bank and a member of the FDIC and (ii) the bank has total
assets of at least $1 billion (U.S.) or, if not, the Fund's investment is
limited to the FDIC-insured amount of $100,000.
American Depositary Receipts and European Depositary Receipts. Each of the Funds
may invest in securities of foreign issuers in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other similar
securities representing securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying foreign securities. EDRs are
receipts issued by a European financial institution evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets, and EDRs, in bearer form, are designed for use
in European securities markets.
When-Issued Securities and Delayed-Delivery Transactions. In order to secure
prices or yields deemed advantageous at the time, the Funds may purchase or sell
securities on a when-issued or a delayed-delivery basis. The Funds will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage. In such transactions, delivery of the
securities occurs beyond the normal settlement periods, but no payment or
delivery is made by, and no interest accrues to, the Fund prior to the actual
delivery or payment by the other party to the transaction. Due to fluctuations
in the value of securities purchased on a when-issued or a delayed-delivery
basis, the yields obtained on such securities may be higher or lower than the
yields available in the market on the dates when the investments are actually
delivered to the buyers. Similarly, the sale of securities for delayed-delivery
can involve the risk that the prices available in the market when delivery is
made may actually be higher than those obtained in the transaction itself. Each
Fund will establish a segregated account with the Custodian consisting of cash
and liquid assets in an amount equal to the amount of its when-issued and
delayed-delivery commitments which will be "marked to market" daily.
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SUPPLEMENTAL INVESTMENT TECHNIQUES
Borrowing. A Fund may borrow money from banks solely for temporary or emergency
purposes, but not in an amount exceeding one-third of its total assets. However,
if a Fund borrows money, its share price may be subject to greater fluctuation
until the borrowing is paid off. If the Fund makes additional investments while
borrowings are outstanding, this may be construed as a form of leverage.
Short Sales Against the Box. MidCap Value Fund is authorized to make short sales
of securities it owns or has the right to acquire at no additional cost through
conversion or exchange of other securities it owns (referred to as short sales
"against the box"). When the Fund makes a short sale, the proceeds it receives
are retained by the broker until the Fund replaces the borrowed security. In
order to deliver the security to the buyer, the Fund must arrange through the
broker to borrow the security and, in so doing, the Fund becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. If the Fund makes a short sale "against the box,"
the Fund would not immediately deliver the securities sold and would not receive
the proceeds from the sale. The seller is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. The Fund's decision to make a short sale "against the
box" may be a technique to hedge against market risks when the Portfolio Manager
believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund or a security convertible or exchangeable
for such security. In such case, any future losses in the Fund's long position
would be reduced by an offsetting future gain in the short position. No more
than 5% of the Fund's net assets may be used to cover such short positions. In
addition, the Fund's ability to enter into short sales may be limited by certain
tax requirements.
Other Investment Companies. Each Fund may invest in shares issued by no-load
investment companies. A Fund is limited in the degree to which it may invest in
shares of another investment company in that it may not, at the time of the
purchase, (1) acquire more than 3% of the outstanding voting shares of the
investment company, (2) invest more than 5% of the Fund's total assets in the
investment company, or (3) invest more than 10% of the Fund's total assets in
all investment company holdings. As a shareholder in any investment company, a
Fund will bear its ratable share of the investment company's expenses, including
management fees in the case of a management investment company.
SUPPLEMENTAL DISCUSSION OF RISKS
ASSOCIATED WITH THE FUNDS' INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
Additional information concerning risks associated with certain of the Funds'
investments is set forth below.
Emerging Market and Other Foreign Securities. Asia-Pacific Equity Fund will
invest substantially all of its assets in the equity securities of companies
based in the Asia-Pacific region. Asia-Pacific countries include, but are not
limited to, China, Hong Kong, Indonesia, Korea, Malaysia, Philippines,
Singapore, Taiwan and Thailand, although the Fund will not invest in Japan and
Australia. Foreign financial markets, while growing in volume, have, for the
most part, substantially less volume than United States markets, and securities
of many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delivery of securities may not occur at the same time as payment in some foreign
markets. Delays in settlement could result in temporary periods when a portion
of the assets of the Asia-Pacific Equity Fund is uninvested and no return is
earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security
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or, if the Fund has entered into a contract to sell the security, could result
in possible liability to the purchaser.
As foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to domestic companies, there may be less publicly available information about
certain foreign companies than about domestic companies. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States. A foreign
government may impose exchange control regulations that may have an impact on
currency exchange rates, and there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments that could affect U.S. investments in those countries.
Although Asia-Pacific Equity Fund will use reasonable efforts to obtain the best
available price and the most favorable execution with respect to all
transactions and the Portfolio Manager will consider the full range and quality
of services offered by the executing broker or dealer when making these
determinations, fixed commissions on many foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges. Certain foreign
governments levy withholding taxes against dividend and interest income.
Although in some countries a portion of these taxes are recoverable, the
non-recovered portion of foreign withholding taxes will reduce the income
received by the Fund on these investments. However, these foreign withholding
taxes are not expected to have a significant impact on the Asia-Pacific Equity
Fund, since the Fund's investment objective is to seek long-term capital
appreciation and any income earned by the Fund should be considered incidental.
The risks of investing in foreign securities may be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
markets or countries with limited or developing capital markets. Security prices
in emerging markets can be significantly more volatile than in the more
developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the risk
of sudden adverse government action and even nationalization of businesses,
restrictions on foreign ownership, or prohibitions of repatriation of assets,
and may have less protection of property rights than more developed countries.
The economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. Transaction settlement and dividend collection procedures
may be less reliable in emerging markets than in developed markets. Securities
of issuers located in countries with emerging markets may have limited
marketability and may be subject to more abrupt or erratic price movements.
Investing in Developing Asia-Pacific Securities Markets and Economies. The
securities markets of developing Asia-Pacific countries are not as large as the
U.S. securities markets and have substantially less trading volume, resulting in
a lack of liquidity and high price volatility. Certain markets, such as those of
China, are in only the earliest stages of development. There is also a 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. Many of such markets
also may be affected by developments with respect to more established markets in
the region, such as in Japan. Developing Asia-Pacific brokers typically are
fewer in number and less capitalized than brokers in the United States. These
factors, combined with the U.S. regulatory requirements of open-end investment
companies and the restrictions on foreign investments discussed below, result in
potentially fewer investment opportunities for Asia-Pacific Equity Fund and may
have an adverse impact on the investment performance of the Fund. The Fund's
investment restrictions permit it to invest up to 15% of its net assets in
securities that are determined by the Portfolio Manager to be illiquid.
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The investment objective of Asia-Pacific Equity Fund reflects the belief that
the economies of the developing Asia-Pacific countries will continue to grow in
such a fashion as to provide attractive investment opportunities. At the same
time, emerging economies present certain risks that do not exist in more
established economies. Especially significant is that political and social
uncertainties exist for many of the developing Asia-Pacific countries. In
addition, the governments of many of such countries, such as Indonesia, have a
heavy role in regulating and supervising the economy. Another risk common to
most such countries is that the economy is heavily export oriented and,
accordingly, is dependent upon international trade. The existence of
overburdened infrastructure and obsolete financial systems also presents risks
in certain countries, as do environmental problems. Certain economies also
depend to a significant degree upon exports of primary commodities and,
therefore, are vulnerable to changes in commodity prices which, in turn, may be
affected by a variety of factors. In addition, certain developing Asia-Pacific
countries, such as the Philippines, are especially large debtors to commercial
banks and foreign governments.
Archaic legal systems in certain developing Asia-Pacific countries also may have
an adverse impact on the Asia-Pacific Equity Fund. For example, while the
potential liability of a shareholder in a U.S. corporation with respect to acts
of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain developing
Asia-Pacific countries. Similarly, the rights of investors in Asia-Pacific
companies may be more limited than those of shareholders of U.S. corporations.
Certain of the risks associated with international investments and investing in
smaller capital markets are heightened for investments in developing
Asia-Pacific countries. For example, some of the currencies of developing
Asia-Pacific countries have experienced devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries face serious exchange constraints. In addition, as
mentioned above, governments of many developing Asia-Pacific countries have
exercised and continue to exercise substantial influence over many aspects of
the private sector.
In certain cases, the government owns or controls many companies, including the
largest in the country. Accordingly, government actions in the future could have
a significant effect on economic conditions in developing Asia-Pacific
countries, which could affect private sector companies and the Asia-Pacific
Equity Fund, as well as the value of securities in the Fund's portfolio.
