As filed with the U.S. Securities and Exchange Commission on March 4, 1996
Securities Act File No. 33-91706
Investment Company Act File No. 811-9040
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
Registration Statement Under The Securities Act Of 1933 |X|
Pre-Effective Amendment No. __
Post-Effective Amendment No. 1 |X|
and/or
Registration Statement Under The Investment Company Act Of 1940 |X|
Amendment No. 2 |X|
heck 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)
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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 (b) paragraph (b)
|_| 60 days after filing pursuant to |_| on (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
|_| 75 days after filing pursuant to |_| on (date) pursuant to
paragraph (a)(2) paragraph(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.
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 intends to file its Rule 24f-2 Notice
for the fiscal year ending June 30, 1996 on or before August 29, 1996.
<PAGE>
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2
<PAGE>
PILGRIM AMERICA MASTERS SERIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item Location in Prospectus
(Caption)
<S> <C>
Part A
Item 1. Cover Page...........................................Cover Page
Item 2. Synopsis.............................................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..........Not Applicable
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> SUPPLEMENT DATED FEBRUARY 29, 1996 TO THE PROSPECTUS
Prospectus Dated July 25, 1995
(as supplemented November 24, 1995)
PILGRIM AMERICA MASTERS SERIES, INC.
The prospectus is hereby supplemented by adding the following language after the
section entitled "Summary of Expenses:"
The following information has been derived from the Financial Highlights in the
Funds' unaudited semi-annual report. The financial statements in the semi-annual
report are incorporated by reference in the Statement of Additional Information.
This information should be read in conjunction with the financial statements,
and notes thereto, in the Funds' semi-annual report. The Statement of Additional
Information has been incorporated by reference into this prospectus.
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding for the period
September 1, 1995* Through December 31, 1995
ASIA-PACIFIC EQUITY FUND
CLASS A CLASS B CLASS M
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period.................... $10.00 $10.00 $10.00
Income (loss) from
investment operations:
Net investment income (loss). 0.01 0.00 0.00
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions.............. (0.13) (0.14) (0.13)
------ ------ ------
Total from investment
operations..... (0.12) (0.14) (0.13)
------ ------ ------
Net asset value, end of period. $ 9.88 $ 9.86 $ 9.87
====== ====== ======
TOTAL RETURN(b)................ (1.20)% (1.40)% (1.30%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands).............. $3,877 $1,928 $985
Ratios to average net assets:
Expenses(a)(c)........... 2.00% 2.75% 2.50%
Net investment
income (loss)(a)(c). 0.50% (0.32)% (0.07)%
Portfolio turnover rate........ 10% 10% 10%
<PAGE>
MIDCAP VALUE FUND
CLASS A CLASS B CLASS M
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period................... $10.00 $10.00 $10.00
Income (loss) from
investment operations:
Net investment income (loss). 0.00 (0.02) (0.01)
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions.............. 0.36 0.35 0.34
---- ---- ----
Total from investment
operations............. 0.36 0.33 0.33
---- ---- ----
Net asset value, end of period. $10.36 $10.33 $10.33
====== ====== ======
TOTAL RETURN(b)................ 3.60% 3.30% 3.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)............... $943 $444 $164
Ratios to average net assets:
Expenses(a)(c)............... 1.75% 2.50% 2.25%
Net investment
income (loss)(a)(c)........ (0.08)% (0.92)% (0.41)%
Portfolio turnover rate........ 7% 7% 7%
<PAGE>
LARGECAP VALUE FUND
CLASS A CLASS B CLASS M
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period................... $10.00 $10.00 $10.00
Income (loss) from
investment operations:
Net investment income (loss). 0.03 0.00 0.00
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions............... 0.71 0.72 0.72
---- ---- ----
Total from investment
operations.............. 0.74 0.72 0.72
---- ---- ----
Net asset value, end of period. $10.74 $10.72 $10.72
====== ====== ======
TOTAL RETURN(b)................ 7.40% 7.20% 7.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)............... $1,367 $202 $280
Ratios to average net assets:
Expenses(a)(c)............... 1.75% 2.50% 2.25%
Net investment
income (loss)(a)(c)....... 0.89% (0.33)% 0.22%
Portfolio turnover rate........ 28% 28% 28%
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* 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 of expenses, the ratio of expenses to average net
assets was 4.45%, 5.36% and 5.06% for Asia- Pacific Equity Fund Class A,
B and M, respectively; 7.61%, 8.56% and 8.43% for MidCap Value Fund Class
A, B and M, respectively; and 6.89%, 7.86% and 7.67% for LargeCap Value
Fund Class A, B and M, respectively. Prior to the waiver of expenses, the
ratio of net investment income to average net assets was (1.95)%, (2.93)%
and (2.63)% for Asia-Pacific Equity Fund Class A, B and M, respectively;
(5.94)%, (6.98)% and (6.59)% for MidCap Value Fund Class A, B and M,
respectively; and (4.25)%, (5.69)% and (5.20)% for LargeCap Value Fund
Class A, B and M, respectively.
<PAGE>
The prospectus is further amended by deleting the chart in the section entitled
"Past Performance of the Portfolio Managers" and replacing it with the following
chart:
HSBC ASIA-PACIFIC ADVISORY ACCOUNTS WITH SIMILAR POLICIES
Growth of an initial investment of $10,000, with reinvestment (1)
[The following table replaces a graph showing growth of an initial investment of
$10,000, with reinvestment (see footnote 1), in both the HSBC Asia-Pacific
Composite and the MSCI Far East ex Japan (Free) Index.]
MSCI Far
HSBC Asia-Pacific East ex Japan
COMPOSITE (FREE) INDEX
12/31/87 $ 10,000 $ 10,000
12/31/88 14,392 13,000
12/31/89 22,144 17,177
12/31/90 18,905 16,053
12/31/91 23,268 21,026
12/31/92 27,187 25,612
12/31/93 53,756 52,092
12/31/94 42,605 42,984
12/31/95 47,875 46,787
AVERAGE ANNUALIZED NCEPTION
RETURNS ENDED ONE THREE FIVE DATE OF TEN
12/31/95: YEAR YEARS YEARS INDEX (3) YEARS
HSBC Asia-Pacific
Composite (2) 12.37% 20.76% 20.42% 21.62% 21.87%
MSCI Far East ex
Japan (Free)
Index 8.84% 22.24% 23.85% 21.28% n/a (3)
(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 December 31, 1995, compared to the MSCI Far East ex Japan (Free)
Index.
<PAGE>
(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, shown on page 3 of the prospectus.
(3) The unmanaged MSCI Far East ex Japan (Free) Index was created in January,
1988, and thus is not available for a ten year comparison.
<PAGE>
The prospectus is further amended by deleting this chart in the section entitled
"Past Performance of Portfolio Managers" and replacing it with the following
chart:
ARK LARGECAP VALUE ADVISORY ACCOUNTS WITH SIMILAR POLICIES
Growth of an initial investment of $10,000, with reinvestment (1)
[The following table replaces a graph showing growth of an initial investment of
$10,000, with reinvestment (see footnote 1), in both the Ark LargeCap Value
Composite and the Standard & Poor's 500 Index.]
Ark LargeCap Value Standard & Poor's
COMPOSITE 500 INDEX
12/31/85 $ 10,000 $ 10,000
12/31/86 11,946 11,821
12/31/87 12,557 12,433
12/31/88 14,947 14,485
12/31/89 18,425 19,038
12/31/90 18,446 18,430
12/31/91 21,532 24,059
12/31/92 25,015 25,907
12/31/93 28,878 28,498
12/31/94 29,174 28,876
12/31/95 39,756 39,728
AVERAGE ANNUALIZED
RETURNS ENDED ONE THREE FIVE TEN
12/31/95: YEAR YEARS YEARS YEARS
Ark LargeCap Value
Composite (2) 36.27% 16.70% 16.60% 14.80%
Standard & Poor's 500
Index 37.58% 15.33% 16.59% 14.79%
(1) The line graph shows the value of $10,000 invested on December 31, 1985,
and held through December 31, 1995 compared to the unmanaged Standard &
Poor's 500 Index.
<PAGE>
(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, shown on page 3 of the prospectus.
<PAGE>
The prospectus is further amended by deleting the chart in the
section entitled "Past Performance of the Portfolio Managers" and
replacing it with the following chart: (1)
CRM MIDCAP VALUE ADVISORY ACCOUNTS WITH SIMILAR POLICIES
Growth of an initial investment of $10,000, with reinvestment (2)
[The following table replaces a graph showing growth of an initial investment of
$10,000, with reinvestment (see footnote 1), in both the CRM MidCap Value
Composite and the Russell MidCap (tm) Index.]
CRM MidCap Value Russell MidCap
COMPOSITE (TM) INDEX
12/31/85 $ 10,000 $ 10,000
12/31/86 11,436 11,820
12/31/87 10,985 11,847
12/31/88 14,304 14,193
12/31/89 17,962 17,922
12/31/90 15,363 15,862
12/31/91 20,630 22,446
12/31/92 24,764 26,114
12/31/93 30,706 29,849
12/31/94 30,005 29,224
12/31/95 36,894 39,291
AVERAGE ANNUALIZED
RETURNS ENDED ONE THREE FIVE TEN
12/31/95: YEAR YEARS YEARS YEARS
CRM MidCap Value
Composite (2) 22.96% 14.21% 19.15% 13.94%
Russell MidCap (tm)
Index 34.45% 14.59% 19.89% 14.66%
(1) The balance as of September 30, 1995 as shown on page 9 of the prospectus
for CRM MidCap Value Advisory Accounts should be $40,321 instead of
$42,871.
<PAGE>
(2) The line graph shows the value of $10,000 invested on December 31, 1985,
and held through December 31, 1995 compared to the unmanaged Russell
MidCap (tm) Index.
(3) 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, shown on page 3 of the prospectus.
Prospectus
[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
(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 Optionst 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 July 25, 1995, as supplemented November 24, 1995 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. (See "Investment Practices and Risk Considerations," including "Use
of Derivatives.") 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 July 25, 1995.
As Supplemented November 24, 1995
<PAGE>
PILGRIM AMERICA MASTERS SERIES AT A GLANCE*
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Fund Objective and Portfolio Strategy
Policies Manager
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Asia-Pacific Long-term capital HSBC Asset A combination of
Equity Fund appreciation. Management macroeconomic
Americas Inc. overview of
and HSBC Asset region, specific
Invests in equity Management Hong country
securities of Kong analysis,
companies based Limited-subsidiaries setting target
in the Asia- of HSBC country
Pacific region, Holdings plc, weightings,
which includes which was industry
China, Hong founded as the analysis and
Kong, Indonesia, Hong Kong and stock selection.
Korea, Malaysia, Shanghai
Philippines, Banking
Singapore, Taiwan Corporation in Principal risk
and Thailand, 1865. factors:
but does not exposure to
include Japan or financial and
Australia. Manages $31 market risks
billion. that accompany
investment in
Normally fully equities, and
invested. Clients include exposure to
pension funds, changes in
institutional currency
investors and exchange rates
high net worth and other risks
individuals of foreign
throughout the investment. You
world. can expect
fluctuation in
the value of the
Minimum Fund's
investment portfolio
for private securities and
accounts: the Fund's
$10 million. shares.*
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MidCap Long-term capital CRM Advisors, A "value"
Value Fund appreciation. LLC-affiliate manager that
of Cramer seeks to
Rosenthal identify middle
Invests in equity McGlynn, Inc., capitalization
securities of which was companies having
companies established in one or more of
believed to be 1973. the following
undervalued that characteristics:
have a market they are
capitalization Manages $1.6 undergoing
of between $200 billion. fundamental
million and $5 change; are
billion. undervalued; and
Clients include are
high net worth misunderstood by
Normally fully individuals, the investment
invested. foundations, community.
endowment Investment
funds, pension prospects are
plans and viewed on a
others. long-term basis
and not on
market timing.
Minimum
investment
for private Principal risk
accounts: factors:
$5 million. exposure to
financial and
market risks
that accompany
investment in
equities. You
can expect
fluctuation in
the value of the
Fund's
portfolio
securities and
the Fund's
shares.*
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LargeCap Long-term capital Ark Asset A "value"
appreciation. Management manager that
Co., Inc., uses a
Value Fund formerly the combination of
Invests in equity institutional "top-down"
securities investment macroeconomic
issued by management analysis and
companies division of "bottom-up"
believed to be Lehman Brothers fundamental
undervalued that (established analysis;
generally have a 1929). establishes
market specific upside
capitalization of price
at least $5 Manages $19.2 objectives and
billion. billion. performs
downside review
to help temper
Normally fully Clients include losses in
invested. pension plans, declining
endowment markets.
funds, private
foundations,
other Principal risk
institutions factors:
and high net exposure to
worth financial and
individuals. market risks
that accompany
investment in
Minimum equities. You
investment can expect
for private fluctuation in
accounts: the value of the
$25 million. Fund's
portfolio
securities and
the Fund's
shares.*
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* These summary descriptions should be read in conjunction with the more
complete descriptions of eachFund's investment objectives and policies and the
Portfolio Managers 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, including "Use of
Derivatives."
<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.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses (All Funds)
<S> <C> <C> <C>
Class A Class B Class M
Maximum initial sales charge imposed on
purchases (as a percentage of offering price) 5.75%(a) None 3.5% (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)
Other
Expenses
(After
Expense Total Fund
Asia-Pacific Management Distribution Reimburse- Operating
Equity Fund Fees (12b-1) Fees(1) ment(2) Expenses
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%
Other
Expenses
(After
MidCap Value Fund Expense Total Fund
and Management Distribution Reimburse- Operating
LargeCap Value Fund Fees (12b-1) Fees(1) ment)(2) Expenses
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%
(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)Other expenses are based upon estimates through the end of Masters Series'
first (partial) fiscal year, net of Investment Manager reimbursement. For the
first year of each Fund's operations, 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 such Fund reaches $50 million in net assets. It
is estimated that total annualized fund operating expenses, excluding
interest, taxes, brokerage, and extraordinary expenses, through the end of
Masters Series' first (partial) fiscal year of operations, will be
approximately 2.43%, 3.18%, and 2.93% of the average net assets of the Class
A, Class B, and Class M shares, respectively, of Asia-Pacific Equity Fund and
2.21%, 2.96%, and 2.71% of the average net assets of the Class A, Class B,
and Class M shares, respectively, of MidCap Value Fund and LargeCap Value
Fund. Absent reimbursement, the other expenses for Asia-Pacific Equity Fund,
MidCap Value Fund, and LargeCap Value Fund would be 0.93%, 0.96%, and 0.96%,
respectively.
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.