In addition to the relative lack of publicly available information about
developing Asia-Pacific issuers and the possibility that such issuers may not be
subject to the same accounting, auditing and financial reporting standards as
are applicable to U.S. companies, inflation accounting rules in some developing
Asia-Pacific countries require, for companies that keep accounting records in
the local currency, for both tax and accounting purposes, that certain assets
and liabilities be restated on the company's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation accounting
may indirectly generate losses or profits for certain developing Asia-Pacific
companies.
Satisfactory custodial services for investment securities may not be available
in some developing Asia-Pacific countries, which may result in the Asia-Pacific
Equity Fund incurring additional costs and delays in providing transportation
and custody services for such securities outside such countries, if possible.
As a result, the Portfolio Manager of the Asia-Pacific Equity Fund may determine
that, notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular developing Asia-Pacific
country. The Fund may invest in countries in which foreign investors, including
the Portfolio Manager of the Fund, have had no or limited prior experience.
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Restrictions on Foreign Investments. Some developing Asia-Pacific countries
prohibit or impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities such as the
Asia-Pacific Equity Fund. As illustrations, certain countries may require
governmental approval prior to investments by foreign persons or limit the
amount of investment by foreign persons in a particular company or limit the
investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms (including price) than securities
of the company available for purchase by nationals. Certain countries may
restrict investment opportunities in issuers or industries deemed important to
national interests.
The manner in which foreign investors may invest in companies in certain
developing Asia-Pacific countries, as well as limitations on such investments,
also may have an adverse impact on the operations of the Asia-Pacific Equity
Fund. For example, the Fund may be required in certain of such countries to
invest initially through a local broker or other entity and then have the shares
purchased re-registered in the name of the Fund. Re-registration may in some
instances not be able to occur on timely basis, resulting in a delay during
which the Fund may be denied certain of its rights as an investor, including
rights as to dividends or to be made aware of certain corporate actions. There
also may be instances where the Fund places a purchase order but is subsequently
informed, at the time of re-registration, that the permissible allocation of the
investment to foreign investors has been filled, depriving the Fund of the
ability to make its desired investment at that time.
Substantial limitations may exist in certain countries with respect to the
Asia-Pacific Equity Fund's ability to repatriate investment income, capital or
the proceeds of sales of securities by foreign investors. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments. No more than 15% of the Fund's
net assets may be comprised, in the aggregate, of assets that are (i) subject to
material legal restrictions on repatriation or (ii) invested in illiquid
securities. Even where there is no outright restriction on repatriation of
capital, the mechanics of repatriation may affect certain aspects of the
operations of the Fund. For example, funds may be withdrawn from the People's
Republic of China only in U.S. or Hong Kong dollars and only at an exchange rate
established by the government once each week.
In certain countries, banks or other financial institutions may be among the
leading companies or have actively traded securities. The 1940 Act restricts the
Asia-Pacific Equity Fund's investments in any equity securities of an issuer
that, in its most recent fiscal year, derived more than 15% of its revenues from
"securities related activities," as defined by the rules thereunder. The
provisions may restrict the Fund's investments in certain foreign banks and
other financial institutions.
Foreign Currency Risks. Currency risk is the risk that changes in foreign
exchange rates will affect, favorably or unfavorably, the U.S. dollar value of
foreign securities held by the Asia-Pacific Equity Fund. In a period when the
U.S. dollar generally rises against foreign currencies, the returns on foreign
stocks for a U.S. investor will be diminished. By contrast, in a period when the
U.S. dollar generally declines, the returns on foreign securities will be
enhanced. Unfavorable changes in the relationship between the U.S. dollar and
the relevant foreign currencies, therefore, will adversely affect the value of
the Asia-Pacific Equity Fund's shares.
Foreign Currency Exchange Transactions. Because the Asia-Pacific Equity Fund may
buy and sell securities denominated in currencies other than the U.S. Dollar,
and receive interest, dividends and sale proceeds in currencies other than the
U.S. Dollar, the Fund may enter into foreign currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. Dollar. The Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or uses forward foreign currency contracts to
purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest
more than 5% of its assets (taken at market value at the time of investment) in
forward foreign currency contracts.
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A forward foreign currency exchange contract is an agreement to exchange one
currency for another -- for example, to exchange a certain amount of U.S.
Dollars for a certain amount of Korean Won -- at a future date. Forward foreign
currency contracts are included in the group of instruments that can be
characterized as derivatives. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain. Use of currency hedging techniques may also be
limited by management's need to protect the status of the Fund as a regulated
investment company under the Code.
MidCap Company Equity Securities. MidCap Value Fund will invest substantially
all of its assets in the equity securities of certain midcap companies. Midcap
companies will tend to be smaller, more emerging companies and investment in
these companies may involve greater risk than is customarily associated with
securities of larger, more established companies. Midcap companies may
experience relatively higher growth rates and higher failure rates than do
larger companies. The trading volume of securities of midcap companies is
normally less than that of larger companies and, therefore, may
disproportionately affect their market price, tending to make them rise more in
response to buying demand and fall more in response to selling pressure than is
the case with larger companies.
Illiquid Securities. A Fund may invest in an illiquid or restricted security if
the Portfolio Manager believes that it presents an attractive investment
opportunity. Generally, a security is considered illiquid if it cannot be
disposed of within seven days. Its illiquidity might prevent the sale of such a
security at a time when a Portfolio Manager might wish to sell, and these
securities could have the effect of decreasing the overall level of a
Portfolio'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 judgements that may be somewhat subjective in determining value, which could
vary from the amount that a Fund could realize upon disposition.
Restricted securities, including private placements, are subject to legal or
contractual restrictions on resale. They can be eligible for purchase without
SEC 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. A Fund may not
invest more than 15% of its net assets in illiquid securities, measured at the
time of investment. Each Fund will adhere to a more restrictive investment
limitation on its investments in illiquid or restricted securities as required
by the securities laws of those jurisdictions where shares of the Fund are
registered for sale.
Options on Securities. The Funds may purchase put options on portfolio
securities in which they may invest that are traded on a U.S. exchange or in the
over-the-counter market and, for the Asia-Pacific Equity Fund, on a foreign
securities exchange. A Fund may not invest more than 5% of its assets (taken at
market value at the time of such investment) in put options. Such put options
are included in the group of instruments that can be characterized as
derivatives. A Fund may purchase put options on portfolio securities at or about
the same time that it purchases the underlying security or at a later time. By
buying a put, a Fund limits its risk of loss from a decline in the market value
of the security until the put expires. Any appreciation in the value of the
underlying security, however, will be partially offset by the amount of the
premium paid for the put
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option and any related transaction costs. Prior to their expirations, put
options may be sold in closing sale transactions.
The purchase of options involves certain risks. If a put option purchased by a
Fund is not sold when it has remaining value, and if the market price of the
underlying security remains equal to or greater than the exercise price, the
Fund will lose its entire investment in the option. Also, where a put option is
purchased to hedge against price movements in a particular security, the price
of the put option may move more or less than the price of the related security.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position.
Repurchase Agreements. Each Fund may invest any portion of its assets otherwise
invested in money market instruments in U.S. Government securities and
concurrently enter into repurchase agreements with respect to such securities.
Such repurchase agreements will be made only with government securities dealers
recognized by the Board of Governors of the Federal Reserve System or with
member banks of the Federal Reserve System. Under such agreements, the seller of
the security agrees to repurchase it at a mutually agreed upon time and price.
The resale price is in excess of the purchase price and reflects an agreed upon
interest rate for the period of time the agreement is outstanding. The period of
these repurchase agreements is usually quite short, from overnight to one week,
while the underlying securities generally have longer maturities.
Each Fund will always receive as collateral securities acceptable to it whose
market value is equal to at least 100% of the amount invested by the Fund, and
the Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the seller
defaults, a 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.