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):
Asia-Pacific MidCap LargeCap
Equity Fund Value Fund Value Fund
1 Year 3 Years 1 Year 3 Years 1 Year 3 Years
------ ------- ------ ------- ------ -------
Class A $77 $117 $74 $109 $74 $109
Class B 78 115 75 108 75 108
Class B (assuming
no redemption) 28 85 25 78 25 78
Class M 59 110 57 103 57 103
Use of the assumed 5% return is required by the Securities and Exchange
Commission. The example is not an illustration of past or future investment
results. This example should not be considered a representation of past or
future expenses; actual expenses may be more or less than those shown.
THE 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. 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 approximately $31
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, amongother 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 $1.6 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 10% 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. As of
September 30, 1995, Ark managed approximately $19.2 billion, including $8.8
billion in large capitalization value portfolios, for more than 200
institutional and individual clients, with a minimum investment size for private
accounts of $25 million.
<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 Manager Individual/Title Education
Investment Recent
Experience Experience
- -------------------------------------------------------------------------------
- ---------------------------
<S> <C> <C> <C>
<C>
Asia-Pacific Equity Stanley Vyner Honors Degree,
9 HSBC Group--9
Fund/HSBC CEO, HSBC Americas Econ.
University of
Edinburgh
Fellow of the
Faculty of
Actuaries
Leo P. Grohowski Magna Cum 15
HSBC
CIO, HSBC Americas Laude, Econ.
Americas--8
Drew University
M.B.A., Finance
New York
University
Stella S.. Yiu B.A., Cambridge 11
HSBC Hong
Dir., HSBC Hong Kong University
Kong--6
- -------------------------------------------------------------------------------
- ---------------------------
MidCap Value Fund/CRM Gerald B. Cramer B.S., Syracuse 38
Cramer
Chairman, Founder University;
Rosenthal--22
Attended
Wharton
Graduate School
Edward J. Rosenthal B.A. Cornell 32
Cramer
Vice Chairman, Founder University
Rosenthal--22
M.B.A.,
Columbia
University
Ronald H. McGlynn B.A. Williams 29
Cramer
Pres. CEO, Founder College
Rosenthal--22
M.B.A. Columbia
University
Jay B. Abramson B.S.E. Wharton 10
Cramer
EVP School
Rosenthal--10
J.D.,
University of
Pennsylvania
Law School
- -------------------------------------------------------------------------------
- ---------------------------
LargeCap Value Fund/Ark C. Charles Hetzel B.S., 30
Ark--30
Vice Chairman University of
Utah
M.B.A.,
Columbia
Business School
John E. Bailey B.A., 15
Ark--2
Managing Director University of
Loomis,
Pennsylvania
Sayles--9
M.B.A., Harvard
Business School
Steven M. Steiner B.S., Penn 26
Ark--5
Managing Director State University
Equitable
M.B.A.,
Life--9
Northwestern
Graduate School
Wm. G. Steuernagel B.S., M.B.A. 23
Ark--10
Managing Director Boston
University
- -------------------------------------------------------------------------------
- ---------------------------
</TABLE>
<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
information does not represent any Fund's performance, as each is newly
organized and has no performance record of its own. 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 September 30, 1995
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 September 30, 1995 as compared to a relevant
unmanaged market index. The performance shown below is adjusted to give effect
to the projected 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.
<PAGE>
HSBC ASIA-PACIFIC ADVISORY ACCOUNTS WITH SIMILAR POLICIES
Growth of an initial investment of $10,000, with reinvestment (1)
[Pursuant to Rule 304(a) of Regulation S-T, the following table replaces a graph
showing growth of an initial investment of $10,000, with reinvestment (see
footnote 1), in both the HSBC Asia-Pacific Composite and the MSCI Far East ex
Japan (Free) Index.]
HSBC Asia-Pacific MSCI Far East ex Japan
Composite (Free) Index
1/1/88 $ 10,000 $ 10,000
9/30/88 13,241 11,952
9/30/89 21,884 15,984
9/30/90 18,041 14,936
9/30/91 22,262 19,113
9/30/92 26,258 25,124
9/30/93 36,574 35,627
9/30/94 47,737 47,783
9/30/95 46,653 45,735
AVERAGE ANNUALIZED INCEPTION
RETURNS ENDED ONE THREE FIVE DATE OF TEN
9/30/95: YEAR YEARS YEARS INDEX (3) YEARS
HSBC Asia-Pacific -2.27% 21.12% 20.93% 21.99% 22.22%
Composite (2)
MSCI Far East ex -4.29% 22.10% 25.08% 21.67% n/a (3)
Japan (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 September 30, 1995, 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, shown on page 3.
(3) The unmanaged MSCI Far East ex Japan (Free) Index was created in
January, 1988, and thus is not available for a ten-year comparison.
<PAGE>
CRM MIDCAP VALUE ADVISORY ACCOUNTS WITH SIMILAR POLICIES
Growth of an initial investment of $10,000, with reinvestment (1)
[Pursuant to Rule 304(a) of Regulation S-T, the following table replaces a graph
showing growth of an initial investment of $10,000, with reinvestment (see
footnote 1), in both the CRM MidCap Value Composite and the Russell MidCap (tm)
Index.]
CRM MidCap Value Russell MidCap
Composite (tm) Index
9/30/85 $10,000 $10,000
9/30/86 12,597 13,395
9/30/87 16,599 17,872
9/30/88 15,422 16,485
9/30/89 21,089 21,280
9/30/90 16,149 16,715
9/30/91 22,353 24,077
9/30/92 25,458 27,579
9/30/93 34,845 34,385
9/30/94 37,161 34,953
9/30/95 42,871 44,421
AVERAGE ANNUALIZED
RETURNS ENDED ONE THREE FIVE TEN
9/30/95: YEAR YEARS YEARS YEARS
CRM MidCap Value 15.37% 18.97% 21.56% 15.67%
Composite (2)
Russell MidCap (tm) 27.09% 17.22% 21.59% 16.08%
Index
(1) The line graph shows the value of $10,000 invested on September 30,
1985, and held through September 30, 1995 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, shown on page 3.
<PAGE>
ARK LARGECAP VALUE ADVISORY ACCOUNTS WITH SIMILAR POLICIES
Growth of an initial investment of $10,000, with reinvestment (1)
[Pursuant to Rule 304(a) of Regulation S-T, the following table replaces a graph
showing growth of an initial investment of $10,000, with reinvestment (see
footnote 1), in both the Ark LargeCap Value Composite and the Standard & Poor's
500 Index.]
Ark LargeCap Standard & Poor's
Value Composite 500 Index
9/30/85 $ 10,000 $ 10,000
9/30/86 13,169 13,144
9/30/87 18,683 18,837
9/30/88 17,141 16,473
9/30/89 21,416 21,866
9/30/90 19,428 19,814
9/30/91 24,998 26,014
9/30/92 27,371 28,879
9/30/93 32,297 32,636
9/30/94 35,025 33,830
9/30/95 44,458 43,906
AVERAGE ANNUALIZED
RETURNS ENDED ONE THREE FIVE TEN
9/30/95: YEAR YEARS YEARS YEARS
Ark LargeCap Value 26.93% 17.55% 18.01% 16.09%
Composite (2)
Standard & Poor's 29.78% 14.99% 17.25% 16.95%
500 Index
(1) The line graph shows the value of $10,000 invested on September 30,
1985, and held through September 30, 1995 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, shown on page 3.
<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. 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 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 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 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(tm)
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.
Annual
Maximum Sales Distribution Maximum Automatic Conversion
Class Charge on Purchases(a) CDSC Fees (d) Purchase to Class A
A 5.75% None (b) 0.25% Unlimited N/A
B None 5% (c) 1.00% $250,000 8 Years
M 3.50% None 0.75% $1,000,000 N/A
(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."
Dealers'
Offering Reallowance
As a % of As % of As % of
Amount of Transaction Price Per Share NAV Offering Price
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%
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:
Dealer Period During
On Purchases of: CDSC Allowance Which CDSC Applies
$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
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 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:
Year of
Redemption
After Purchase CDSC
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
To determine the CDSC payable on a redemption of Class B shares, a Fund will
first redeem shares in an account 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:
Dealers'
As a % of Reallowance
Offering As a % of As a % of
Amount of Transaction Price Per Share NAV Offering Price
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
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 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). 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 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
CDSC's 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 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 from 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 30 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 30 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. The 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 may
repurchase shares at NAV in an amount equal to their net redemption
proceeds. Authorized Dealers who handle these purchases may charge fees
forthis 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 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 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 the Fund alone or
in any combination of shares of the Fund and Class A shares of certain
other Participating Funds as described herein under "Pilgrim America
Purchase Options-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 twelve month
period following the transaction.
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 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 mutual funds in the Pilgrim America Group and/or other
events sponsored by Authorized Dealers.
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 the 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 .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 .25%, 1.00%, and
.75%, respectively, which are accrued daily and paid monthly. Of these amounts,
fees equal to an annual rate of .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 .75% per annum of a Fund's
average net assets may be used to finance distribution expenses, exclusive of
shareholder servicing payments, and no Authorized Dealer may receive shareholder
servicing payments in excess of .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 .25%, .25%, and .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 in the 1st month following purchase of Class M shares.
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.
<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.
- --------------------------------------------------------------------------------
Method Initial Investment Additional Investment
- --------------------------------------------------------------------------------
The minimum initial The minimum for
investment in a Fund is additional investment
$1,000 ($250 for IRAs). in a Fund is $100.
----------------------------------------------------------------
By Visit or consult an Visit or consult your
contacting Authorized Dealer. Authorized Dealer.
your
Authorized
Dealer
- --------------------------------------------------------------------------------
By mail Make your check payable to Fill out the account
the Fund and mail it, additions form
along with a completed New included on the bottom
Account Application, to of your account
the address indicated on statement along with
the New Account your check payable to
Application. Please the Fund and mail
indicate an Authorized them in the envelope
Dealer on the application. provided with the
account statement.
Remember to write
your account number on
the check.
- --------------------------------------------------------------------------------
By wire Call the Pilgrim America Call the Pilgrim
Order Department at (800) America Order
336-3436 to obtain an Department at (800)
account number and 336-3436 to obtain a
indicate an Authorized wire reference number.
Dealer on the account. Give that number to
Instruct your bank to wire your bank and have
funds to the Fund in care them wire the funds in
of: the same manner
described under
"Initial Investment."
Investors Fiduciary Trust
Co.
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 Fund and the Distributor reserve the right to
reject any purchase order.
Price of Shares. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of the 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 Fund will not be issued
unless you request them in writing.
Determination of Net Asset Value. The NAV of each class of each Fund's shares
will be determined daily as of the close of trading on the New York Stock
Exchange (usually at 4:00 p.m. New York City time) on each day that it is open
for business. Each class' NAV represents that class' pro rata share of 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 each Fund will fluctuate in response to changes in market
conditions and other factors. Portfolio securities for which market quotations
are readily available are stated at market value. Short-term debt securities
having a maturity of 60 days or less are valued at amortized cost, unless the
amortized cost does not approximate market value. Securities prices may be
obtained from automated pricing services. In other cases, securities are valued
at their fair value as determined in good faith by the Board of Directors 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 exchange quotation in
effect at the time NAV is computed. The calculation of NAV of Masters Series may
not take place contemporaneously with the determination of the prices of certain
portfolio securities of foreign issuers used in such calculation. Further, the
prices of foreign securities are determined using 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. Masters 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 organizations. Investors Fiduciary Trust Company acts as
the custodian under these plans. For further information, contact the
Shareholder Servicing Agent at (800) 331-1080.
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. Masters 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 Masters Series and its Transfer Agent do not
employ these procedures, they may be liable for any losses due to unauthorized
or fraudulent telephone instructions.
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. Masters
Series in its sole discretion may terminate or modify the exchange privileges
and begin imposing a charge of up to $5.00 for each exchange.
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
fee 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 offered 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 or
quarterly (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.
<PAGE>
How to Redeem Shares
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC, and/or
any 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.
<PAGE>
Method Procedures
- ------------------------------------------------------------------------------
Redemption By Contacting Authorized Dealers may communicate Your
Authorized Dealer orders by wire or telephone to the Distributor.
These firms may charge for their services in
connection with your redemption request but
neither the Fund 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 your address of record. 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.
Systematic Withdrawal Plan. You may elect to have monthly, quarterly 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 the Fund are redeemed under
the Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be terminated or modified at any time upon
written notice by you or the Fund.
Payments. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within seven days after receipt by the Transfer Agent of a written
request in good order. A Fund may delay the mailing of a redemption check until
the check used to purchase the shares being redeemed has cleared which may take
up to 15 days or more. To reduce such delay, all purchases should be made by
bank wire 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, Masters 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
Funds' 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 Fund. These fees are
computed and accrued daily andpaid 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 .50% of the average
daily net assets of the Asia-Pacific Equity, MidCap Value and LargeCap Value
Funds, respectively.
Distributor. In addition to providing for the expenses discussed above, each
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 may, 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 AND TAXES
Dividends and Distribution. 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 such 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.
A shareholder 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 the Fund invested
into a pre-existing Class A, B or M account in any of the Participating Funds
listed under "Pilgrim America Purchase Options-Reduced Sales Charges". Both
accounts must be of the same class. A shareholder of Pilgrim Prime Rate Trust,
whose shares are not held in a broker or nominee account, may, upon written
request, elect to have all dividends invested into a pre-existing Class A
account of any of the Participating Funds. 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.
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 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 the Fund's investment
income.
This is a brief summary of some of the tax laws that affect your investment in
the 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 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 maximumsales charge.
ADDITIONAL INFORMATION
More about Masters Series. The Registrant commenced operations as of the date of
this Prospectus and therefore has no operating history. In addition, 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.
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 July 25, 1995
as supplemented February 29, 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 July 25, 1995, as
supplemented February 29, 1995 ("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............................... 8
Supplemental Investment Techniques.................................... 10
Supplemental Discussion of Risks Associated With the
Funds' Investment Policies and Investment Techniques................ 10
Investment Restrictions............................................... 15
Portfolio Transactions................................................ 17
Additional Purchase and Redemption Information........................ 18
Determination of Share Price.......................................... 22
Shareholder Services and Privileges................................... 23
Distributions......................................................... 24
Tax Considerations.................................................... 24
Shareholder Information............................................... 29
Calculation of Performance Data....................................... 29
General Information................................................... 31
Financial Statements.................................................. 31
<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 54.) Director. President and Chief Executive Officer, South Beach Capital
(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.
*Robert W. Stallings, Two Renaissance Square, 12th Floor, 40 North Central
Avenue, Phoenix, AZ 85004. (Age 46.) Director and President. Chairman, Chief
Executive Officer and President of Pilgrim America Group, Inc.