INVESTMENT RESTRICTIONS
The Company has adopted the investment restrictions listed below relating to the
investment of each Fund's assets and its activities. These are fundamental
policies that may not be changed without the approval of the holders of a
majority of the outstanding voting securities of a Fund (which for this purpose
and under the 1940 Act means the lesser of (i) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). None of the Funds may:
(1) invest in a security if, with respect to 75% of its total assets,
more than 5% of the total assets (taken at market value at the time
of such investment) would be invested in the securities of any one
issuer, except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
(2) invest in a security if, with respect to 75% of its assets, it would
hold more than 10% (taken at the time of such investment) of the
outstanding voting securities of any one issuer, except securities
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities;
(3) invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in
the securities of companies primarily engaged in any one industry,
except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government, its agencies and
instrumentalities (or repurchase agreements with respect thereto);
(4) lend any funds or other assets, except that a Fund may, consistent
with its investment objective and policies:
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(a) invest in debt obligations, even though the purchase of
such obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with
applicable guidelines established by the SEC and any
guidelines established by the Board of Directors;
(5) borrow money or pledge, mortgage, or hypothecate its assets, (a)
except that a Fund may borrow from banks, but only if immediately
after each borrowing and continuing thereafter there is asset
coverage of 300%; and (b) and except that the following shall not be
considered a pledge, mortgage, or hypothecation of a Fund's assets
for these purposes: entering into reverse repurchase agreements;
transactions in options, futures, options on futures, and forward
currency contracts; the deposit of assets in escrow in connection
with the writing of covered put and call options; and the purchase
of securities on a "when-issued" or delayed delivery basis;
collateral arrangements with respect to initial or variation margin
and other deposits for futures contracts, options on futures
contracts, and forward currency contracts;
(6) issue senior securities, except insofar as a Fund may be deemed to
have issued a senior security by reason of borrowing money in
accordance with that Fund's borrowing policies, and except for
purposes of this investment restriction, collateral or escrow
arrangements with respect to the making of short sales, purchase or
sale of futures contracts or related options, purchase or sale of
forward currency contracts, writing of stock options, and collateral
arrangements with respect to margin or other deposits respecting
futures contracts, related options, and forward currency contracts
are not deemed to be an issuance of a senior security;
(7) act as an underwriter of securities of other issuers, except, when
in connection with the disposition of portfolio securities, a Fund
may be deemed to be an underwriter under the federal securities
laws;
(8) purchase or sell real estate (other than marketable securities
representing interests in, or backed by, real estate or securities
of companies that deal in real estate or mortgages).
The Funds are 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). Unless otherwise indicated, a Fund may not:
(1) invest in securities that are illiquid if, as a result of such
investment, more than 15% of the total assets of the Fund (taken at
market value at the time of such investment) would be invested in
such securities;
(2) invest in companies for the purpose of exercising control or
management;
(3) purchase or sell physical commodities or commodities contracts
(which, for purposes of this restriction, shall not include foreign
currency or forward foreign currency contracts), except any Fund may
engage in interest rate futures contracts, stock index futures
contracts, futures contracts based on other financial instruments or
securities, and options on such futures contracts;
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(4) invest directly in interests in oil, gas or other mineral
exploration or development programs or mineral leases (other than
marketable securities of companies engaged in the business of oil,
gas, or other mineral exploration).
(5) invest more than 5% of its total assets 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 a Fund
in units or attached to securities are not included in this
restriction;
(6) purchase securities of issuers which are restricted from being sold
to the public without registration under the Securities Act of 1933
(unless such securities are deemed to be liquid under Masters
Series' Liquidity Procedures) if by reason of such investment the
Fund's aggregate investment in such securities will exceed 10% to
the Fund's total assets;
(7) invest more than 5% of the value of its total assets in securities
of issuers which have been in continuous operation less than three
years;
(8) invest in puts, calls, straddles, spreads or any combination thereof
if, as a result of such investment, more than 5% of the total assets
of the Fund (taken at market value at the time of such investment)
would be invested in such securities;
(9) loan portfolio securities unless collateral values are continuously
maintained at no less than 100% by "marking to market" daily;
(10) invest in real estate limited partnerships.
Other non-fundamental policies include the following: each Fund may not purchase
securities on margin; make short sales, except for short sales "against the
box," or purchase or retain in its portfolio any security if an officer or
Director of Masters Series or the Investment Manager or any Portfolio Manager
owns beneficially more than 1/2 of 1% of the outstanding securities of such
issuer, and in the aggregate such persons own beneficially more than 5% of the
outstanding securities of such issuer.
PORTFOLIO TRANSACTIONS
The Portfolio Management Agreements authorize the Portfolio Managers to select
the brokers or dealers that will execute the purchase and sale of investment
securities for each Fund. In all purchases and sales of securities for the
portfolio of a Fund, the primary consideration is to obtain the most favorable
price and execution available. Pursuant to the Portfolio Management Agreements,
each Portfolio Manager determines, subject to the instructions of and review by
the Board of Directors of the Fund, which brokers are to be eligible to execute
portfolio transactions of the Fund. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
"market-maker," unless in the opinion of a Portfolio Manager, a better price and
execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, each Portfolio Manager will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors. The Portfolio Managers will seek to
obtain the best commission rate available from brokers that are believed to be
capable of providing efficient execution and handling of the orders. In those
instances where it is reasonably determined that more than one broker can offer
the brokerage services needed to obtain the most favorable price and execution
available, consideration
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may be given to those brokers that supply research and statistical information
to a Fund, the Investment Manager, and/or the Portfolio Manager, and provide
other services in addition to execution services. Each Portfolio Manager
considers such information, which is in addition to and not in lieu of the
services required to be performed by the Portfolio Manager, under its Portfolio
Management Agreement, to be useful in varying degrees, but of indeterminable
value. Consistent with this policy, portfolio transactions may be executed by
brokers affiliated with the Pilgrim America Group or any of the Portfolio
Managers, 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. The placement of portfolio brokerage with
broker-dealers who have sold shares of a Fund is subject to rules adopted by the
National Association of Securities Dealers, Inc. ("NASD") Provided the Fund's
officers are satisfied that the Fund is receiving the most favorable price and
execution available, the Fund may also consider the sale of the Fund's shares as
a factor in the selection of broker-dealers to execute its portfolio
transactions.
While it will continue to be the Funds' general policy to seek first to obtain
the most favorable price and execution available, in selecting a broker to
execute portfolio transactions for a Fund, the Fund may also give weight to the
ability of a broker to furnish brokerage and research services to the Fund, the
Investment Manager or the Portfolio Manager, even if the specific services were
not imputed just to the Fund and were useful to the Investment Manager and/or
Portfolio Manager in advising other clients. In negotiating commissions with a
broker, the Fund may therefore pay a higher commission than would otherwise be
the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission has been determined in
good faith by the Portfolio Manager to be reasonable in relation to the value of
the brokerage and research services provided by such broker, which services
either produce a direct benefit to the Fund or assist the Investment Manager or
Portfolio Manager in carrying out their responsibilities to the Fund.
Some securities considered for investment by a Fund may also be appropriate for
other clients served by that Fund's Portfolio Manager. If the purchase or sale
of securities consistent with the investment policies of a Portfolio and one or
more of these other clients serviced by the Portfolio Manager is considered at
or about the same time, transactions in such securities will be allocated among
the Fund and the Portfolio Manager's other clients in a manner deemed fair and
reasonable by the Portfolio Manager. Although there is no specified formula for
allocating such transactions, the various allocation methods used by a Portfolio
Manager, and the results of such allocations, are subject to periodic review by
the Board of Directors.
While any of the Funds may from time to time sell a security it has held for a
short period of time, none of the Funds has a policy of engaging in short-term
trading or generating short-term gains. The annual rate of the Funds' portfolio
turnover during the fiscal period ended June 30, 1996 was 15% for Asia-Pacific
Equity Fund, 60% for MidCap Value Fund, and 59% for LargeCap Value Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by Masters
Series' transfer agent, Investors Fiduciary Trust Company ("Transfer Agent"),
plus, for Class A and Class M shares, a varying sales charge depending upon the
class of shares purchased and the amount of money invested, as set forth in the
Prospectus. Authorized dealers will be paid commissions on shares sold in
Classes A and B, at net asset value, which at the time of investment would have
been subject to the imposition of a contingent deferred sales charge if
liquidated. 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
Funds 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
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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 Funds 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 a Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Portfolio Manager intends to retain the security in the Fund as an
investment. Assets so purchased by a 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. Masters
Series 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 Funds may
be purchased at net asset value, without a sales charge, by persons who have
redeemed their Class A or Class M Shares of a 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 may also be purchased at net asset value by any person
who can document that Fund shares were purchased with proceeds from the
redemption (within the previous 90 days) of shares from any unrelated mutual
fund on which a sales charge was paid or which were subject, at any time, to a
contingent deferred sales charge.
Class A or Class M Shares of the Funds may also be purchased at net asset value
by any state, county, or city, or any instrumentality, department, authority or
agency thereof that has determined that a 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 governmental authority").
If an investment by an eligible governmental authority at net asset value is
made though a dealer who has executed a selling group agreement with respect to
Masters Series (or the other funds in the Pilgrim America Group) the Distributor
may pay the selling firm 0.25% of the Offering Price.
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 other funds in the Pilgrim America Group distributed by the
Distributor may reinvest such amount plus any shares acquired through dividend
reinvestment in Class A or Class M Shares of a Fund at its current net asset
value, without a sales charge.
Officers, directors and bona fide full-time employees of Masters Series and
officers, directors and full-time employees of the Investment Manager, any
Portfolio Manager, the Distributor, Masters Series' 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
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accounts of the Investment Manager or any Portfolio Manager, may purchase Class
A or Class M Shares of a 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. Masters Series may, under certain circumstances, allow registered
investment adviser's 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 open-end fund managed by the Investment Manager 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
any of the Funds or any fund in the Pilgrim America Group 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 investment in the Pilgrim America Group 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 the maximum sales charge or 5.75% of the total
intended purchase will be held in escrow at Pilgrim America Group, in the form
of shares, in the investor's name to assure that the full applicable sales
charge will be paid if the intended purchase is not completed. The shares in
escrow will be included in the total shares owned as reflected on the monthly
statement; income and capital gain distributions on the escrow shares will be
paid directly by 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
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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
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 accounts for the benefit of
a child under the Uniform gift 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 advisors, 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 apply 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 funds of the Pilgrim America Group (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
seven days after receipt by Masters Series' Transfer Agent of the written
request in proper form, except that Masters Series may suspend the right of
redemption or postpone the date of payment as to a Fund during any period when
(a) trading on the New York Stock Exchange is restricted as determined by the
SEC or such exchange is closed for other than weekends and holidays; (b) an
emergency exists as determined by the SEC making disposal of portfolio series or
valuation of net assets of a Fund not reasonably practicable; or (c) for such
other period as the SEC may permit for the protection of a Fund's shareholders.
At various times, a 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.
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, an investor may incur brokerage costs in converting such
securities to cash. However, Masters Series 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 a 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, Masters Series
reserves the right, upon 30 days written notice, to redeem, at net asset value
(less any applicable deferred sales charge), the shares of any
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shareholder whose account has a value of less than $1,000 in a Fund, other than
as a result of a decline in the net asset value per share. Before Masters Series
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 a 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. 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 if certain of those shares are redeemed
within the applicable time period as stated in the prospectus.
No CDSC is imposed on any shares subject to a CDSC to the extent that those
shares (i) are no longer subject to the applicable holding period, (ii) resulted
from reinvestment of distributions on CDSC 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 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 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 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. The waiver will then be granted
subject to confirmation of the shareholder's entitlement.
The CDSC, which may be imposed on Class A shares purchased in excess of $1
million, will also be waived for registered investment advisors, 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.
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DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of each class
of each Fund's shares will be determined once daily as of the close of trading
on the New York Stock Exchange (4:00 p.m. New York time) during each day on
which that Exchange is open for trading. As of the date of this Statement of
Additional Information, the New York Stock Exchange is closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the last reported bid price on the
valuation day. In cases in which securities are traded on more than one
exchange, the securities are valued on the exchange designated by or under the
authority of the Board of Directors as the primary market. Securities for which
quotations are not readily available and all other assets will be valued at
their respective fair values as determined in good faith by or under the
direction of the Board of Directors of Masters Series. 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 a class of a Fund's net asset value, all class-specific liabilities
incurred or accrued are deducted from the class' net assets. The resulting net
assets are divided by the number of shares of the class outstanding at the time
of the valuation and the result (adjusted to the nearest cent) is the net asset
value per share.
The per share net asset value of Class A shares generally will be higher than
the per share net asset value of shares of the other classes, reflecting daily
expense accruals of the higher distribution fees applicable to Class B and Class
M shares. It is expected, however, that the per share net asset value of the
classes will tend to converge immediately after the payment of dividends or
distributions that will differ by approximately the amount of the expense
accrual differentials between the classes.
Orders received by dealers prior to the close of trading on the New York Stock
Exchange will be confirmed at the offering price computed as of the close of
trading on that Exchange provided the order is received by the Distributor prior
to its close of business that same day (normally 4:00 P.M. Pacific time). It is
the responsibility of the dealer to insure that all orders are transmitted
timely to the Fund. Orders received by dealers after the close of trading on the
New York Stock Exchange will be confirmed at the next computed offering price as
described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, Masters Series provides a Pre-Authorized
Investment Program for the convenience of investors who wish to purchase shares
of a 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 Masters Series. The minimum investment requirements
may be waived by Masters Series 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 a 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 a Fund on a
periodic basis, Masters Series 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
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<PAGE>
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 A 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 a 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 Funds.) The annual
contract maintenance fee may be waived from time to time. For further details,
including the right to appoint a successor Custodian, see the Plan and Custody
Agreements as provided by Masters Series. Employers who wish to use shares of a
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 a 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. Copies of a model Custodial Account Agreement are available
from the Distributor. Investors Fiduciary Trust Company, Kansas City, Missouri,
will act as the Custodian under this model Agreement, for which it will charge
the investor an annual fee of $12.00 for maintaining the Account (such fee is in
addition to the normal custodial charges paid by the Funds). Full details on the
IRA are contained in an IRS required disclosure statement, and the Custodian
will not open an IRA until seven (7) days after the investor has received such
statement from Masters Series. An IRA using shares of a 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. 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 Group 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 Group:
(a) Proceeds of the redemption may be directly deposited into
a predetermined bank account, or mailed to the current address
on the registration. This address cannot reflect any change
within the previous sixty (60) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being
mailed to the address of record) can be processed with in a 30
day period.
(d) The maximum amount which can be liquidated and sent to
the address of record at any one time is $50,000.
(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.
5. If the exchange involves the establishment of a new account,
the dollar amount being exchanged must at least equal the minimum
investment requirement of the Pilgrim America Fund being acquired.
6. Any new account established through the exchange privilege will
have the same account information and options except as stated in
the Prospectus.
7. Certificated shares cannot be redeemed or exchanged by
telephone but must be forwarded to Pilgrim America and deposited
into your account before any transaction may be processed.
8. If a portion of the shares to be exchanged are held in escrow
in connection with a Letter of Intent, the smallest number of full
shares of the Pilgrim America Fund to be purchased on the exchange
having the same aggregate net asset value as the shares being
exchanged shall be substituted in the escrow account. Shares held
in escrow may not be redeemed until the Letter of Intent has
expired and/or the appropriate adjustments have been made to the
account.
9. Shares may not be exchanged and/or redeemed unless an exchange
and/or redemption privilege is offered pursuant to the Funds'
then-current prospectus.
10. Proceeds of a redemption may be delayed up to 15 days or longer
until the check used to purchase the shares being redeemed has been
paid by the bank upon which it was drawn.
DISTRIBUTIONS
As noted in the Prospectus, shareholders have the privilege of reinvesting both
income dividends and capital gains distributions, if any, in additional shares
of the respective class of the Fund at the then current net asset value, with no
sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains distributions in cash. In the absence of such an
election, each purchase of shares of a class of a Fund is made upon the
condition and understanding that the Transfer Agent is automatically appointed
the shareholder's agent to receive his dividends and distributions upon all
shares registered in his name and to reinvest them in full and fractional shares
of the respective class of the Fund at the applicable net asset value in effect
at the close of business on the reinvestment date. A shareholder may still at
any time after a purchase of Fund shares request that dividends and/or capital
gains distributions be paid to him in cash.
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TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
incident to an investment in a Fund.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, each Fund
must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, 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) derive
less than 30% of its gross income from the sale or other disposition of the
following assets held for less than three months: (i) stock and securities, (ii)
options, futures and forward contracts (other than options, futures and forward
contracts on foreign currencies), and (iii) foreign currencies (and options,
futures and forward contracts on foreign currencies) which are not directly
related to the Fund's principal business of investing in stocks and securities
(or options and futures with respect to stock or securities); (c) diversify its
holdings so that, at the end of each quarter, (i) at least 50% of the value of
the Fund's total assets is represented by cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities, with such other securities limited in respect of any one issuer to
an amount not greater in value than 5% of the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of the Fund's total assets is invested in the
securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (d) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) each taxable year.
The U.S. Treasury Department is authorized to issue regulations providing that
foreign currency gains that are not directly related to a Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) will be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no such regulations have been issued.
The status of the Funds as regulated investment companies does not involve
government supervision of management or of their investment practices or
policies. As a regulated investment company, a 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 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, each Fund intends to make
distributions in accordance with the calendar year distribution requirement.
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<PAGE>
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 a 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. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) designated by a Fund as capital gain dividends are 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 a Fund. Any
distributions that are not from a 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 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.
Distributions by a 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 as 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 a 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. Certain of the debt securities acquired by the Funds
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 Funds, 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 Funds 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 a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
Foreign Currency Transactions. Under the Code, gains or losses attributable to
fluctuations in foreign currency exchange rates which occur between the time a
Fund accrues income or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time a Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain financial
contracts and options, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as "section 988" gains and losses,
may increase or decrease the amount of a Fund's net investment income to be
distributed to its shareholders as ordinary income. For example, fluctuations in
exchange rates may increase the amount of income that a Fund must
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<PAGE>
distribute in order to qualify for treatment as a regulated investment company
and to prevent application of an excise tax on undistributed income.