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<PAGE>
("Pilgrim America Group") and Pilgrim America Investments, Inc., and a director
of Pilgrim America Securities, Inc. (since December 1994). Chairman, Chief
Executive Officer and President of Pilgrim Regional BankShares, Inc., Pilgrim
Government Securities Income Fund, Inc., Pilgrim America Investment Funds, Inc.
and Pilgrim 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 for the
previous quarter 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 estimated compensation of
Directors by the Masters Series and other funds managed by the Investment
Manager for the fiscal year ending 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.
<TABLE>
<CAPTION>
Compensation Table*
===============================================================================
==================
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.................... $3,000**** N/A N/A
$24,000(5)
- -------------------------------------------------------------------------------
- ------------------
Al Burton**
Director.................... $3,000**** N/A N/A
$24,000(5)
- -------------------------------------------------------------------------------
- ------------------
Bruce S. Foerster**
Director.................... $3,000**** N/A N/A
$24,000(5)
- -------------------------------------------------------------------------------
- ------------------
Jock Patton**
Director .................. $3,000**** N/A N/A
$22,000(5)
- -------------------------------------------------------------------------------
- ------------------
Robert W. Stallings***
Director and Chairman....... $0 N/A N/A
$0(5)
===============================================================================
==================
- ------
<FN>
* The information provided is for the fiscal year ending June 30, 1996 and
is based upon estimated future payments to be made to the Directors.
** 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.
**** The amount of the fee borne by Masters Series will depend upon the
total assets of Masters Series in relation to the total assets of all
funds managed by the Investment Manager. The above projection is an
estimate.
</FN>
</TABLE>
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<PAGE>
Officers.
James R. Reis, Executive Vice President
Two Renaissance Square, 12th Floor, 40 North Central Avenue, Phoenix, AZ 85004.
(Age 38.) 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 April
1995) of Pilgrim America Securities, Inc. Executive Vice President of Pilgrim
Government Securities Income Fund, Inc., Pilgrim America Investment Funds, Inc.,
Pilgrim Prime Rate Trust, and Pilgrim Regional BankShares 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).
James M. Hennessy, Senior Vice President and Secretary
Two Renaissance Square, 12th Floor, 40 North Central Avenue, Phoenix, AZ 85004.
(Age 46.) 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 Prime Rate Trust, and Pilgrim Regional
BankShares 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).
Daniel A. Norman, Senior Vice President
Two Renaissance Square, 12th Floor, 40 North Central Avenue, Phoenix, AZ 85004.
(Age 38.) Senior Vice President and Secretary of Pilgrim America Group, Inc.,
Senior Vice President and Assistant Secretary of Pilgrim America Investments,
Inc., Senior Vice President and Director of Pilgrim America Securities, Inc.
(since December 1994), Senior Vice President of Express America Holdings
Corporation (since April 1995) and Senior Vice President of Express America
Mortgage Corporation (since February 1992). Senior Vice President and Secretary
of Pilgrim Government Securities Income Fund, Inc., Pilgrim America Investment
Funds, Inc., Pilgrim Prime Rate Trust, and Pilgrim Regional BankShares Inc. Mr.
Norman was also Chief Financial Officer of Prime Financial, Inc. (December 1985
- - February 1992).
Nancy L. Peden, Senior Vice President and Assistant Secretary
Two Renaissance Square, 12th Floor, 40 North Central Avenue, Phoenix, AZ 85004.
(Age 38.) Senior Vice President and Assistant Secretary of Pilgrim America
Group, Inc. (since April 1994). Vice President of The Pilgrim Group Inc. (for
more than the past five years prior to April 1995). Senior Vice President and
Assistant Secretary of Pilgrim Regional BankShares Inc., Pilgrim Government
Securities Income Fund, Inc., Pilgrim America Investment Funds, Inc. and Pilgrim
Prime Rate Trust.
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 37.) 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 Regional BankShares Inc.,
Pilgrim America Investment Funds, Inc. and Pilgrim 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.
-3-
<PAGE>
Principal Shareholders. As of February 15, 1996, the Directors and officers of
Masters Series as a group owned 1.71% of the outstanding Class A shares of
Asia-Pacific Equity Fund, 9.44% of the outstanding Class A shares of MidCap
Value Fund, and 4.92% of the outstanding Class A shares of LargeCap Value Fund.
As of February 26, 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, Express
America Holdings Corporation, Suite 1200, 40 North Central Avenue, Phoenix,
Arizona 85004 ("Express America") owned 7.03% of the Class A shares. With
respect to MidCap Value Fund, Express America owned 40.43% of the Class A
shares; Express America 401(k) Plan, Suite 1200, 40 North Central Avenue,
Phoenix, Arizona 85004, owned 7.60% of the Class A shares; Franklin R. & Darlene
M. Carlson, Trustees, Carlson Living Trust, 6615 E. Lafayette Blvd., Scottsdale,
Arizona 85251-3133, owned 7.58% of the Class A shares; Owen M. and Delores A.
Mattingly, 2241 Monacacy Road, Baltimore, Maryland 21221-1529, owned 8.58% of
the Class B shares; Sarah Kagin, Trustee, Anne W. Goldiner Irrevocable Trust, 17
Noche Vista, Tiburon, California 94920-1107, owned 5.51% of the Class B shares;
James C. & Erma Hatton, Trustees, The Hatton Family Trust, 1212 Steamboat Bend
Drive, Tempe, Arizona 85283-2141, owned 21.29% of the Class M shares; Donaldson
Lufkin Jenrette Securities Corp. Inc., P.O. Box 2052, Jersey City, New Jersey
07303-2052, owned of record 50.28% of the Class M shares; Resources Trust Co.,
8051 E. Maplewood Avenue, Suite 200, Englewood, Colorado 80111-4722, owned of
record 8.20% of the Class M shares; and Investors Fiduciary Trust Company as
Custodian, 127 W. 10th Street, Kansas City, Missouri 64105, owned of record
10.56% of the Class M shares. With respect to LargeCap Value Fund, Express
America owned 69.74% of the Class A shares; Prudential Securities Inc., One New
York Plaza, New York, New York 10292-2008, owned of record 31.89% of the Class B
shares; Donaldson Lufkin Jenrette Securities Corp. Inc., P.O. Box 2052, Jersey
City, New Jersey 07303-2052, owned of record 34.79% of the Class B shares; James
C. & Erma Hatton, Trustees, The Hatton Family Trust, 1212 Steamboat Bend Drive,
Tempe, Arizona 85283- 2141, owned 14.69% of the Class M shares; Donaldson Lufkin
Jenrette Securities Corp. Inc., P.O. Box 2052, Jersey City, New Jersey
07303-2052, owned of record 50.49% of the Class M shares; Prudential Securities
Inc., One New York Plaza, New York, New York 10292-2008, owned of record 5.61%
of the Class M shares; Jamsue Investments LTD, 2720 N. 20th Street, Suite 150,
Phoenix, Arizona 85006 owned 6.37% of the Class M shares; and Investors
Fiduciary Trust Company as Custodian, 127 W. 10th Street, Kansas City, Missouri
64105, owned of record 5.67% 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) with assets of approximately
$1.4 billion. The Investment Manager is a wholly owned subsidiary of Pilgrim
America Group, which itself is a wholly owned subsidiary of Express America
Holdings Corporation, a Delaware corporation ("Express America"), 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. 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 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,
-4-
<PAGE>
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 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.
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 2.5% of the first $30 million
of the Fund's average daily net assets, 2% of the next $70 million of the Fund's
average net assets and 1.5% 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.