Alternatively, fluctuations in exchange rates may decrease or eliminate income
available for distribution. If section 988 losses exceed other net investment
income during a taxable year, a Fund would not be able to make ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as return of capital to shareholders for federal income tax
purposes, rather than as an ordinary dividend, reducing each shareholder's basis
in his Fund shares, or as capital gain.
Passive Foreign Investment Companies. A Fund may invest in stocks of foreign
companies that are classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign company is classified as a PFIC if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. Under the PFIC rules, an "excess
distribution" received with respect to PFIC stock is treated as having been
realized ratably over the period during which a Fund held the PFIC stock. A Fund
itself will be subject to tax on the portion, if any, of the excess distribution
that is allocated to that Fund's holding period in prior taxable years (and an
interest factor will be added to the tax, as if the tax had actually been
payable in such prior taxable years) even though the Fund distributes the
corresponding income to shareholders. Excess distributions include any gain from
the sale of PFIC stock as well as certain distributions from a PFIC. All excess
distributions are taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Funds' PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be eliminated, but the Funds could, in limited circumstances,
incur nondeductible interest charges. Each Fund's intention to qualify annually
as a regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC stock, as well as subject a Fund itself to tax on
certain income from PFIC stock, the amount that must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not invest in PFIC stock.
Foreign Withholding Taxes. Income received by a Fund from sources within foreign
countries may be subject to withholding and other income or similar taxes
imposed by such countries. If more than 50% of the value of a Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, that Fund will be eligible and intends to elect to "pass through"
to the Fund's shareholders the amount of foreign income and similar taxes paid
by that Fund. Pursuant to this election, a shareholder will be required to
include in gross income (in addition to taxable dividends actually received) his
pro rata share of the foreign taxes paid by a Fund, and will be entitled either
to deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions, but such a shareholder may be eligible to claim the foreign tax
credit (see below). Each shareholder will be notified within 60 days after the
close of the relevant Fund's taxable year whether the foreign taxes paid by the
Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his foreign source taxable
income. For this purpose, if the pass-through election is made, the source of a
Fund's income flows through to its shareholders. With respect to a Fund, gains
from the sale of securities will be treated as derived from U.S. sources and
certain currency fluctuation gains, including
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fluctuation gains from foreign currency denominated debt securities, receivables
and payables, will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax credit), including
the foreign source passive income passed through by a Fund. Shareholders may be
unable to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by a Fund. Foreign taxes may not be deducted in computing
alternative minimum taxable income and the foreign tax credit can be used to
offset only 90% of the alternative minimum tax (as computed under the Code for
purposes of this limitation) imposed on corporations and individuals. If a Fund
is not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign income taxes it pays generally will reduce investment
company taxable income and the distributions by a Fund will be treated as United
States source income.
Options and Hedging Transactions. Certain options and financial contracts in
which the Funds may invest are "section 1256 contracts." Gains or losses on
section 1256 contracts generally are considered 60% long-term and 40% short-term
capital gains or losses ("60/40"); however, foreign currency gains or losses (as
discussed below) arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by a Fund at the end
of each taxable year (and on certain other dates as prescribed under the Code)
are "marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If a Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Requirements relating to each Fund's tax status as a regulated investment
company may limit the extent to which a Fund will be able to engage in
transactions in options and foreign currency forward contracts.
Short Sales Against the Box. If a Fund sells short "against the box," it may
realize a capital gain or loss upon the closing of the sale. Such gain or loss
generally will be long- or short-term depending upon the length of time the Fund
held the security which it sold short. In some circumstances, short sales may
have the effect of reducing an otherwise applicable holding period of a security
in the portfolio. Were that to occur, the affected security would again have to
be held for the requisite period before its disposition to avoid treating that
security as having been sold within the first three months of its holding
period.
Other Investment Companies. It is possible that by investing in other
investment companies, a Fund may not be able to meet the calendar year
distribution requirement and may be subject to federal income and excise
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<PAGE>
tax. The diversification and distribution requirements applicable to each Fund
may limit the extent to which each Fund will be able to invest in other
investment companies.
Sale of Shares. Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss depending upon his basis in the shares. Such gain
or loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands, and generally will be long-term if the shareholder's
holding period for the shares is more than one year and generally otherwise will
be short-term. 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 a 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 a 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 of capital gain dividends received by the
shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right.
This provision may be applied to successive acquisitions of stock.
Backup Withholding. Each 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 a Fund with the shareholder's correct taxpayer
identification number or social security number and to make such certifications
as a Fund may require, (2) the IRS notifies the shareholder or a 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 is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Other Taxes. Distributions also may be subject to state, local and foreign
taxes. U.S. tax rules applicable to foreign investors may differ significantly
from those outlined above. This discussion does not purport to deal with all of
the tax consequences applicable to shareholders. Shareholders are advised to
consult their own tax advisers for details with respect to the particular tax
consequences to them of an investment in a Fund.
SHAREHOLDER INFORMATION
Certificates representing shares of a particular Fund will not normally be
issued to shareholders. The Transfer Agent will maintain an account for each
shareholder upon which the registration and transfer of shares are recorded, and
any transfers shall be reflected by bookkeeping entry, without physical
delivery.
The Transfer Agent will require that a shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
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<PAGE>
Masters Series reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to shares of a Fund by making payment in whole or in part in readily
marketable securities chosen by the Fund and valued as they are for purposes of
computing the Fund's net asset value (redemption-in-kind). If payment is made in
securities, a shareholder may incur transaction expenses in converting theses
securities to cash. Masters Series has elected, however, to be governed by Rule
18f-1 under the 1940 Act as a result of which a Fund is obligated to redeem
shares with respect to any one shareholder during any 90-day period solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period.
CALCULATION OF PERFORMANCE DATA
Each Fund may, from time to time, include "total return" in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in a Fund over periods of 1, 5 and 10 years
(up to the life of the Fund), calculated pursuant to the following formula which
is prescribed by the SEC:
n
P(1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, a 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 a 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:
6
2[(a-b/cd +1) -1]
Where:
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
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<PAGE>
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
Total returns are based on past results and are not necessarily a prediction of
future performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, a 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. 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 Funds 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 a
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.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including age characteristics, of various countries and regions in which a Fund
may invest, as compiled by various organizations, and projections of such
information; (ii) the performance of U. S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley Capital International or
a similar financial organization; (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 a Fund's portfolio; (v) the major industries
located in various jurisdictions as prepared or published by the Morgan Stanley
Index or a similar financial organization; and (vi) the number of shareholders
in the Funds or other Pilgrim America Funds and the dollar amount of the assets
under management.
In addition, reports and promotional literature may contain information
concerning the Manager, the Portfolio Managers, or affiliates of Master Series,
the Manager or the Portfolio Managers, including (i) performance rankings of
other funds managed by a Portfolio Manager, or the individuals employed by a
Portfolio Manager who exercise responsibility for the day-to-day management of a
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; and (ii)
lists of clients, the number of clients, or assets under management.
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<PAGE>
The average total return for each class of shares of each for the period of
September 1, 1995 (commencement of operations) to June 30, 1996 is as follows:
Asia-Pacific MidCap LargeCap
Equity Fund Value Fund Value Fund
Class A - 2.20% 13.55% 12.69%
Class B - 1.80% 14.80% 13.90%
Class M - 0.27% 15.65% 14.92%
GENERAL INFORMATION
Custodian. The cash and securities owned by each Fund are held by Investors
Fiduciary Trust Company, 127 W. 10th Street, Kansas City, Missouri 64105, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of a Fund's portfolio securities.
Legal Counsel. Legal matters for Masters Series are passed upon by Dechert Price
& Rhoads, 1500 K Street, N.W., Washington, D.C. 20005.
Independent Auditors. KPMG Peat Marwick LLP, 725 South Figueroa Street, Los
Angeles, California 90017, acts as independent certified public accountants for
Masters Series.
Other Information. Masters Series is registered with the SEC as an open-end
management investment company. Such registration does not involve supervision of
the management or policies of Masters Series by any governmental agency. The
Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the SEC and
copies of this information may be obtained from the SEC upon payment of the
prescribed fee or examined at the SEC in Washington, D.C. without charge.
Investors in the Funds will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statement audited by independent
certified public accountants.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended June 30, 1996, are
incorporated herein by reference, from the Funds' Annual Report to Shareholders
dated June 30, 1996. Copies of the Funds' Annual Report may be obtained without
charge by contacting Masters Series at Two Renaissance Square, Suite 1200, 40
North Central Avenue, Phoenix, Arizona 84005, (800) 331-1080.
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<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Contained in Part A:
Financial Highlights
Contained in Part B:
Incorporated by reference to Registrant's June 30, 1996 annual
report (audited):
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Investment Portfolio
Notes to Financial Statements
(b) Exhibits
(1) -- Articles of Incorporation(1)
(2) -- Amended and Restated Bylaws
(3) -- Not Applicable
(4) -- Specimen security(2)
(5)(A) -- Form of Investment Management Agreement(2)
(5)(B) -- Portfolio Management Agreements
(i) HSBC Asset Management Americas Inc. and HSBC Asset
Management Hong Kong Limited(2)
(ii) CRM Advisors, LLC(2)
(iii) Ark Asset Management Co., Inc.(2)
(6)(A) -- Form of Underwriting Agreement(2)
(6)(B) -- Form of Selling Group Agreement(2)
(7) -- Not Applicable
(8)(A) -- Form of Custody Agreement(2)
(8)(B) -- Form of Recordkeeping Agreement(2)
(9) -- Form of Agency Agreement(2)
(10) -- Opinion and Consent of Dechert Price & Rhoads(2)
(11) -- Consent of Independent Auditors
(12) -- Not Applicable
<PAGE>
(13) -- Form of Investment Letter(2)
(14) -- Not Applicable
(15)(A) -- Service and Distribution Plan for Class A Shares(2)
(15)(B) -- Service and Distribution Plan for Class B Shares(2)
(15)(C) -- Service and Distribution Plan for Class M Shares(2)
(16) -- Not Applicable
(17) -- Not Applicable
(18) -- Form of Multiple Class Plan Adopted Pursuant
to Rule 18f-3(2)
(27) -- Financial Data Schedules
- ----------
(1) Incorporated by reference to the original Registration Statement on Form
N-1A as filed on April 28, 1995.
(2) Incorporated by reference to Pre-effective Amendment No. 1 to the
Registration Statement on Form N-1A as filed on June 22, 1995.
ITEM 25. Persons Controlled by or under Common Control with Registrant
Upon conclusion of the initial public offering of the Registrant's shares
of Common Stock, it is anticipated that no person will control or be controlled
by or under common control with the Registrant.
ITEM 26. Number of Holders of Securities
Title of Class Number of Record Holders
-------------- as of August 31, 1996
---------------------
Pilgrim America Masters Asia-Pacific Equity
Fund 1,430
Class A 1,217
Class B 461
Class M
Pilgrim America Masters MidCap Value Fund
Class A 200
Class B 161
Class M 63
Pilgrim America Masters LargeCap Value Fund
Class A 175
Class B 127
Class M 87
ITEM 27. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VII of the Fund's Articles of Incorporation, Article VI of the Fund's
Bylaws, the Investment Management Agreement filed as Exhibit 5(A), and the
Distribution Agreement filed as Exhibit 6(A) provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), 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
<PAGE>
Exchange Commission such indemnification is against public 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 Fund in the successful defense of any action, suit or proceeding)
is asserted by such a 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 of 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.
Information as to the directors and officers of HSBC Asset Management
Americas 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 HSBC Asset Management Americas Inc. in the last two years, is
included in its application for registration as an investment adviser on Form
ADV (File No. 801-25999) filed under the Investment Advisers Act of 1940 and is
incorporated herein by reference thereto.
Information as to the directors and officers of HSBC Asset Management Hong
Kong Limited, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the directors and
officers of HSBC Asset Management Hong Kong Limited in the last two years, is
included in its application for registration as an investment adviser on Form
ADV (File No. 801-29922) filed under the Investment Advisers Act of 1940 and is
incorporated herein by reference thereto.
Information as to the directors and officers of CRM Advisors, LLC,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by the directors and officers of
CRM Advisors, LLC in the last two years, is included in its application for
registration as an investment adviser on Form ADV (File No. 801-49528) filed
under the Investment Advisers Act of 1940 and is incorporated herein by
reference thereto.
Information as to the directors and officers of Ark Asset Management Co.,
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 Ark Asset Management Co., Inc. in the last two years, is included in its
application for registration as an investment adviser on Form ADV (File No.
801-35134) filed under the Investment Advisers Act of 1940 and is incorporated
herein by reference thereto.
ITEM 29. Principal Underwriters
(a) Pilgrim America MagnaCap Fund and Pilgrim America High Yield Fund
series of Pilgrim America Investment Funds, Inc.; Pilgrim Government Securities
Income Fund, Inc.
(b) Information as to the directors and officers of the Distributor,
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
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of the (a) Registrant, (b) Pilgrim
America Investors, Inc., (c) Pilgrim America Investments, Inc., (d) its
custodians and (e) its transfer agent. The address of each is as follows:
<PAGE>
(a) Pilgrim America Masters Series, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(b) Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(c) Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(d) Investors Fiduciary Trust Company
127 W. 10th Street, 14th Floor
Kansas City, Missouri 64105
(e) Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141
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 certifies that it meets
all the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix and State of
Arizona on the 29th day of October, 1996.
PILGRIM AMERICA MASTERS SERIES, INC.
By: /s/ Robert W. Stallings
________________________________________
Robert W. Stallings
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert W. Stallings
_______________________ Director and President October 29, 1996
Robert W. Stallings (Principal Executive Officer)
______________________ Director October 29, 1996
Mary A. Baldwin *
______________________ Director October 29, 1996
Al Burton *
______________________ Director October 29, 1996
Bruce S. Foerster *
______________________ Director October 29, 1996
Jock Patton *
/s/ Michael J. Roland
______________________ Treasurer and October 29, 1996
Michael J. Roland Principal Accounting Officer
* By: /s/ Robert W. Stallings
_______________________
Robert W. Stallings
Attorney-in-Fact**
** Powers of Attorney are contained in Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant, as filed with the Securities and
Exchange Commission on March 4, 1996.
<PAGE>
EXHIBIT LIST
Exhibit Number Name of Exhibit
- -------------- ---------------
99.2 Amended and Restated Bylaws
99.11 Consent of Independent Auditors
27 Financial Data Schedules
<PAGE>
BY-LAWS
FOR
PILGRIM AMERICA MASTERS SERIES, INC.
(Amended and Restated as of October 23, 1995)
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation in
the State of Maryland shall be in the City of Baltimore.
Section 2. Other Offices. The Corporation may have such other offices in
such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. Subject to this Article II, an annual meeting
of stockholders for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held at such time and
place as the Board of Directors shall select. The Corporation shall not be
required to hold an annual meeting of its stockholders in any year in which the
election of directors is not required to be acted upon under the Investment
Company Act of 1940, as amended.
<PAGE>
Section 2. Special Meetings. Special meetings of stockholders may be
called at any time by the Chairman, President, the Secretary or by a majority of
the Board of Directors and shall be held at such time and place as may be stated
in the notice of the meeting.
Special meetings of the stockholders shall be called by the Secretary upon
receipt of written request of the holders of shares entitled to cast not less
than 10% of the votes entitled to be cast at such meeting, provided that (1)
such request shall state the purposes of such meeting and the matters proposed
to be acted on, and (2) the stockholders requesting such meeting shall have paid
to the Corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the Secretary shall determine and specify to such
shareholders. No special meeting shall be called upon the request of
stockholders to consider any matter that is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
12 months, unless requested by the holders of a majority of all shares entitled
to be voted at such meeting.
Section 3. Place of Meetings. Meetings of stockholders shall be held at
such place within the United States as the Board of Directors may from time to
time determine.
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<PAGE>
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date
and time of the holding of each stockholders' meeting and, if the meeting is a
special meeting, the purpose or purposes of the meeting, shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his or her address as it appears on the records
of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice that is
filed with the records of the meeting.
Section 5. Quorum, Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders of one-third of
the shares of the stock of the Corporation thereat shall be necessary and
sufficient to constitute a quorum for the transaction of business, except for
any matter which, under applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes of stock, in which case the
presence in person or by
- 3 -
<PAGE>
proxy of stockholders of one-third of the shares of stock of each class required
to vote as a class on the matter shall constitute a quorum. The holders of a
majority of shares entitled to vote at the meeting and present in person or by
proxy, whether or not sufficient to constitute a quorum, or, any officer present
entitled to preside or act as Secretary of such meeting may adjourn the meeting
without determining the date of the new meeting or from time to time without
further notice to a date not more than 120 days after the original record date.
Any business that might have been transacted at the meeting originally called
may be transacted at any such adjourned meeting at which a quorum is present.
Section 6. Organization. At each meeting of the stockholders, the
Chairman, or in his or her absence or inability to act, the President, or in the
absence or inability to act of the Chairman and the President, a Senior Vice
President or a Vice President, shall act as chairman of the meeting; provided,
however, that if no such officer is present or able to act, a chairman of the
meeting shall be elected at the meeting. The Secretary, or in his or her absence
or inability to act, any person appointed by the chairman of the meeting, shall
act as secretary of the meeting and keep the minutes thereof.