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.
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
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
-5-
<PAGE>
average of 33 years in the investment business. Cramer Rosenthal McGlynn, Inc.
manages approximately $1.6 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. Accounts managed by Cramer Rosenthal
McGlynn, Inc. own in the aggregate approximately 10% 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.
As of September 30, 1995, Ark managed approximately $19.2 billion, including
$8.8 billion in largecap value portfolios, for more than 200 individual and
institutional clients, with a minimum account size of $25 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.
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 $31 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.
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 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.
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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 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
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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.
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 securities are convertible, while
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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 high
quality 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 or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
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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.
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
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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.
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.
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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.
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
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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 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.
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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:
(a) invest in debt obligations, even though the
purchase of such obligations may be deemed to be
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,
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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;
(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;
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(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 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
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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.
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 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
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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 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 is 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 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
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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, 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 20 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. In the event of a total redemption of the account
prior to fulfillment of the Letter of Intent, the additional sales charge due
will be deducted from the proceeds of the redemption and the balance will be
forwarded to the Investor. By completing the Letter of Intent section of the
Shareholder Application, an investor grants to the Distributor a security
interest in the shares in escrow and agrees to irrevocably appoint the
Distributor as his attorney-in-fact with full power of substitution to surrender
for redemption any or all shares for the purpose of paying any additional sales
charge due. 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.
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.
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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 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
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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.
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.
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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 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. (These
fees are in addition to the normal Custodian charges paid by the Funds.) 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.
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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.
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.
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.
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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.
The Funds intend to seek a ruling from the IRS to the effect that differing
distributions among their classes of shares will not affect a Fund's ability to
qualify as a regulated investment company. If a Fund so qualifies, among other
things, distributions from the Fund may qualify as capital gain dividends,
generally depending on the type of income generated by the Fund. While similar
rulings have been issued previously by the IRS, complete assurance cannot, of
course, be given that the Funds will actually receive such ruling. Although an
adverse determination by the IRS is not expected, the Funds may be required to
reassess their multiple class share structure (and reserve the right to do so)
were the IRS not to rule favorably. In addition, were the IRS not to rule
favorably, the Funds might make additional distributions (which could carry
interest and interest-related charges to the Funds) if doing so would assist the
Funds in complying with their general practice of distributing sufficient income
to reduce or eliminate U.S.
federal taxes.
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.
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<PAGE>
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 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
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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 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.
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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 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.
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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.).
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:
P(1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
-29-
<PAGE>
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:
where
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
Total returns are based on past results and are not necessarily a prediction of
future performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, 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.
-30-
<PAGE>
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.
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 statements certified by independent
certified public accountants.
FINANCIAL STATEMENTS
The financial statements contained in the Semi-Annual Report to Shareholders,
dated December 31, 1995, are incorporated herein by reference.
-31-
<PAGE>
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles CA 90017
Independent Auditors' Report
The Board of Directors and Shareholder
The Pilgrim America Masters Series, Inc.:
We have audited the accompanying statements of assets and liabilties of the
Pilgrim America Masters Series, Inc. (comprising, respectively, the Asia-Pacific
Equity Fund, MidCap Value Fund and LargeCap Value Fund)(in organization) as of
June 16, 1995. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of assets and liabilities are
free of material misstatement. An audit of statements of assets and liabilities
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of assets and liabilities. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of assets and liabilties
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of each of the
aforementioned funds constitituing the Pilgrim America Masters Series, Inc. as
of June 16, 1995, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
June 16, 1995
<PAGE>
PILGRIM AMERICA MASTERS SERIES, INC.
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
1. GENERAL
Pilgrim America Masters Series, Inc. (the "Masters Series") has applied
for registration under the Investment Company Act of 1940 (the "1940
Act"), as amended, as an open-end, management investment company. The
Masters Series was organized as a Maryland Corporation on April 27,
1995 and initially sold 10,000 shares of beneficial interest to Pilgrim
America Investments, Inc. ("PAII") for $100,000. As of June 16, 1995,
the Masters Series had not commenced operations, other than the initial
sale of shares to PAII and matters pertaining to its organization.
The Masters Series consists of three separate diversified investment
portfolios ("the Funds"): the Asia-Pacific Equity Fund, the MidCap
Value Fund and the LargeCap Value Fund.
2. INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
Pursuant to the Investment Management Agreements, PAII will provide or
oversee all investment advisory and portfolio management services for
the Funds. PAII will also manage and supervise 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.
PAII will monitor the Portfolio Managers' investment programs and
results and coordinate the activities of the various service providers
to the Funds and oversee compliance with regulatory requirements. In
addition, PAII will provide the Masters Series with office space,
equipment and personnel necessary to administer the Funds.
As compensation for its services, PAII receives investment
management fees based on the average daily net assets of each
Fund at the following annual rates: Asia-Pacific Equity Fund -
1.25%; MidCap Value Fund - 1.00%; and LargeCap Value Fund - 1.00%.
These fees will be accrued daily and paid monthly.
The Masters Series has adopted a plan pursuant to Rule 12b-1 under the
1940 Act, whereby shares of each Fund will be sold through Pilgrim
America Securities, Inc. (the "Distributer") as principal underwriter
and distributor subject to Rule 12b-1 Plans (the "Class A Plans," the
"Class B Plans," the "Class M Plans" and, collectively, the "Plans")
under which the Funds will compensate the Distributor for services it
provides and
<PAGE>
expenses it bears in distributing shares to the shareholders
of the Funds.
Under the Rule 12b-1 plan for each class of shares of the Funds, 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 .25%, 1.00%, and .75%,
respectively, of the average daily net assets of each of the Funds.
These fees will be accrued daily and paid monthly.
3. ORGANIZATION EXPENSES
PAII has charged each Fund for expenses incurred, or estimated to be
incurred, in connection with the organization and registration as an
investment company under the Investment Company Act of 1940. The
liabilities of each Fund relate to amounts payable to PAII for these
expenses. Such expenses will be amortized on a straight-line basis over
60 months from the date each Fund commences operations. In the event
any of the initial shares of beneficial interest are redeemed during
the 60 month amortization period, PAII will reimburse the Funds for the
unamortized balance of such organizational costs in the same proportion
as the number of shares of beneficial interest reduced bears to the
number of initial shares of beneficial interest outstanding at the time
of redemption.
4. MULTIPLE CLASS FUND STRUCTURE
The Master Series has authorized one billion shares of $.01 par value
stock to be issued among the Funds. Three such Funds have been
designated and each of the Funds offer three classes of shares. The
three classes of shares differ principally in their respective sales
charges and distribution fees. Shareholders of each class bear the
specific expenses that pertain to that particular class. All
shareholders bear the common expenses of the Fund, and earn income from
the Fund, pro rata, based on the relative net assets of each class,
without distinction between share classes. Dividends are declared
separately for each class. Gains are allocated to each class, pro rata,
based upon the relative net assets of each class. No class has
preferential dividend rights; differences in per share dividend rates
are generally due to differences in separate class expenses (including
distribution fees) and from the relative weightings of pro rata income
and gain allocations. Class B shares are subject to a contingent
deferred sales charge for redemption occurring within six years
following their acquisition. In addition, shareholders of 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
- 3 -
<PAGE>
occurs, together with a pro rate portion of all Class B shares
representing dividends and other distributions paid in additional Class
B shares.
5. INVESTMENT MANAGEMENT REIMBURSEMENT
For the first year of each Fund's operations, PAII 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 such Fund reaches $50
million in net assets.