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<PAGE>
Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the Articles
of Incorporation, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every full share of such stock, with a fractional vote for any
fractional shares, standing in his or her name on the record of stockholders of
the Corporation as of the record date determined pursuant to Section 9 of this
Article or if such record date shall not have been so fixed, then at the later
of (i) the close of business on the day on which notice of the meeting is mailed
or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed by
such stockholder or his or her attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any
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corporate action to be taken by vote of the stockholders shall be authorized by
a majority of the total votes validly cast at a meeting of stockholders at which
a quorum is present.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may fix a time
not less than 10 nor more than 90 days prior to the date of any meeting of
stockholders or prior to the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which stockholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all persons who were
holders of record of voting stock at such time and no other shall be entitled to
notice of and to vote at such meeting or to express their consent or dissent, as
the case may be. If no record date has been fixed, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the
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later of the close of business on the day on which notice of the meeting is
mailed or the thirtieth day before the meeting, or, if notice is waived by all
stockholders, at the close of business on the tenth day next preceding the day
on which the meeting is held. The Board of Directors may fix a record date for
determining stockholders entitled to receive payment of a dividend or
distribution, but such date shall be not more than 90 days before the date on
which such payment is made. If no record date has been fixed, the record date
for determining stockholders entitled to receive dividends or distributions
shall be the close of business on the day on which the resolution of the Board
of Directors declaring the dividend or distribution is adopted, but the payment
shall not be made more than 60 days after the date on which the resolution is
adopted.
Section 10. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action that may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders' meetings: (i) a unanimous written consent that sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder
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entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors and all powers of
the Corporation may be exercised by or under authority of the Board of
Directors.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the directors then in office; provided, however, that the number of directors
shall in no event be less than three (3) nor more than fifteen (15) except that
the Corporation may have less than three (3) but no less than one (1) director
if there is no stock outstanding, and may have a number of directors no fewer
than the number of stockholders so long as there are fewer than three (3)
stockholders. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his or her term unless such director is specifically removed
pursuant to Section 5 of this
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Article III at the time of such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders or a special
meeting held for that purpose; provided, however, that if no annual meeting of
the stockholders of the Corporation is required to be held in a particular year
pursuant to Section 1 of Article II of these ByLaws, directors shall be elected
at the next annual meeting held. The term of office of each director shall be
from the time of his or her election and qualification until the election of
directors next succeeding his or her election and until his or her successor
shall have been elected and shall have qualified.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his or her resignation to the Board of
Directors or the Chairman or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
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Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. If any vacancies shall occur in the Board of
Directors (i) by reason of death, resignation, removal or otherwise, the
remaining directors shall continue to act, and, subject to the provisions of the
Investment Company Act of 1940, as amended, such vacancies (if not previously
filled by the stockholders) may be filled by a majority of the remaining
directors, although less than a quorum, and (ii) by reason of an increase in the
authorized number of directors, such vacancies (if not previously filled by the
stockholders) may be filled only by a majority vote of the entire Board of
Directors.
Section 7. Place of Meeting. The directors may hold their meetings, have
one or more offices, and keep the books of the Corporation, outside the State of
Maryland, and within or without the United States of America, at any office or
offices of the Corporation or at any other place as they may from time to time
by resolution determine, or in the case of meetings, as they may from time to
time by resolution determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
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Section 8. Regular Meetings. The Board of Directors from time to time may
provide by resolution for the holding of regular meetings and fix their time and
place as the Board of Directors may determine. Notice of such regular meetings
need not be in writing, provided that notice of any change in the time or place
of such fixed regular meetings shall be communicated promptly to each director
not present at the meeting at which such change was made in the manner provided
in Section 9 of this Article III for notice of special meetings. Members of the
Board of Directors or any committee designated thereby may participate in a
meeting of such Board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting.
Section 9. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place and for any purpose when called by the
Chairman, President, the Secretary or two or more of the directors. Notice of
special meetings, stating the time and place, shall be communicated to each
director personally by telephone or transmitted to him or her by telegraph,
telefax, telex, cable or wireless at least one day before the meeting.
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Section 10. Waiver of Notice. No notice of any meeting of the Board of
Directors or a committee of the Board of Directors need be given to any director
who is present at the meeting or who waives notice of such meeting in writing
(which waiver shall be filed with the records of such meeting), either before or
after the time of the meeting.
Section 11. Quorum and Voting. At all meetings of the Board of Directors,
the presence of one-third of the entire Board of Directors shall constitute a
quorum unless there are only two or three directors, in which case two directors
shall constitute a quorum. If there in only one director, the sole director
shall constitute a quorum. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally called.
Section 12. Organization. The Board of Directors shall, by resolution
adopted by a majority of the entire Board, designate a Chairman of the Board,
who shall preside at each meeting of the Board of Directors. In the absence or
inability of the Chairman to preside at a meeting, the President, or, in his or
her absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his or her absence or inability to act, any person appointed
by the
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Chairman) shall act as secretary of the meeting and keep the minutes thereof.
Section 13. Written Consent of Directors in Lieu of a Meeting. Subject to
the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 14. Compensation. Directors may receive compensation for services
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board of Directors.
ARTICLE IV
Committees
Section 1. Organization. By resolution adopted by the Board of Directors,
the Board may designate one or more committees, including an Executive
Committee, composed of two or more directors. The Chairmen of such committees
shall be elected by the Board of Directors. The Board of Directors shall have
the power at any time to change the members of such committees and to
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fill vacancies in the committees. The Board of Directors may delegate to these
committees any of its powers, except the power to authorize the issuance of
stock, declare a dividend or distribution on stock, recommend to stockholders
any action requiring stockholder approval, amend these By-Laws, or approve any
merger or share exchange that does not require stockholder approval. If the
Board of Directors has given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general formula or method specified
by the Board of Directors by resolution or by adoption of a stock option or
other plan, may fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the Board of Directors.
Section 2. Proceedings and Quorum. In the absence of an appropriate
resolution of the Board of Directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable. In the event any member of any committee is absent
from any meeting, the members thereof present at the meeting, whether or not
they constitute a quorum, may appoint a member of the Board of Directors to act
in the place of such absent member.
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ARTICLE V
Officers, Agents and Employees
Section 1. General. The officers of the Corporation shall be a Chairman, a
President, a Secretary and a Treasurer, and may include one or more additional
Senior Vice Presidents, Vice Presidents, Assistant Secretaries or Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 8 of this Article.
Section 2. Election, Tenure and Qualifications. The officers of the
Corporation, except those appointed as provided in Section 8 of this Article V,
shall be elected by the Board of Directors at its first meeting and thereafter
annually at an annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or special
meeting of the Board of Directors. Except as otherwise provided in this Article
V, each officer chosen by the Board of Directors shall hold office until the
next annual meeting of the Board of Directors and until his or her successor
shall have been elected and qualified. Any person may hold one or more offices
of the Corporation except the offices of President and Vice President.
Section 3. Removal and Resignation. Whenever in the judgment of the Board
of Directors the best interest of the
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Corporation will be served thereby, any officer may be removed from office by
the vote of a majority of the members of the Board of Directors at any regular
meeting or at a special meeting called for such purpose. Any officer may resign
his office at any time by delivering a written resignation to the Board of
Directors, the Chairman, the President, the Secretary, or any Assistant
Secretary. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 4. Chairman. The Chairman shall be the chief executive officer of
the Corporation. Subject to the supervision of the Board of Directors, he or she
shall have general charge of the business, affairs and property of the
Corporation and general supervision over its officers, employees and agents.
Except as the Board of Directors may otherwise order, he or she may sign in the
name and on behalf of the Corporation all deeds, bonds, contracts, or
agreements. He or she shall exercise such other powers and perform such other
duties as from time to time may be assigned to him or her by the Board of
Directors.
Section 5. President. The President shall act under the direction of the
Chairman and in the absence or disability of the Chairman shall perform the
duties and exercise the powers of Chairman. Except as the Board of Directors may
otherwise order, he or she may sign in the name and on behalf of the Corporation
all deeds, bonds, contracts, or agreements. Unless otherwise
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determined by the Board of Directors, he shall be the chief operating officer
and shall exercise such other powers and perform such other duties as from time
to time may be assigned to him or her by the Board of Directors or the Chairman.
Section 6. Senior Vice President. The Board of Directors may from time to
time elect one or more Senior Vice Presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Board of
Directors, the Chairman or the President. At the request or in the absence or
disability of the President, the Senior Vice President (or, if there are two or
more Senior Vice Presidents, then the more senior of such officers present and
able to act) may perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may perform such duties as the Board of Directors
may assign.
Section 7. Treasurer and Assistant Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he or she shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He or she shall render to
the Board of Directors,
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whenever directed by the Board, an account of the financial condition of the
Corporation and of all his or her transactions as Treasurer; and as soon as
possible after the close of each fiscal year he or she shall make and submit to
the Board of Directors a like report for such fiscal year. He or she shall
perform all acts incidental to the office of Treasurer, subject to the control
of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, the Assistant Treasurer (or if there are two or more Assistant
Treasurers, then the more senior of such officers present and able to act) may
perform all of the duties of the Treasurer.
Section 8. Secretary and Assistant Secretary. The Secretary shall attend
to the giving and serving of all notices of the Corporation and shall record all
proceedings of the meetings of the stockholders and directors in books to be
kept for that purpose. He or she shall keep in safe custody the seal of the
Corporation, and shall have charge of the records of the Corporation, including
the stock books and such other books and papers as the Board of Directors may
direct and such books, reports, certificates and other documents required by law
to be kept, all of which shall at all reasonable times be open to inspection by
any director. He or she shall perform such other
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duties as appertain to his or her office or as may be required by the Board of
Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary of the Board of Directors may assign, and, in the absence of the
Secretary, he or she may perform all the duties of the Secretary.
Section 9. Subordinate Officers. The Board of Directors from time to time
may appoint such other officers or agents as it may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
rights, terms of office, authorities and duties.
Section 10. Remuneration. The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 8 of this Article V.
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Section 11. Surety Bonds. The Board of Directors may require any officer
or agent of the Corporation to execute a bond (including, without limitation,
any bond required by the Investment Company Act of 1940, as amended, and the
rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or her
duties to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his or her hands.
ARTICLE VI
Indemnification
Section 1. Indemnification of Directors and Officers. The Corporation
shall indemnify its directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify its officers to the same extent as its directors and to such
further extent as is consistent with law. The Corporation shall indemnify its
directors and officers who while serving as directors or officers also serve at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan to the
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fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").
Section 2. Advances. Any current or former director or officer of the
Corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him or her in connection with the matter as to which he or she is
seeking indemnification in the manner and to the fullest extent permissible
under the Maryland General Corporation Law. The person seeking indemnification
shall provide to the Corporation a written affirmation of his or her good faith
belief that the standard of conduct necessary for indemnification by the
Corporation has been met and a written undertaking to repay any such advance if
it should ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions shall be
met: (a) the person seeking indemnification shall provide a security in form
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and amount acceptable to the Corporation for his undertaking; (b) the
Corporation is insured against losses arising by reason of the advance; or (c) a
majority of a quorum of directors of the Corporation who are neither interested
persons as defined in the Investment Company Act of 1940, as amended, nor
parties to the proceeding ("disinterested non-party Directors"), or independent
legal counsel, in a written opinion, shall have determined, based on a review of
facts readily available to the Corporation at the time the advance is proposed
to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
In addition, indemnification shall be made only following: (a) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling conduct;
or (b) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct by (i) the vote of a majority of a quorum of
disinterested non-party directors or (ii) an independent legal counsel in a
written opinion.
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Section 4. Indemnification of Employees and Agents. Employees and agents
who are not officers or directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940, as amended.
Section 5. Other Rights. The Board of Directors may make further provision
consistent with law for indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed exclusive of any
other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise. The
rights provided to any person by this Article shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer, employee, or agent as
provided above.
Section 6. Amendments. References in this Article are to the Maryland
General Corporation Law and to the Investment Company Act of 1940 as from time
to time amended. No amendment of these By-Laws shall effect any right of any
person under this
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Article based on any event, omission or proceeding prior to the amendment.
Section 7. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the Corporation or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position; provided, that no
insurance may be purchased which would indemnify any director or officer of the
Corporation against any liability to the Corporation or to its security holders
to which he would otherwise be subject by reason of disabling conduct.
ARTICLE VII
Capital Stock
Section 1. Stock Certificate. The interest of each stockholder of the
Corporation may be evidenced by certificates for shares of stock in such form as
the Board of Directors may from time to time prescribe. The certificates
representing
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shares of stock shall be signed by or in the name of the Corporation by the
Chairman, President, a Senior Vice President or a Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer. Certificates may be sealed with the actual corporate seal
or a facsimile of it or in any other form. Any or all of the signatures or the
seal on the certificate may be manual or a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate shall be issued, it may be issued by the
Corporation with the same effect as if such officer, transfer agent or registrar
were still in office at the date of issue unless written instructions of the
Corporation to the contrary are delivered to such officer, transfer agent or
registrar.
Section 2. Stock Ledgers. The stock ledgers of the Corporation, containing
the names and addresses of the stockholders and the number of shares held by
them respectively, shall be kept at the principal offices of the Corporation or,
if the Corporation employs a transfer agent, at the offices of the transfer
agent of the Corporation.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his
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or her attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, with such proof of the authenticity of the signature as
the Corporation or its agents may reasonably require and the payment of all
taxes thereon. Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person in whose name any share or
shares stand on the record of stockholders as the owner of such share or shares
for all purposes, including, without limitation, the rights to receive dividends
or other distributions, and to vote as such owner, and the Corporation shall not
be bound to recognize any equitable or legal claim to or interest in any such
share or shares on the part of any other person. The Board may make such
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
Section 4. Transfer Agents and Registrars. The Board of Directors may from
time to time appoint or remove transfer agents and/or registrars of transfers of
shares of stock of the Corporation, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment being made all
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certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it that the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board of Directors may, in its discretion, require such owner or his or her
legal representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board of
Directors in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board of
Directors, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the laws of the State of
Maryland.
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ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland." The form of the seal may be altered by the Board of
Directors. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced. Any officer or director
of the Corporation shall have the authority to affix the corporate seal of the
Corporation to any document requiring the same.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be determined by resolution of
the Board of Directors.
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ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate or as these ByLaws
provide.
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Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or so transferred or otherwise disposed of subject to any limits
imposed by these By-Laws and pursuant to authorization by the Board of Directors
and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the Chairman, the President, any Senior Vice
President, any Vice President or the Treasurer or pursuant to any procedure
approved by the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountant
The Corporation shall employ an independent public accountant or a firm of
independent public accountants as its accountants to examine the accounts of the
Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XIII
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any
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special meeting of the stockholders at which a quorum is present or represented,
provided that notice of the proposed amendment, alteration or repeal be
contained in the notice of such special meeting. These By-Laws may also be
amended, altered or repealed by the affirmative vote of a majority of the Board
of Directors at any regular or special meeting of the Board of Directors, except
any particular By-Law that is specified as not subject to alteration or repeal
by the Board of Directors, subject to the requirements of the Investment Company
Act of 1940, as amended.
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Independent Auditor's Consent
The Board of Directors
Pilgrim America Master Series, Inc.:
We consent to incorporation by reference to Pilgrim America Master Series,
Inc.'s Post-Effective Amendment No. 2 to the Registration Statement No. 33-91706
filed on Form N-1A under the Securities Act of 1933 and Amendment No. 3 to the
Registration Statement No. 811-9040 filed on Form N-1A under the Investment
Company Act of 1940 of our report dated August 16, 1996, on the financial
statements and financial highlights of the Pilgrim America Master Series, Inc.
(constituting the Pilgrim America Masters Asia-Pacific Equity Fund, Pilgrim
America Masters MidCap Value Fund, and the Pilgrim America Masters LargeCap
Value Fund) for the periods indicated therein, which report has been
incorporated by reference into the Statement of Additional Information.
We also consent to the reference to our firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Independent Auditors" in
the Statement of Additional Information.
/s/ KMPG Peat Marwick LLP
_____________________________
KPMG Peat Marwick LLP
Los Angeles, California
October 28, 1996
<TABLE> <S> <C>
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<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
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<NUMBER> 011
<NAME> Asia Pacific Equity Fund - Class A
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<S> <C>
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<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
<NUMBER> 012
<NAME> Asia Pacific Equity Fund - Class B
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
<NUMBER> 013
<NAME> Asia Pacific Equity Fund - Class M
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 10-MOS
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
<NUMBER> 031
<NAME> Masters Large Cap Value Fund - Class A
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 10-MOS
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
<NUMBER> 032
<NAME> Masters Large Cap Value Fund - Class B
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
<NUMBER> 033
<NAME> Masters Large Cap Value Fund
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
<NUMBER> 022
<NAME> Masters Mid Cap Value Fund - Class B
<MULTIPLIER> 1,000
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<S> <C>
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<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
<NUMBER> 023
<NAME> Masters Mid Cap Value Fund - Class M
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<CIK> 944689
<NAME> Pilgrim America Masters Series, Inc.
<SERIES>
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<NAME> Masters Mid Cap Value Fund - Class A
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,158
<NUMBER-OF-SHARES-REDEEMED> 66
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 6,210
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33
<AVERAGE-NET-ASSETS> 742
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.91
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.99
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