- 4 -
<PAGE>
Pilgrim America Masters Series, Inc.
Statements of Assets and Liabilities
June 16, 1995
Asia-Pacific
Equity Fund
ASSETS:
Cash $34,000
Deferred Organization Expenses
(Note 2) 125,000
Total Assets 159,000
LIABILITIES:
Accrued Organization Expenses
(Note 2) 125,000
Total Assets 125,000
NET ASSETS $34,000
Net Assets Consisting Primarily
of Paid in Capital are as Follows:
Class A Shares:
Net Assets (Issued and outstanding
3,200 shares) $32,000
Net Assets (Issued and outstanding
3,100 shares each fund)
Net asset value and redemption $10.00
price per share ($32,000/3,200
shares; 31,000/3,100 shares;
$31,000/3,100 shares)
Maximum offering price per share
(100/94.25 of $10.00) $10.61
Class B Shares:
Net Assets (Issued and outstanding
100 shares each fund) $1,000
Net assets value and redemption
price per share ($1,000/100
shares each fund) $10.00
Class M Shares:
Net Assets (Issued and outstanding
100 shares each fund) $1,000
Net asset value and redemption
price per share ($1,000/100
shares each fund) $10.00
Maximum offering price per share
(100/96.5 of $10.00 each fund) $10.36
See Notes to Financial Statements
- 5 -
<PAGE>
Pilgrim America Masters Series, Inc.
Statements of Assets and Liabilities
June 16, 1995 MidCap
Value Fund
ASSETS:
Cash $33,000
Deferred Organization Expenses
(Note 2) 125,000
Total Assets 158,000
LIABILITIES:
Accrued Organization Expenses
(Note 2) 125,000
Total Assets 125,000
NET ASSETS $33,000
Net Assets Consisting Primarily
of Paid in Capital are as Follows:
Class A Shares:
Net Assets (Issued and outstanding
3,200 shares) $31,000
Net Assets (Issued and outstanding
3,100 shares each fund)
Net asset value and redemption $10.00
price per share ($32,000/3,200
shares; 31,000/3,100 shares;
$31,000/3,100 shares)
Maximum offering price per share
(100/94.25 of $10.00) $10.61
Class B Shares:
Net Assets (Issued and outstanding
100 shares each fund) $1,000
Net assets value and redemption
price per share ($1,000/100
shares each fund) $10.00
Class M Shares:
Net Assets (Issued and outstanding
100 shares each fund) $1,000
Net asset value and redemption
price per share ($1,000/100
shares each fund) $10.00
Maximum offering price per share
(100/96.5 of $10.00 each fund) $10.36
See Notes to Financial Statements
- 6 -
<PAGE>
Pilgrim America Masters Series, Inc.
Statements of Assets and Liabilities
June 16, 1995 LargeCap
Value Fund
ASSETS:
Cash $33,000
Deferred Organization Expenses
(Note 2) 125,000
Total Assets 158,000
LIABILITIES:
Accrued Organization Expenses
(Note 2) 125,000
Total Assets 125,000
NET ASSETS $33,000
Net Assets Consisting Primarily
of Paid in Capital are as Follows:
Class A Shares:
Net Assets (Issued and outstanding
3,200 shares) $31,000
Net Assets (Issued and outstanding
3,100 shares each fund)
Net asset value and redemption $10.00
price per share ($32,000/3,200
shares; 31,000/3,100 shares;
$31,000/3,100 shares)
Maximum offering price per share
(100/94.25 of $10.00) $10.61
Class B Shares:
Net Assets (Issued and outstanding
100 shares each fund) $1,000
Net assets value and redemption
price per share ($1,000/100
shares each fund) $10.00
Class M Shares:
Net Assets (Issued and outstanding
100 shares each fund) $1,000
Net asset value and redemption
price per share ($1,000/100
shares each fund) $10.00
Maximum offering price per share
(100/96.5 of $10.00 each fund) $10.36
See Notes to Financial Statements
- 7 -
<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 December 31, 1995
semi-annual report (unaudited):
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 Incorporation1
(2) -- Bylaws1
(3) -- Not Applicable
(4) -- Specimen security2
(5)(A) -- Form of Investment Management Agreement2
(5)(B) -- Portfolio Management Agreements
(i) HSBC Asset Management Americas Inc. and HSBC Asset
Management Hong Kong Limited2
(ii) CRM Advisors, LLC2
(iii) Ark Asset Management Co., Inc.2
(6)(A) -- Form of Underwriting Agreement2
(6)(B) -- Form of Selling Group Agreement2
(7) -- Not Applicable
(8)(A) -- Form of Custody Agreement2
(8)(B) -- Form of Recordkeeping Agreement2
(9) -- Form of Agency Agreement2
(10) -- Opinion and Consent of Dechert Price & Rhoads2
(11) -- Consent of Independent Auditors
(12) -- Not Applicable
(13) -- Form of Investment Letter2
C-1
<PAGE>
(14) -- Not Applicable
(15)(A) -- Service and Distribution Plan for Class A Shares2
(15)(B) -- Service and Distribution Plan for Class B Shares2
(15)(C) -- Service and Distribution Plan for Class M Shares2
(16) -- Not Applicable
(17) -- Not Applicable
(18) -- Form of Multiple Class Plan Adopted Pursuant to
Rule 18f-32
(27) -- Financial Data Schedule
- -----------------------
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 January 31, 1996
Pilgrim America Masters Asia-Pacific Equity
Fund 798
Class A 559
Class B 305
Class M
Pilgrim America Masters MidCap Value Fund
Class A 71
Class B 64
Class M 23
Pilgrim America Masters LargeCap Value Fund
Class A 47
Class B 30
Class M 36
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 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
C-2
<PAGE>
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:
C-3
<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 26th day of February, 1996.
PILGRIM AMERICA MASTERS SERIES, INC.
/s/ Robert W. Stallings
By:
--------------------------------------
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 February 26, 1996
Robert W. Stallings (Principal Executive Officer)
Director February 26, 1996
Mary A. Baldwin *
Director February 26, 1996
Al Burton *
Director February 26, 1996
Bruce S. Foerster *
Director February 26, 1996
Jock Patton *
/s/ Michael J. Roland Treasurer and February 26, 1996
Michael J. Roland Principal Accounting Officer
* By: /s/ Robert W. Stallings
Robert W. Stallings
Attorney-in-Fact**
** Powers of Attorney are contained herewith.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Masters Series, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Nancy L. Peden, Michael J. Roland, Jeffrey S. Puretz, and Paul F. Roye, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him in his name, place and stead, in any and
all capacities, to sign the Fund's registration statement and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and conforming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: October 23, 1995
/s/ Jock Patton
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Masters Series, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Nancy L. Peden, Michael J. Roland, Jeffrey S. Puretz, and Paul F. Roye, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him in his name, place and stead, in any and
all capacities, to sign the Fund's registration statement and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and conforming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: January 30, 1996
/s/ Al Burton
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Masters Series, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Nancy L. Peden, Michael J. Roland, Jeffrey S. Puretz, and Paul F. Roye, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him in his name, place and stead, in any and
all capacities, to sign the Fund's registration statement and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and conforming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: October 23, 1995
/s/ Bruce S. Foerster
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Masters Series, Inc. (the "Fund"),
constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy,
Nancy L. Peden, Michael J. Roland, Jeffrey S. Puretz, and Paul F. Roye, and each
of them, her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for her in her name, place and stead, in any and
all capacities, to sign the Fund's registration statement and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as she might or could do in person, hereby
ratifying and conforming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: January 30, 1996
/s/ Mary A. Baldwin
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim America Masters Series, Inc. (the "Fund"),
constitutes and appoints James R. Reis, James M. Hennessy, Nancy L. Peden,
Michael J. Roland, Jeffrey S. Puretz, and Paul F. Roye, and each of them, his
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him in his name, place and stead, in any and all capacities,
to sign the Fund's registration statement and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: October 23, 1995
/s/ Robert W. Stallings
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
duly elected President of Pilgrim America Masters Series, Inc. (the "Fund"),
constitutes and appoints James R. Reis, James M. Hennessy, Nancy L. Peden,
Michael J. Roland, Jeffrey S. Puretz, and Paul F. Roye, and each of them, his
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him in his name, place and stead, in any and all capacities,
to sign the Fund's registration statement and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: October 23, 1995
ert W. Stallings
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
duly elected Treasurer and Principal Accounting Officer of Pilgrim America
Masters Series, Inc. (the "Fund"), constitutes and appoints Robert W. Stallings,
James R. Reis, James M. Hennessy, Nancy L. Peden, Jeffrey S. Puretz, and Paul F.
Roye, and each of them, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution for him in his name, place and
stead, in any and all capacities, to sign the Fund's registration statement and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and conforming all that said attorneys-in-fact and
agents, or any of them, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: October 23, 1995
s/ Michael J. Roland
<PAGE>
EXHIBIT LIST
Exhibit Number Name of Exhibit
(11) Consent of Independent Auditors
(27) Financial Data Schedule
<PAGE>
KPMG PEAT MARWICK LLP
725 South Figueroa Street
Los Angeles, California 90017
Independent Auditors' Consent
The Board of Directors and Shareholders
Pilgrim America Masters Series, Inc.:
We consent to incorporation by reference in the Pilgrim America Masters Series,
Inc. ("Masters Series") Post Effective Amendment No. 1 to the Registration
Statement Number 33-91706 on Form N-1A under the Securities Act of 1933 and
Amendment No. 2 to the Registration Statement Number 811-9040 on Form N-1A under
the Investment Company Act of 1940 of our report dated June 16, 1995, on the
statements of assets and liabilities of the Pilgrim America Masters Series, Inc.
(comprising, respectively, the Asia-Pacific Equity Fund, MidCap Value Fund and
LargeCap Value Fund) (in organization) as of June 16, 1995. We also consent to
the reference to our firm under the headings "Independent Auditors" in the
prospectus and "General Information" in the Statement of Additional Information
of the Masters Series.
Los Angeles, California /s/ KPMG Peat Marwick LLP
February 28, 1996
<TABLE> <S> <C>
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<NAME> ASIA PACIFIC CLASS A
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<PERIOD-START> SEP-01-1995
<PERIOD-END> DEC-31-1995
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<INVESTMENTS-AT-COST> 7,823,670
<INVESTMENTS-AT-VALUE> 7,900,401
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<OTHER-ITEMS-LIABILITIES> 201,297
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<SENIOR-EQUITY> 0
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<ACCUMULATED-NII-CURRENT> 2,218
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<OVERDISTRIBUTION-GAINS> 12,486
<ACCUM-APPREC-OR-DEPREC> 75,361
<NET-ASSETS> 6,790,404
<DIVIDEND-INCOME> 7,132
<INTEREST-INCOME> 7,132
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<NET-INVESTMENT-INCOME> 2,962
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<AVERAGE-NET-ASSETS> 2,854,100
<PER-SHARE-NAV-BEGIN> 10.00
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<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> ASIA PACIFIC CLASS B
<MULTIPLIER> 1
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<PERIOD-TYPE> 4-MOS
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<INVESTMENTS-AT-COST> 7,823,670
<INVESTMENTS-AT-VALUE> 7,900,401
<RECEIVABLES> 564,666
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<OTHER-ITEMS-ASSETS> 149,840
<TOTAL-ASSETS> 8,615,644
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 201,297
<TOTAL-LIABILITIES> 1,825,240
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,725,311
<SHARES-COMMON-STOCK> 195,688
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,218
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 12,486
<ACCUM-APPREC-OR-DEPREC> 75,361
<NET-ASSETS> 6,790,404
<DIVIDEND-INCOME> 2,355
<INTEREST-INCOME> 2,355
<OTHER-INCOME> 0
<EXPENSES-NET> (5,333)
<NET-INVESTMENT-INCOME> (623)
<REALIZED-GAINS-CURRENT> (12,486)
<APPREC-INCREASE-CURRENT> 75,361
<NET-CHANGE-FROM-OPS> 65,093
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,748,556
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,790,404
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,800
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45,110
<AVERAGE-NET-ASSETS> 2,854,100
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> (0.14)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.86
<EXPENSE-RATIO> 2.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> ASIA PACIFIC CLASS M
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 7,823,670
<INVESTMENTS-AT-VALUE> 7,900,401
<RECEIVABLES> 564,666
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 201,297
<TOTAL-LIABILITIES> 1,825,240
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,725,311
<SHARES-COMMON-STOCK> 99,788
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,218
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 12,486
<ACCUM-APPREC-OR-DEPREC> 75,361
<NET-ASSETS> 6,790,404
<DIVIDEND-INCOME> 2,109
<INTEREST-INCOME> 2,109
<OTHER-INCOME> 0
<EXPENSES-NET> (4,338)
<NET-INVESTMENT-INCOME> (120)
<REALIZED-GAINS-CURRENT> (12,486)
<APPREC-INCREASE-CURRENT> 75,361
<NET-CHANGE-FROM-OPS> 65,093
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 6,748,556
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,790,404
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,800
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45,110
<AVERAGE-NET-ASSETS> 2,854,100
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.87
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 021
<NAME> MIDCAP VALUE CLASS A
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
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<NET-INVESTMENT-INCOME> (206)
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</TABLE>
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<NET-INVESTMENT-INCOME> (881)
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</TABLE>
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<NAME> MIDCAP VALUE CLASS M
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<S> <C>
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<DIVIDEND-INCOME> 250
<INTEREST-INCOME> 249
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<EXPENSES-NET> (601)
<NET-INVESTMENT-INCOME> (102)
<REALIZED-GAINS-CURRENT> (1,747)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29,450
<AVERAGE-NET-ASSETS> 1,116,373
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 031
<NAME> LARGE CAP VALUE FUND CLASS A
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
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<INVESTMENTS-AT-VALUE> 1,985,283
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<OTHER-ITEMS-LIABILITIES> 170,602
<TOTAL-LIABILITIES> 320,305
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,746,556
<SHARES-COMMON-STOCK> 127,260
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,602
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,539
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 79,147
<NET-ASSETS> 1,848,844
<DIVIDEND-INCOME> 5,260
<INTEREST-INCOME> 5,259
<OTHER-INCOME> 0
<EXPENSES-NET> (6,964)
<NET-INVESTMENT-INCOME> 3,555
<REALIZED-GAINS-CURRENT> 19,539
<APPREC-INCREASE-CURRENT> 79,147
<NET-CHANGE-FROM-OPS> 102,288
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,747,391
<NUMBER-OF-SHARES-REDEEMED> (835)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,848,844
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 4,633
<INTEREST-EXPENSE> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> LARGE CAP VALUE FUND CLASS B
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> LARGE CAP VALUE FUND CLASS M
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1996
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</TABLE>
